Notes From The Editor

I'm a sports fan, and I can't help but notice a few similarities between sports and stock trading. Preconceived notions, in particular, are very common in both worlds. They're also proved wrong on a regular basis.

Of all the assumptions that traders sometimes make, few are more problematic than thinking that a stock "can't go any higher" or "there's no way it'll keep dropping." Stocks can - and will - make huge moves that seem almost unreasonable in their magnitude. These price swings can take on a life of their own when momentum builds and the basic emotions of hope or greed take over.

Fortunately, speculation alone isn't enough to damage an account. As traders, we constantly place bets on what an equity will do. The problem arises when these assumptions replace risk management.

It can be a slippery slope, for example, when a stock sells off. Rather than simply take a manageable loss and move on to another trade, one waits for the day when the stock will finally turn around and retrace its decline. Sometimes that day never comes.

Psychological assumptions can also impact trading. Think of the feeling of invincibility during a winning streak, or the feeling of hopelessness after several losing trades. While it's human nature to feel these emotions, it's also crucial to not let them determine stop placement, position sizing, and other key decisions.

You can flip a coin 10 times and come up with 10 consecutive tails. Despite the streak, there's still a 50/50 chance of the next flip coming up heads. Similarly, prior trades have absolutely no bearing on what will happen next.

Although this all seems to be common sense and obvious, it's important to keep in mind because assumptions are pervasive and can quietly creep into your head. How many times have you heard something like "this team has never lost an away game played in cloudy weather when the temperature was below 40 degrees"? It's all too easy to place too much emphasis on past results, rather than the contest at hand.

Sports fans are used to hearing plenty of this sort of analysis - along with loads of other breathless hype. But in the end, the score is all that counts. For traders, guarding against preconceived notions will increase the odds of consistently scoring points in the market.

Trade well,

Kent Barton
Senior Analyst

Quick List

    
Stock     04/26     04/26      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

PNTG      20.78      0.47     21.07                  1.37/0.69      1.83
DNTH      21.50      0.51     22.09     20.06        2.03/1.02      1.75
AVTE      21.75      0.18     22.64     20.48        2.16/1.08      1.55
AI        22.83      0.67     23.14     21.41        1.73/0.87      1.68
PRAA      24.11      0.23     24.72     23.08        1.64/0.82      1.77

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 more on controlling risk go to the RightLine Risk Control System

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

Questions? Send us an email using our Contact Form.

Market Summary

Stocks surged on Friday, buoyed by robust earnings reports from tech giants Alphabet (Google) and Microsoft, along with US inflation data that met expectations. Despite a tumultuous week, the S&P 500 rallied over 2.6%, marking a strong weekly performance. However, April is poised to be the first losing month of the year for major indexes, signaling the onset of a correction fueled by uncertainty surrounding Fed rate cuts and inflation trends, which stirred volatility in both equity and bond markets. Although Treasury yields retreated on Friday, they are set to register significant gains for the month, with the 2-year Treasury yield climbing from approximately 4.6% to 5.0%, hitting yearly highs.

The resurgence in market sentiment was propelled by the impressive earnings reports from Alphabet and Microsoft, which showcased robust growth in their artificial intelligence (AI) businesses and signaled plans for further expansion in the coming year. Notably, Google announced its inaugural cash dividend, underscoring the ability of large-cap tech firms with strong balance sheets to reward shareholders, particularly amid rising interest rates.

With nearly half of S&P 500 companies having reported Q1 earnings, 80% have exceeded expectations, bolstering confidence in the market. Although Q1 earnings growth is tracking slightly below forecasts, full-year expectations for 10.5% earnings growth remain intact, driven by growth and value sectors.

All eyes were on Friday's personal consumption expenditure (PCE) inflation report following recent above-expectation CPI and PPI figures. Fortunately, March's PCE inflation figures aligned with expectations, providing some relief to investors. While headline PCE inflation matched forecasts with a 0.3% month-over-month increase, annual inflation slightly exceeded expectations at 2.7%. Core PCE inflation, excluding food and energy, also met expectations with a 0.3% monthly rise and a 2.8% year-over-year increase. Services inflation emerged as a significant driver, surging 4%, while goods inflation saw a modest 0.1% uptick in March. Despite elevated inflation in Q1, drivers like energy and commodities have cooled in recent weeks, suggesting a potential easing of inflationary pressures. Looking ahead, we anticipate some bumps in achieving the target of around 2.5% inflation or lower, but we remain relatively confident in the trajectory of disinflation.

                      Thursday               On The Week      
                  --------------------   --------------------
Dow                  38085.80  -375.12      +312.97     0.83%
Nasdaq               15611.76  -100.99        -8.53    -0.05%
S&P 500               5048.42   -23.21       +36.46     0.73%

NYSE Volume                      3.95B                       
NYSE Advancers                     839                       
NYSE Decliners                   1,975                       

Nasdaq Volume                    4.74B                       
Nasdaq Advancers                 1,403                       
Nasdaq Decliners                 2,771                       

                                 New Highs/Lows

                   04/18  04/19  04/22  04/23  04/24  04/25
                 --------------------------------------------
NYSE New Highs        12     13     29     64     58     44
NYSE New Lows         58     38     44     15     30     48
Nasdaq New Highs      21     34     42     59     61     40
Nasdaq New Lows      239    209    188     87    121    206
   

TRADER'S TIP: "Pros At The Close"

Wall Street regulars have a saying that "amateurs control the open, but pros control the close." The "amateurs" they are talking about represent the "retail" orders that brokerage firms place on behalf of Joe Q. Public the first thing every morning. While these early orders reflect what the average investor thinks about the prospects of the market, professionals will usually determine the market direction by day's end.

What happens on the close is very important, because it often gives a clue of what to expect the next session. The odds are strong that whatever happens at the close will continue into the following day. Bulls like to see the close occur at or near the high of the session, while Bears would rather see a slide into the final bell. Either way, it's always a good idea to check price action into the close.

The Technical Analyst

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

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, APRIL 29					
None scheduled				
TUESDAY, APRIL 30					
8:30 am	Employment cost index	
9:00 am	S&P Case-Shiller home price index 
9:45 am	Chicago Business Barometer (PMI)	
10:00 am	Consumer confidence	

WEDNESDAY, MAY 1					
8:15 am	ADP employment	
10:00 am	Construction spending	
10:00 am	ISM manufacturing	
10:00 am	Job openings	
2:00 pm	FOMC interest-rate decision				
2:30 pm	Fed Chair Powell press conference				
5:30 pm	Auto sales	

THURSDAY, MAY 2					
8:30 am	Initial jobless claims	
8:30 am	U.S. trade deficit	
8:30 am	U.S. productivity	
8:30 am	U.S. unit-labor costs	
10:00 am	Factory orders	

FRIDAY, MAY 3					
8:30 am	U.S. employment report	
8:30 am	U.S. unemployment rate	
8:30 am	U.S. hourly wages	
8:30 am	Hourly wages year over year			
10:00 am	ISM services		
7:45 pm	Chicago Fed President Austan Goolsbee speech				
8:15 pm	New York Fed President John Williams speech

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

TRADER'S TIP: "Learn As You Earn"

Short term trading is a great teaching vehicle. Through repetition we quickly learn how to select the correct number of shares for each position, and how to control risk using stops. We also rapidly learn how to trade in harmony with the trend, and become adept at managing each trade on its own merits.

Stocks Covered in This Issue

The Pennant Group, Inc. (PNTG: Healthcare/Medical Care Facilities) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. PNTG's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 21.07. Use a 1.37 trailing stop, which should work well with PNTG's typical daily range. Tighten it to 0.69 on a 1.83 profit. PNTG closed at 20.78 on Friday. Earnings Report Date: May 6, 2024. Beta: 2.06. Market-Cap: 631.529M. Not Optionable.

Dianthus Therapeutics, Inc. (DNTH: Healthcare/Biotechnology) - 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. DNTH 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 22.09 and a SELL short trigger at 20.06. When DNTH 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 2.03 trailing stop. After you've got a 1.75 profit, tighten the stop to 1.02. DNTH closed at 21.50 on Friday. Earnings Report Date: May 13, 2024. Beta: --. Market-Cap: 630.995M. Not Optionable.

Aerovate Therapeutics, Inc. (AVTE: Healthcare/Biotechnology) - SQUEEZE PLAY. AVTE 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. AVTE closed Friday at 21.75. The plan is to enter in the right direction by placing a BUY trigger at 22.64 and a SELL short trigger at 20.48. Once AVTE establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 2.16. After you've collected a 1.55 profit, tighten the stop to 1.08. Earnings Report Date: May 13, 2024. Beta: 1.23. Market-Cap: 606.02M. Not Optionable.

C3.ai, Inc. (AI: Technology/Software - Application) - SQUEEZE PLAY. The ticker for Friday's session shows AI 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 23.14 and a SELL short trigger at 21.41. When AI 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 1.73 trailing stop. Upon reaching a 1.68 profit, resize the stop to 0.87. Earnings Report Date: May 29, 2024. Beta: 1.69. Market-Cap: 2.786B. Not Optionable.

PRA Group, Inc. (PRAA: Financial Services/Credit Services) - SQUEEZE PLAY. Friday's trading session left PRAA 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 24.72 and your SELL short trigger at 23.08. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.64 trailing stop. Once you have a 1.77 profit, reduce the stop to 0.82. Earnings Report Date: May 6, 2024. Beta: 1.46. Market-Cap: 946.252M. Not 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  
---------------- -------     --------    -------     ------  -------   

NOTE: The number of stock split announcments goes up during Bull markets, 
and goes down during Bear market cycles. There are currently no upcoming 
stock splits that meet RightLine's proprietary criteria for split ratio, 
trading volume and price action.      

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

"Two-Way Trading"

Years ago I attended a trading seminar that featured a simulated trading contest. There were approximately thirty traders who participated, with experience ranging from beginner to top professional. The larger group was randomly divided into seven or eight smaller groups, and each team competed for the top prize. A daily stock chart with several weeks of data was displayed on the screen at the front of the room. The chart had no symbol or date - only price, volume, and a MACD histogram. There was no way to tell how old the chart was or what time period it covered.

The contest rules were simple. Everyone was given a few minutes to review and discuss the chart in their small group, then write down whether they would go long, short, or stand aside. Each team had to give the specific setup for their entry - such as "if price rises to 20, then buy shares and place a 1-point trailing stop" or perhaps "if price drops down to the 50 day moving average, then rises to close above the high of that same bar, enter a buy order .25 above the close and place a 2-point trailing stop.

About a dozen charts were reviewed, each team's criteria were applied, and the results were calculated. There were various degrees of success, but one team's performance went well beyond the rest. Oddly, the top team was made up of three beginners who had absolutely no experience trading, and one veteran trader who had been in the business for many years. It was obvious that the three "rookies" didn't come up with the winning strategy, so later that day I asked the veteran trader if we could get together and talk about the different aspects of his approach and why it was so effective. What I learned during that meeting and in follow up conversations had a huge positive impact on my personal trading.

When it comes to evaluating trade setups, it doesn't always have to be one way or the other. Actually, in many cases you are much better off if you let the market decide whether you should go long, or go short, or stand aside. This is what I call "two-way trading."

To begin, you have to look at trade setups in a different light. Instead of trying to pre-determine which way price will move, assume that it could go in either direction and plan for both. This requires us to set aside our directional expectations. When you look at a price pattern you probably see it as either a long or a short, but the odds are good that it will work in either direction. The only problem is that we don't know which way it will go, so the solution is to let the price action tell us.

Here is how it works. The best price patterns usually contain two distinct support and resistance levels, or what some traders call pivot points. "Two-Way Trading" considers both of these levels when setting triggers for trade execution. For example, a buy entry is triggered if prices move up and break through resistance, while a short sale is triggered if prices move down and break below support.

By selecting setups where the support and resistancelevels are clearly defined, the trade can be entered with very little risk. The low risk comes from the fact that should the initial move fail, price doesn't have to move very far back to confirm that it's time to get out.

The support and resistancelevels can be either horizontal or trending - both work very well. Some of the best setups occur when prices are squeezed within a narrowing range of support and resistance, such as in a triangle formation. These sorts of trending support and resistancelevels aren't as obvious to the untrained eye, but they can provide excellent opportunities that most traders miss.

The potential up-moves and down-moves for each Two-Way Trade contain different reward/risk ratios, and in most cases a move in one direction offers considerably more profit potential than the other. I sometimes come across setups where one side appears to have a superior chance of being triggered but there is very little reward potential, while a move in the opposite direction appears unlikely but would be a huge winner if it did take place.

Two-Way Trading makes a trader's job easier because each pattern offers two potential trades. Though this method is very powerful, it isn't overly complicated. You locate price patterns with clear support and resistancelevels that offer reasonable risk and solid reward potential in either direction, then set your entry triggers and stops near the support and resistancelevels - simple as that!

~ Thomas Sutton

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available in the RightLine Member's Area.

Disclaimer

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