Notes From The Editor

One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm not talking about some pseudo-philosophical mumbo jumbo here, but real life lessons and skills that come in handy every day.

Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:

* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.

* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.

* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.

* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.

I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     08/09     08/09      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

HRL       32.03      0.06     32.52                  1.89/0.95      1.18
BMY       46.72     -0.13     48.31                  3.22/1.61      2.66
TYRA      20.08     -0.26     20.83     19.44         1.39/0.7      2.96
STVN      20.39      0.21     20.73     19.01        1.72/0.86      2.38
NRC       21.18      0.13     21.73     20.15        1.58/0.79      1.76

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 closed the week nearly where they ended the previous Friday, after a turbulent period marked by the largest drop since 2022 on Monday and then the year's most significant single-day rebound on Thursday. The chaos began with a global selloff on Monday that battered all major US indexes, briefly sending the Cboe Volatility Index to its highest levels since the pandemic and causing Treasury yields to plunge. The initial shock stemmed from a sharp decline in Japan's Nikkei index, which was triggered by a strengthening yen and concerns over US economic growth. This sentiment spread to Asia and Europe as trading began for the week.

Despite the recovery since then, Monday's events may not be dismissed as a mere anomaly. Growing concerns about the economy's health in a high-interest-rate environment have emerged, especially after last Friday's data showed fewer job creations than anticipated for July, accompanied by a rise in the unemployment rate.

Investors are now factoring in a nearly 52% chance that the Federal Reserve will cut its benchmark rate by 0.5% at its next meeting, according to the CME FedWatch Tool. Just a few weeks ago, expectations were for a smaller 0.25% reduction.

Additionally, enthusiasm for artificial intelligence (AI), which had driven significant gains for major tech and chip companies throughout the year, appears to be waning. Ongoing tensions and conflicts in the Middle East also contribute to market unease.

Next week will provide more insight. The economic data calendar is packed, with the Producer Price Index (PPI) scheduled for release on Tuesday, the Consumer Price Index (CPI) on Wednesday, and retail sales to follow on Thursday morning.

Concerns that the Fed might be cutting rates too late, combined with the Japanese yen trade unwind which sparked global technical selling, have eroded investor confidence. This shift has swiftly transformed sentiment from complacency to fear. While ongoing volatility can be driven by growth concerns, election-related uncertainty, and escalating geopolitical risks, particularly as we approach a seasonally weaker period of the year, the fundamental outlook remains positive. Inflation is nearing target levels, giving the Fed some leeway to ease; the economy is still expanding, though at a slower rate. Productivity is improving and corporate earnings are on the rise. We see market pullbacks as opportunities to rebalance, diversify, and invest new capital.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 39,497.54    51.05      -239.72     -0.6%
Nasdaq              16,745.30    85.28       -30.86    -0.18%
S&P 500              5,344.16    24.85         -2.4    -0.04%

NYSE Volume                      3.52B                       
NYSE Advancers                   1,445                       
NYSE Decliners                   1,325                       

Nasdaq Volume                     5.8B                       
Nasdaq Advancers                 1,899                       
Nasdaq Decliners                 2,199                       

                                 New Highs/Lows

                   08/02  08/05  08/06  08/07  08/08  08/09
                 --------------------------------------------
NYSE New Highs       158     42     49     99     35     47
NYSE New Lows        116    221     54     58     48     54
Nasdaq New Highs     111     90     44     47     51     57
Nasdaq New Lows      330    594    144    191    195    155
   

TRADER'S TIP: "Charles Dow's Three Trends"

Charles Dow - who developed the Dow Jones Averages - taught that there are always three "trends" occurring in the stock market at the same time.

~ The first trend is the Primary Trend, which can be either bullish or bearish. These trends tend to last anywhere from a year up to several years, and can sometimes run for much longer.

~ The next trend is the Secondary Trend. These "counter trends" move in the opposite direction to the Primary Trend, and usually last anywhere from a week to a few months. They present themselves as rallies in Bear markets and pullbacks, or corrections in Bull markets. Secondary trends will often retrace between one-third to two-thirds of the most recent prior secondary trend.

~ The third trend is the Minor Trend. These are the very short-term intra and inter day trends that Dow referred to as "Tertiary Movements." Though it may seem like a paradox at first, it's easy to see these three separate trends at work simultaneously when looking at stock charts in monthly, weekly, daily, and intra-day time frames.

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, AUG. 12					
2:00 pm	Monthly U.S. federal budget	

TUESDAY, AUG. 13					
6:00 am	NFIB optimism index	
8:30 am	Producer price index	
8:30 am	Core PPI	
8:30 am	PPI year over year			
8:30 am	Core PPI year over year				

WEDNESDAY, AUG. 14					
8:30 am	Consumer price index	
8:30 am	CPI year over year				
8:30 am	Core CPI	July			
8:30 am	Core CPI year over year				

THURSDAY, AUG. 15					
8:30 am	Initial jobless claims				
8:30 am	Empire State manufacturing survey	
8:30 am	Philadelphia Fed manufacturing survey	
8:30 am	U.S. retail sales	
8:30 am	Retail sales minus autos	
8:30 am	Import price index	
8:30 am	Import price index minus fuel	
9:15 am	Industrial production	
9:15 am	Capacity utilization	
10:00 am	Business inventories	

FRIDAY, AUG. 16					
10:00 am	Consumer sentiment (prelim)	
8:30 am	Housing starts	
8:30 am	Building permits	
10:00 am	Home builder confidence index

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

TRADER'S TIP: "Sometimes You Gotta . . ."

The fear of "missing out" can cloud a trader's judgment, so be sure to base all buy or sell decisions on careful planning instead of emotional reactions. The market is full of opportunities - there's plenty for everyone. Rushing in can lead to problems, so remember the old saying . . . "sometimes you gotta slow down to go fast!"

Stocks Covered in This Issue

CONSUMER DEFENSIVE SECTOR

Hormel Foods Corporation (HRL: Consumer Defensive/Packaged Foods) - BULLISH BOUNCE. Positive price behavior near moving average support on Friday qualifies HRL for a Bullish Bounce setup. After several sessions of declining prices, HRL should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if HRL moves up to our entry trigger set at 32.52. You can also enter a 1.89 trailing stop, to be replaced with a 0.95 trailing stop when you obtain a 1.18 profit. HRL closed Friday at 32.03. Earnings Report Date: Sep 4, 2024. Beta: 0.24. Market-Cap: 17.562B. Optionable.

HEALTHCARE SECTOR

Bristol-Myers Squibb Company (BMY: Healthcare/Drug Manufacturers - General) - NEW HIGH DIP. The price momentum required to set a new high doesn't usually disappear over night. Traders can capitalize on this fact by entering positions when stocks making new highs pull back to a support level, then follow the pullback with signs of bouncing higher. BMY meets the setup criteria, so get ready to BUY into this outstanding performer at 48.31. Enter a trailing stop of 3.22 when your order is filled, then tighten it to 1.61 on a 2.66 gain. Earnings Report Date: Oct 31, 2024. Beta: 0.44. Market-Cap: 94.72B. Optionable.

Tyra Biosciences, Inc. (TYRA: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in TYRA, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 20.83 and a SELL short entry at 19.44. Let TYRA's price action determine your long or short entry. Once the order is filled, place a 1.39 trailing stop, and tighten it to 0.7 upon getting a 2.96 gain. TYRA closed Friday at 20.08. Earnings Report Date: N/A. Beta: 1.02. Market-Cap: 1.06B. Optionable.

Stevanato Group S.p.A. (STVN: Healthcare/Medical Instruments & Supplies) - SQUEEZE PLAY. A look at STVN's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 20.73 and a SELL short trigger at 19.01. Once STVN shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.72 and tighten to 0.86 on a 2.38 gain. STVN closed Friday at 20.39. Earnings Report Date: N/A. Beta: 0.58. Market-Cap: 5.564B. Optionable.

National Research Corporation (NRC: Healthcare/Health Information Services) - SQUEEZE PLAY. Friday's trading action forced NRC's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction NRC will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 21.73 if NRC moves higher, and place your order to SELL short at 20.15 if price declines to that level. As usual follow your entry with a trailing stop, 1.58 should be sufficient. Reduce your stop to 0.79 on a 1.76 gain. NRC closed Friday at 21.18. Earnings Report Date: Nov 5, 2024. Beta: 0.51. Market-Cap: 505.594M. 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

Practice Your Exit Strategy

It's easy to get into the market, but what about getting out? Most traders don't have an exit plan, whether their positions are turning a profit or going down in flames. The truth is that a good exit will save your neck on a bad entry, and keep you in the game longer than good stock-picking.

Exit planning must deal with the good, the bad and the ugly. In other words, keep a profit protection strategy to exit winning trades, a stop loss strategy to get out of bad ones and a fire drill in case disaster strikes. You'll need all three tactics in every trade, because anything can happen once you hit the order button.

Your holding period guides the profit side of the exit equation. Always seek the reward target that matches your time in the market. In other words, trade the most profitable move from your entry to the target within the time frame that you're long or short the stock. This lets you apply both a time- and a price-based exit strategy to your winners.

A time-based exit strategy requires little interpretation. Focus on your holding period's time window rather than the price action. Exit the trade immediately when price hits the reward target at the right time. Exit the trade before price hits the reward target if the window starts to close. The trick with time-based strategies is to look for the best price available within the chosen window.

Most traders should start with a price-based exit strategy. For example, you enter a long position, and it moves into a profit. It rallies at a moderate pace and hits your reward target within the holding period. You exit the trade "blind" at the reward price. This means you take the money and go, without considering the current price action.





You've just taken a nice profit in a perfect world, but how do you protect yourself in the real one? Start by focusing on trends within shorter-term time frames. For example, when trading a daily chart, manage profit and loss using a 60-minute chart whenever possible. The shorter-term pattern will tell you when to move the stop in order to protect profits, or when to exit the trade entirely.

Let's outline common stages for a long position that eventually reaches the reward target:

Price moves into a profit. Price reaches first resistance, and reverses. Price finds support and rallies through first resistance.

This action/reaction continues until price reaches the target. In this scenario, trade management requires a breakeven stop as soon as price moves into a profit. This stop should be moved up after the first reversal, but stay below short-term support. When price finally rallies above first resistance, move the stop just below this new level. Continue the process until the position hits the reward target.



Profits are nice, but many trades go haywire right away. The exit strategy is very simple in this situation: get out as soon as price breaks support on a long trade, or resistance on a short sale. This may sound simple, but there are two problems. First, many of us lack the discipline to take losses when they should be taken. Second, many of us don't understand how to place stop losses in the first place.

Take your loss when the market says you're wrong. Every setup has a trigger that violates the pattern you intend to trade. Identify this price in advance, and place your stop just behind it. Remember that this magic number changes dynamically with each new bar, so you need to adjust it often. But don't remove it under any circumstances.

Do you get frustrated because your stops get hit frequently on good trades? The fault lies in your analysis and trade management, not in the stops themselves. Many traders believe they can improve their performance by placing stops where they shouldn't go. Every stock will violate support/resistance up to a point before reversing. Your analysis must consider the stock's underlying volatility, so the stop can be placed outside this "market noise."



Finally, you need a way to deal with unexpected bad news. Start with a panic drill, and practice it over and over again in your head. The exit strategy is simple: If you can beat the rest of the crowd out of the door, act immediately. The after-hours market can save you a fortune if you learn to use it wisely. If you can't escape right away, watch price action closely and take your best shot. The market can do anything it wants once bad news hits, and you may need to accept a large loss.

Sudden losses are a cost of doing business as a trader. Full disclosure rules and external events will impact your bottom line from time to time. Reduce your risk by choosing lower-volatility stocks to carry over longer time periods. Avoid holding anything through earnings reports or terrorist threats. Remember, it's not hard to rebuild profits after the unexpected takes a bite out of your bottom line.

********************

"Practice Your Exit Strategy" was written by Alan Farley, author of "The Master Swing Trader."

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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