Notes From The Editor

The Greek philosopher Epictetus, who rose from Roman slavery to become a respected teacher, once said, "It is impossible for anyone to begin to learn what he believes he already knows."

It takes an open and humble mind to learn. On the flip side, prideful arrogance disrupts learning and interferes with our natural curiosity. Narcissistic pride closes minds instead of opening them. It is a psychological and emotional state of mind that distorts perception and leads to self-deceptive actions.

As traders, we can all benefit from an assessment of our knowledge and skill levels. With that information in hand we can quickly add to our positive abilities. The road to improvement never ends, and we're always an apprentice in the art of trading.

Being a student means that we constantly engage the market. Live trading is the field of play where we test and refine our skills. The Risk Control System protects our trading capital and prevents us from getting hurt as we learn.

The key to making money in stocks is to focus on what should be done in response to market movement. This simply involves planning your trades to include all possibilities. When you filter out the market and media noise you'll find that stocks can really only do three simple things;

(1) Move up.
(2) Move down.
(3) Stay the same price.

By selecting stocks that tend to move, the third option rarely lasts for very long - so we generally deal with up or down movement. Instead of spending a lot of time trying to figure out why stocks are going up or down, spend your time planning what you will do when they inevitably DO go up or down. It's much more productive.

Trade well,

- Thomas Sutton, Editor

Quick List

    
Stock     04/24     04/24      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

WW        20.58     -0.31     21.47     19.61        1.86/0.93      3.84
FHI       20.76      0.34     21.23     19.72        1.51/0.76      3.30
FSB       21.10      0.36     21.54     19.92        1.62/0.81      3.02
NTGR      21.65     -0.01     22.48     20.76        1.72/0.86      2.66

The "Quick List" provides a brief summary of each stock write-up and should be taken in the context of the related write-up presented in the "Stocks Covered in This Issue" section of this Report.

Be sure to read "How To Use The RightLine Quick List" and always use the RightLine Risk Control Calculator before entering any position. For access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

For more on controlling risk go to the RightLine Risk Control System

For a glossary of terms unique to The RightLine Report go to: Glossary

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Market Summary

Stocks ended a bumpy week with a bullish session on Friday, as first quarter earnings season and COVID-19 related developments continue to dominate the headlines. The US congress passed economic relief legislation this week containing $484-billion to assist small businesses and the healthcare system in combatting the negative effects of the coronavirus outbreak. Economic news included a drop in consumer sentiment to nine year lows, as durable goods orders decreased more than expected. On the earnings front, Intel Corporation (INTC $59) beat quarterly profits forecasts but withdrew its annual revenue guidance, while Verizon Communications (VZ $58) and American Express (AXP $83) announced mixed results. Gold, the USD/dollar and treasury yields were all lower, crude oil prices finished higher.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    23,775  +260.01         -467    -1.93%
Nasdaq               8,634.52  +139.77       -15.62    -0.18%
S&P 500                 2,837   +38.94          -38    -1.32%

NYSE Volume                      5.48B                       
NYSE Advancers                    1835                       
NYSE Decliners                    1107                       

Nasdaq Volume                    3.72B                       
Nasdaq Advancers                  2154                       
Nasdaq Decliners                  1067                       

                                 New Highs/Lows

                   04/17  04/20  04/21  04/22  04/23  04/24
                 --------------------------------------------
NYSE New Highs        19     19      8     16     21     14
NYSE New Lows         10     14     31     22     18     23
Nasdaq New Highs      41     44     24     30     38     39
Nasdaq New Lows       13     27     41     16     24     23
   

TRADER'S TIP: "Trading Frequency"

"If a strategy is profitable, the more it trades the more money we should make. I apologize for stating what should be obvious but you would be surprised at how often I hear discussions about selecting systems with the highest level of "expectancy" or highest "profit factor" without relating these measurements to the system's trading frequency. Simply stated, our goal should be to show the most profit with the least amount of risk, and trading frequency plays a critical role in maximizing profitability and controlling our risk."

~Chuck Lebeau, Trader and author

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 2836.74 April 24, 2020

52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3094.70
Resistance 2: 2952.82
Resistance 1: 2894.78
Pivot: 2810.94
Support 1: 2752.90
Support 2: 2669.06
Support 3: 2527.17


NASDAQ Composite - 8634.52 April 24, 2020

52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 9450.14
Resistance 2: 8980.92
Resistance 1: 8807.72
Pivot: 8511.70
Support 1: 8338.50
Support 2: 8042.48
Support 3: 7573.26
        
Dow Industrials - 23775.27 April 24, 2020

52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 25942.23
Resistance 2: 24775.42
Resistance 1: 24275.34
Pivot: 23608.61
Support 1: 23108.53
Support 2: 22441.80
Support 3: 21274.99
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, April 27, 2020:
27-Apr          None scheduled

Tuesday, April 28, 2020:
28-Apr  8:30 am   Advance trade in goods
28-Apr  9:00 am   Case-Shiller home price index
28-Apr  10:00 am   Consumer confidence index
28-Apr  10:00 am   Homeownership rate

Wednesday, April 29, 2020:
29-Apr  8:30 am   Gross domestic product
29-Apr  10:00 am   Pending home sales index
29-Apr  2:00 pm   FOMC announcement
29-Apr  2:30 pm   Jerome Powell press conference

Thursday, April 30, 2020:
30-Apr  8:30 am   Initial jobless claims
30-Apr  8:30 am   Employment cost index
30-Apr  8:30 am   Personal income
30-Apr  8:30 am   Consumer spending
30-Apr  8:30 am   Core inflation
30-Apr  9:45 am   Chicago PMI

Friday, May 1, 2020:
01-May  9:45 am   Markit manufacturing PMI
01-May  10:00 am   ISM manufacturing index
01-May  10:00 am   Construction spending
01-May  Varies   Motor vehicle sales (annual rate)

For a chart of typical Up or Down market reactions to specific major US economic reports go to:
Economic Indicator Effects

TRADER'S TIP: "Narrow Range Breakouts"

Stock prices will often become trapped inside of a narrowing price range. This powerful pattern results from a series of lower-highs and higher-lows, which squeeze prices into an ever-tightening pattern. Similar to pressure building up inside of a bottle, the increasing tension between buyers and sellers shifts the price dynamics into "breakout mode." The resulting price move can be very fast and powerful. Once price enters breakout mode, we can reasonably predict that there will soon be an expansion in price volatility - but we can't always predict which direction to enter the potential trade. To solve this dilemma, we prepare both a buy and a sell-short entry, and then let the inevitable price movement "pull" us into the trade.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

WW International, Inc. (WW: Consumer Cyclical/Personal Services) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. WW found itself in this condition on Friday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 21.47 and a SELL short trigger at 19.61. When WW moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 1.86 trailing stop. After you've got a 3.84 profit, tighten the stop to 0.93. WW closed at 20.58 on Friday. Earnings Report Date: Apr 28, 2020. Beta: 2.49. Market-Cap: 1.388B. Optionable.

FINANCIAL SERVICES SECTOR

Federated Hermes, Inc. (FHI: Financial Services/Asset Management) - SQUEEZE PLAY. FHI shareholders know what it feels like to be squeezed. Friday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. FHI closed Friday at 20.76. The plan is to enter in the right direction by placing a BUY trigger at 21.23 and a SELL short trigger at 19.72. Once FHI establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.51. After you've collected a 3.30 profit, tighten the stop to 0.76. Earnings Report Date: N/A. Beta: 1.21. Market-Cap: 2.096B. Optionable.

Franklin Financial Network, Inc. (FSB: Financial Services/Banks-Regional) - SQUEEZE PLAY. The ticker for Friday's session shows FSB is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 21.54 and a SELL short trigger at 19.92. When FSB starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.62 trailing stop. Upon reaching a 3.02 profit, resize the stop to 0.81. Earnings Report Date: Apr 27, 2020. Beta: 1.64. Market-Cap: 313.54M. Optionable.

TECHNOLOGY SECTOR

NETGEAR, Inc. (NTGR: Technology/Communication Equipment) - SQUEEZE PLAY. Friday's trading session left NTGR in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 22.48 and your SELL short trigger at 20.76. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.72 trailing stop. Once you have a 2.66 profit, reduce the stop to 0.86. Earnings Report Date: Jul 22, 2020. Beta: 0.89. Market-Cap: 640.673M. Optionable.

IMPORTANT: Before entering any positions, always use the Risk Control System to determine the level of acceptable risk and the maximum number of shares to buy. Use Gap Adjusted Entries to reset the Entry Price for stocks that gap beyond recommended entry levels.

Stock Splits

Below are the stocks that have announced splits and have recently executed or will execute soon. There is generally a return to normal price behavior in the weeks following a split announcement in what we call a "Dormancy Phase." As the stock nears its split execution date (Effective Date) it often moves into the "Pre-Split Run" stage where quick and sometimes dramatic gains can occur.

                             Announce     Eff.       Split
Company Name     (Symbol)      Date       Date       Ratio   Options  
---------------- -------     --------    -------     ------  -------   

Currently there are no upcoming stock splits on the major US exchanges.
    

Split details are also available online at the RightLine Online Stock Split Calendar. For a detailed look at the different stages of a Stock Split, Click Here.

Trader's Corner

The Squeeze Play

So are you Bullish or Bearish? When it comes to choosing trade setups, it doesn't always have to be one way or the other. Actually, in many cases you are much better off letting the market tell you whether to go long, or to go short, or just stand aside. This is what the Squeeze Play is all about.

Not to be confused with a "short squeeze," the Squeeze Play gets its name from one of the trade setup conditions - an extremely narrow price range which indicates a dramatic drop in volatility. Due to the cyclical nature of volatility, powerful price moves often occur soon after these low-volatility situations.

To begin, let's look at this type of trade setup in a different light than most traders would. Instead of trying to pre-determine which way price will move, we will assume that it could go either direction and plan for both. This means setting aside any expectations we may have for near-term price direction, and letting the upcoming price action determine which way we will enter the trade.

Here is how it works. The Squeeze Play contains both a support and a resistance level which are used to set potential triggers for trade execution. For example, a buy entry is triggered if price moves up and breaks through resistance, while a short sale is triggered if price moves down and breaks below support.

By selecting setups where there is a clearly defined narrow range between the support and resistance levels, we can enter in either direction with very little risk. The low risk comes from the fact that should the initial move fail - price doesn't have to go very far back to confirm that it's time to get out.

Here is an example of a Squeeze Play setup:



Price volatility tends to go through repeating cycles of contraction and expansion. Once price has contracted and "squeezed" into a very narrow range, it invariably begins to expand. This expansion causes price to quickly "break out" of the narrow support & resistance boundaries, and often causes a short-term trend to develop in one direction or the other.

Below is the same chart shown as above - only this one includes the short-term price action after breaking out of the range of the setup bar:



When you first look at a Squeeze Play setup you probably see it as either a long or a short. The only problem is that we don't know which way price will go, so the solution is to let the price action tell us. The narrow range setup bar gives a perfect opportunity to place a low risk stop.

Although the example used in this article is a BUY, the concept works the same way for short sales. If price breaks down through support, then you would enter a SHORT and place an exit stop just above the top of the resistance level.

Squeeze Plays make a trader's job easier because each pattern offers two potential trades. Though this method is very powerful, isn't complicated. The key is to locate low volatility price patterns with clear support & resistance levels that offer reasonable risk and reward potential in either direction. Then you set your entry triggers and stops a calculated distance beyond the S&R levels - simple as that!

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

Disclaimer

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