April 9, 2022 - The RightLine Report
Notes From The Editor
As a rule, the only person who truly cares about your finances is you. There are some exceptions of course, but when it comes to stocks it's rarely a good idea to delegate complete responsibility to someone else.
More than 80% of all individual investors lose money in the stock market. To beat those odds you have to be willing to change your behavior. Just the thought of behavioral change makes most people uncomfortable, and many will do just about anything to avoid it.
Our behavior is caused by our programming. Even avoidance is a programmed behavior. These programs use our memories, recycling them over and over to create our persistent behaviors, both good and bad. This helps explain why intelligent people often do unintelligent things.
One effective way I've found to improve a negative behavior is to change the emotional components associated with the memories that cause the behavior. This includes adding new, positive emotional memories to the old program.
Our "old" programs utilize neural memory structures similar to a database. To upgrade our programming we can intentionally create new memories that will be available in our database. We can do this by intentionally thinking about and experiencing positive feelings while our attention is on the old memories that cause unwanted behavior and feelings.
Intentionally adding a emotionally positive "new" or improved memory to the chain of recurrent memories alters the memory database used by the program. In essence this upgrades the program. Positive changes in trading behavior can occur quickly with this method. Healthy feedback from the new behavior also improves the program, causing the next behavior to be even better.
Since the emotional component is a major part of our memory based programming, changing our behavioral programs requires us to pay attention to our feelings. An important aspect of this approach is to imagine and exercise the preferred "new" action (with positive emotional feelings) while at the same time putting our attention on the negative behavior and feelings.
Since it's impossible to think of two separate things at exactly the same time, simply place your attention on one of them for about five to ten seconds, the shift your attention to the other for the same amount of time. Rotate back and forth between the two several times, then go about your normal activities.
The whole procedure takes less than a minute. You will likely begin to notice a change in your thinking and awareness right away. To make a permanent change in your programming normally requires doing the procedure several times during the following weeks, especially if you exhibit the old programmed behavior or notice any related negative feelings. Also note that deeply imbedded negative programs may take longer to upgrade, so be persistent and extremely patient with yourself.
Trade well,
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 04/08 04/08 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
TDW 21.90 0.48 22.48 20.95 1.53/0.77 2.8
ISEE 17.46 0.01 18.21 1.71/0.86 2.1
CERT 20.90 -0.12 20.1 1.52/0.76 2.42
WLDN 29.01 -0.23 30.01 28 2.01/1.01 4.34
AI 20.79 -0.50 21.62 19.86 1.76/0.88 3.12
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.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
The top US stock indices were mixed on Friday as the Dow Jones Industrial Average finished higher and the S&P 500 Index and the Nasdaq Composite both declined, closing out the first full week of the quarter with a weekly loss. The catalysts for the slightly bearish sentiment included the potential impact of aggressive Fed monetary policy tightening and the ongoing war in Ukraine. A light economic calendar and similar equity news featured rising wholesale inventories and a positive earnings report from WD-40 Company (WDFC $187) that sent the share price soaring higher. Gold, oil prices and the USD/dollar advanced higher, while treasuries extended losses, moving yields higher. The treasury yield curve continues to be in focus following the recent steepening that reversed an prior inversion of the curve which led to market concerns about a possible upcoming recession. For now treasuries are back in "normal" mode, but all eyes are still on this finicky indicator.
Friday On The Week
-------------------- --------------------
Dow 34,721.12 137.55 -97.15 -0.28%
Nasdaq 13,711.00 -186.30 -550.5 -3.86%
S&P 500 4,488.28 -11.93 -57.58 -1.27%
NYSE Volume 4.06B
NYSE Advancers 1,475
NYSE Decliners 1,825
Nasdaq Volume 4.5B
Nasdaq Advancers 1,777
Nasdaq Decliners 2,942
New Highs/Lows
04/01 04/04 04/05 04/06 04/07 04/08
--------------------------------------------
NYSE New Highs 111 99 122 71 68 117
NYSE New Lows 76 47 116 271 261 215
Nasdaq New Highs 75 81 74 57 77 81
Nasdaq New Lows 130 80 156 308 276 266
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Sizzlin' Outside? Stay Cool!"
Has the stock market and the summer heat got your emotions running hot? Chill out, and remember that though we have no control over what the market does, we do have complete control over how we respond to it. Getting angry when the market doesn't co-operate with our wishes doesn't change price action, yet the emotional stress from anger has the potential to cloud our judgment and cause us to make unwise decisions.
To avoid this sort of reaction, we can accept the fact that the market is not trying to hurt us, and for that matter is not even aware that we exist. Our reaction won't change the market, but it WILL determine whether we ultimately win or lose money in the business of trading. Stay cool, and when things get too warm, relax by the pool!
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".
S&P 500 - 4488.28 April 8, 2022
52-Week High: 4818.62
52-Week Low: 4056.88
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4797.41
Resistance 2: 4654.00
Resistance 1: 4571.14
Pivot: 4510.59
Support 1: 4427.73
Support 2: 4367.18
Support 3: 4223.77
NASDAQ Composite - 13711.00 April 8, 2022
52-Week High: 16212.23
52-Week Low: 12555.35
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15668.50
Resistance 2: 14823.35
Resistance 1: 14267.17
Pivot: 13978.20
Support 1: 13422.02
Support 2: 13133.05
Support 3: 12287.90
Dow Industrials - 34721.12 April 8, 2022
52-Week High: 36952.65
52-Week Low: 32272.64
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 36517.28
Resistance 2: 35596.02
Resistance 1: 35158.57
Pivot: 34674.76
Support 1: 34237.31
Support 2: 33753.50
Support 3: 32832.24
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, April 11, 2022: 11-Apr 11 am NY Fed median 1-year expected inflation 11-Apr 11 am NY Fed median 3-year expected inflation Tuesday, April 12, 2022: 12-Apr 6 am NFIB small-business index 12-Apr 8:30 am Consumer price index (monthly) 12-Apr 8:30 am Core CPI (monthly) 12-Apr 8:30 am CPI (year-over-year) 12-Apr 8:30 am Core CPI (year-over-year)) 12-Apr 2 pm Federal budget deficit Wednesday, April 13, 2022: 13-Apr 8:30 Producer price index, final demand Thursday, April 14, 2022: 14-Apr 8:30 am Initial jobless claims 14-Apr 8:30 am Continuing jobless claims 14-Apr 8:30 am Retail sales 14-Apr 8:30 am Retail sales excluding motor vehicles 14-Apr 8:30 am Import price index 14-Apr 10 am UMich consumer sentiment index (preliminary) 14-Apr 10 am UMich 5-year inflation expectations (preliminary) 14-Apr 10 am Business inventories Friday, April 15, 2022: 15-Apr 8:30 am Empire state manufacturing index 15-Apr 9:15 am Industrial production index 15-Apr 9:15 am Capacity utilization For a chart of typical Up or Down market reactions to specific major US economic reports go to: Economic Indicator Effects
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "When's The Next Flight To Vegas?"
Many traders are just gamblers - they throw money at the market with no real plan or method. Sometimes they win big, and sometimes they lose big, but ultimately they lose it all. Technical analysis and risk control gives us an edge that can be used within a disciplined routine to avoid the gambler's trap. There's no need for gambling or impulsive trading when your decision-making process is based on specific rules.
Stocks Covered in This Issue
ENERGY SECTOR
Tidewater Inc. (TDW: Energy/Oil & Gas Equipment & Services) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into TDW. A move to the upside will trigger our BUY entry at 22.48, while a drop to 20.95 will trigger our SELL short entry. Follow your position with a 1.53 trailing stop. Tighten the stop to 0.77 once you have a 2.8 gain. TDW closed Friday at 21.90. Earnings Report Date: May 04, 2022. Beta: 1.51. Market-Cap: 909.246M. Optionable.
HEALTHCARE SECTOR
IVERIC bio, Inc. (ISEE: Healthcare/Biotechnology) - NEW HIGH DIP. Friday's price action is telling us that ISEE is preparing to move back up to the 52-week high that was set just a few days ago. Our BUY trigger at 18.21 is ready to take advantage of a likely bounce from the current support level. Once your order is filled, enter a trailing stop of 1.71. Resize the stop to 0.86 after you reach a 2.1 profit. Earnings Report Date: May 03, 2022. Beta: 1.45. Market-Cap: 2.021B. Optionable.
Certara, Inc. (CERT: Healthcare/Health Information Services) - BEARISH U-TURN. Despite the fact that Bears have shown the ability to force CERT into a painful downtrend, recent bullish action has provided shareholders with some welcome relief. However, the upward reprieve may now be about to end. Friday's intra-day price reaction near Moving Average resistance signals an increased probability that CERT will head lower in the near term. CERT now sits at 20.90. Prepare to sell shares SHORT if the weakening price reaches our trigger at 20.1. Place a 1.52 trailing stop after you enter, then reduce it to 0.76 when you've gained 2.42. Earnings Report Date: May 04, 2022. Beta: N/A. Market-Cap: 3.337B. Optionable.
INDUSTRIALS SECTOR
Willdan Group, Inc. (WLDN: Industrials/Engineering & Construction) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In WLDN's case we will enter a BUY should it reach the 30.01 level, or a SELL short trade if it drops to 28. As usual a trailing stop is essential, 2.01 which should be tightened to 1.01 on a 4.34 gain. WLDN closed Friday at 29.01. Earnings Report Date: N/A. Beta: 1.22. Market-Cap: 372.961M. Optionable.
TECHNOLOGY SECTOR
C3.ai, Inc. (AI: Technology/Information Technology Services) - SQUEEZE PLAY. AI is caught in a dilemma. The stock's compressed price range on Friday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. AI is now at 20.79. We can capture price action either way by placing a BUY trigger at 21.62 and a SELL short trigger at 19.86. Once AI reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.76. When you acquire a 3.12 profit, tighten the stop to 0.88. Earnings Report Date: May 31, 2022. Beta: N/A. Market-Cap: 2.211B. 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.
Stocks Covered Today Stock Splits Trader's Corner
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
---------------- ------- -------- ------- ------ -------
ACM Research ACMR 3/4/2022 3/24/2022 3-for-1 Yes
PAM Transport PTSI 3/9/2022 3/30/2022 2-for-1 Yes
Amazon AMZN 3/9/2022 6/6/2022 20-for-1 Yes
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Stop Loss Questions And Answers - Part II
I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills.
What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement.
We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all those folks who bought tech stocks in the late 1990s.
I've compiled a question-and-answer session that addresses the most important elements of stop-loss strategy.
Q: I want to hold on to a trade as long as the pattern stays intact. So I place my stop loss just outside the edge of the pattern. But what do I do when price breaks out in my favor for a bar or two and then falls back into the pattern?
A: You need to exit right away after a false breakout or breakdown, regardless of where you've placed your stop loss. The false move creates overhead supply (or underlying demand in a short sale) and raises the odds the pattern will break the other way. This is classic pattern-failure dynamics.
Rigid stop-loss placement with global rules undermines good trade management. Management is more important than knowledge and all the technical analysis in the world. You have to be a manager of your trades and your trading style. That gives you the courage to re-enter good positions when you get blown out of them, if and when conditions change.
Q: A stock breaks out and moves in my favor, but my stop gets hit most of the time on a pullback. How can I avoid this?
A: This scenario illustrates the major problem traders face when they chase breakouts. For example, you get a breakout and a strong move in your favor. You're taught to protect profits, so you place a stop-loss that guards some of the gains in anticipation of making more money when the stock runs. But the nature of price mechanics suggests that after an initial rally, a stock will pull back to test the original breakout level.
Both of your stop-loss choices have problems. First you protect profits with a trailing stop, but you risk getting hit when price pulls back to the breakout level. Second, you place the stop under the breakout level, but then you turn a winner into a loser. This also adds risk, because pullbacks often overshoot support-resistance just to get to the stops that are buried there.
The pullback from a rally is a two-edged sword, because it's a buy signal and a stop-loss level at the same time. In other words, if I'm already positioned I feel the need to sell, but if I'm not positioned, I feel the need to buy. The solution is counterintuitive and simple. Train yourself to avoid breakout entries and instead trade pullback entries.
Q: Should I lift my stop-loss when I know the stock will gap against my position when it opens?
A: I usually lift the stop-loss, but every case is different. Watch the pre- and postmarket trading, and see how much pressure the stock faces and whether it's trading above or below major support-resistance. The ability to hold higher price levels predicts that the stock will stabilize when the market opens. Keep in mind that New York Stock Exchange stocks may give few clues in extended hours.
When there's news that could affect the stock, I pull the stop loss and keep the position through the open. Then I try to hold for the first 10 to 15 minutes to see if it reverses or runs. If the stock starts to run or breaks a large support-resistance level, I get out immediately. The strategy can lead to a larger loss, but it's a tradeoff, because the gap prints the high or low for the day more than 70% of the time.
Q: Do market insiders see our stop-loss orders and purposely try to trigger them?
A: Some brokers hold stops locally, while others send them out to the "floor." But it doesn't really matter whether insiders see them or not because they know where you'll place them, even if they're not physical. Millions of traders came before you and applied the same logic to stop placement that you do every day. So unless you find a more creative way to accomplish this task, you'll wind up selling at the worst possible price anyway.
Q: Once a trade turns profitable, when do I adjust the stop loss to ensure I won't take a loss? And thereafter, if the trade continues in my favor, what rule do I use for trailing stops?
A: I figure an amount of initial wiggle room based on my goals for the trade. If the reward target is several points away, the stock needs to move around a lot, and I don't want to get in its way. If it's a small trade, I don't want to lose a penny after I get the first thrust away from my entry price.
The best strategy as the trade evolves is to use support-resistance on the 60-minute chart to move your trailing stop. For example, you get your rally and the stock congests for a few bars. When price breaks even higher, move your stop behind the last congestion pattern. This way, price needs to break the smaller support before it hits your trailing stop.
Get more aggressive as the stock approaches your reward target. Shift your strategy after the price passes 75% of the distance between your entry and intended exit. At that point, there's no sense risking a bundle in order to make a few pennies. Move the stop in close so any small reversal takes you out of the trade.
Q: How can we trade profitably with stop-gunning games going on all the time?
A: Stop-running or stop-gunning (both terms are used) occurs when a price is pushed through support or resistance in order to trigger the stops that are hiding there. After the stop supply is exhausted, the market bounces back in the other direction, usually winding up where it was before the exercise began.
You only have two choices if you're positioned before a stop-gunning exercise. First, keep the stop-loss outside commonly targeted price levels. This is tough to do because it adds a lot of risk to the trade. Second, keep the stop loss in very close and take another position after the stop-gunning is over.
Look to step into stop-gunning games from the sidelines rather than being a sitting duck with a position bought or sold at a dangerous level. You can often get dramatic fills with good timing during these games.
Q: Why do I always place my stop loss at an exact high or low?
A: You're describing a condition known as trader's disease. It's caused by the market tendency to gravitate toward the price that causes the most pain. Options traders are especially vulnerable to this affliction. It's not really sinister, it's just the nature of the market.
Start by realizing that volatile stocks can't be traded with tight and scientific stops, because all their support-resistance levels are channeled. This pushes a stock back and forth through common stop levels but keeps the ongoing trend intact. If you get up close to a price chart, you'll notice there's large bar-to-bar overlap most of the time. This makes it hard to get your move without getting shaken out.
Q: How can I keep my stop loss from getting hit all the time on Nasdaq tech stocks?
A: Keep your size down when trading volatile stocks. Before you trade, ask yourself how far that stock can move in its natural wiggle. This quick analysis takes a long time to master and is complicated by the tendency of market volatility to change from day to day. You can also avoid getting your stops hit by picking lower-beta stocks to trade. This means avoiding most four-letter stocks.
Q: When should I use a stop-limit order?
A: I never use a stop limit on anything. It's too easy for the stock to go right through your price, not get filled, and trigger a deeper loss. When you want out, you want out. When you need to get out, you need to get out.
A regular stop-loss order becomes a market order when price trades through it. This gives you more control than a stop-limit order, as long as you choose your stock wisely. Keep in mind the more volatile the stock, the wider the potential loss will be on this type of order. When possible, pick lower-volatility stocks that will hit your stop and trigger at that price, without slippage.
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This guest article was written by Alan Farley, author of "The Master Swing Trader." If you haven't already, be sure to read "Stop Loss Questions And Answers - Part I" in last weekend's issue of the RightLine Report.
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.
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