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August 13, 2022 - The RightLine Report
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NOTES FROM THE EDITOR
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Everyone agrees that we should base our trading and investment decisions on rational thinking. However, studies show that the human need to be "right" is usually stronger than the ability to be objective. This common trait is one of the top reasons most folks fail to make money in stocks.
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"QUICK LIST"
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Stock 08/12 08/12 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
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AVD 20.37 0.27 20.82 19.48 1.34/0.67 1.58
SFM 29.19 0.09 29.92 1.96/0.98 1.42
DG 253.31 1.44 256.86 13.87/6.94 10.54
AADI 13.95 0.72 14.16 1.37/0.69 1.18
PRG 20.71 0.17 21.18 19.67 1.51/0.76 1.54
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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/. To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/ For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/ Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/
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MARKET SUMMARY
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The US stock market closed significantly higher on Friday as the S&P 500 recorded its fourth weekly gain in a row. The positive sentiment was triggered by the release of cooler inflation data this week, helping to lower trader expectations of how aggressive the Federal Reserve Bank monetary policy will be going forward. Adding to the positive sentiment was a welcome decline in import prices. In light equity news, restaurant technology platform Toast (TOST $20) reported a smaller-than-expected quarterly loss and raised its anual guidance. Shares finished the session higher. The USD/dollar and gold advanced upward, oil prices were lower, and treasuries were mixed. Friday On The Week
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Dow 33,761.05 424.38 +957.58 2.92%
Nasdaq 13,047.19 267.27 +389.64 3.08%
S&P 500 4,280.15 72.88 +134.96 3.26%
NYSE Volume 3.83B
NYSE Advancers 2,578
NYSE Decliners 619
Nasdaq Volume 4.79B
Nasdaq Advancers 3,368
Nasdaq Decliners 1,211
New Highs/Lows
08/05 08/08 08/09 08/10 08/11 08/12
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NYSE New Highs 27 38 26 61 57 56
NYSE New Lows 46 18 58 23 28 24
Nasdaq New Highs 68 103 47 69 84 96
Nasdaq New Lows 66 36 96 78 47 61
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TRADER'S TIP:
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TRADER'S TIP: "Do Gaps Always Fill?" Contrary to popular opinion, gaps don't always fill. In fact, price gaps form some of the best levels of support and resistance. The bigger the gap, the more significant the support or resistance zone. **************************
THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average. For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ S&P 500 - 4280.15 August 12, 2022 52-Week High: 4818.62 52-Week Low: 3636.85 Daily Trend: UP Weekly trend: UP Weekly Pivot Levels Resistance 3: 4560.99 Resistance 2: 4392.61 Resistance 1: 4336.38 Pivot: 4224.23 Support 1: 4168.00 Support 2: 4055.85 Support 3: 3887.47 https://www.prorightline.com/rlch/081222SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, August 15, 2022: 15-Aug 8:30 am Empire State manufacturing index 15-Aug 10 am NAHB home builders' index Tuesday, August 16, 2022: 16-Aug 8:30 am Building permits (SAAR) 16-Aug 8:30 am Housing starts (SAAR) 16-Aug 9:15 am Industrial production 16-Aug 9:15 am Capacity utilization rate Wednesday, August 17, 2022: 17-Aug 8:30 am Retail sales 17-Aug 8:30 am Retail sales ex-motor vehicles 17-Aug 8:30 am Real retail sales 17-Aug 10 am Business inventories Thursday, August 18, 2022: 18-Aug 8:30 am Initial jobless claims 18-Aug 8:30 am Continuing jobless claims 18-Aug 8:30 am Philadelphia Fed manufacturing index 18-Aug 10 am Existing home sales (SAAR) 18-Aug 10 am Leading economic indicators Friday, August 19, 2022: 19-Aug 10 am Advance report on services For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: https://prorightline.com/index.php/economic-indicator-effects/
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TRADER'S TIP:
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TRADER'S TIP: "Beware of the New York Lunch Hour" Many traders at the stock exchanges in New York break for lunch at 12:00 noon ET. This mass departure in search of nutrition dramatically lessens the number of shares being traded. The slower pace gives market makers and specialists the perfect opportunity to grab quick profits by implementing low-volume trading strategies. As a rule of thumb it pays to be skeptical of anything that goes on during the lunch hour. If a strong trend is already in place, watch for a new surge to begin during this break. On days when the trend is weak, reversals are more likely to occur at lunchtime. ***********************************
STOCKS COVERED IN THIS ISSUE
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BASIC MATERIALS SECTOR American Vanguard Corporation (AVD: Basic Materials/Agricultural Inputs) - SQUEEZE PLAY. AVD 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. AVD closed Friday at 20.37. The plan is to enter in the right direction by placing a BUY trigger at 20.82 and a SELL short trigger at 19.48. Once AVD establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.34. After you've collected a 1.58 profit, tighten the stop to 0.67. Earnings Report Date: Nov 07, 2022. Beta: 0.83. Market-Cap: 628.812M. Optionable. CONSUMER DEFENSIVE SECTOR Sprouts Farmers Market, Inc. (SFM: Consumer Defensive/Grocery Stores) - 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. SFM's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 29.92. Use a 1.96 trailing stop, which should work well with SFM's typical daily range. Tighten it to 0.98 on a 1.42 profit. SFM closed at 29.19 on Friday. Earnings Report Date: Nov 02, 2022. Beta: 0.43. Market-Cap: 3.137B. Optionable. Dollar General Corporation (DG: Consumer Defensive/Discount Stores) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with DG which met our setup criteria on Friday. The BUY trigger for this trade is at 256.86, and the trailing stop is sized at 13.87. Resize the stop to 6.94 upon collecting a 10.54 point gain. DG closed Friday at 253.31. Earnings Report Date: Aug 25, 2022. Beta: 0.40. Market-Cap: 57.501B. Optionable. HEALTHCARE SECTOR Aadi Bioscience, Inc. (AADI: Healthcare/Biotechnology) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 13.95, AADI is on our radar for a BUY entry at 14.16. If you purchase shares of AADI, be sure to also place a trailing stop of 1.37. Snug it up to 0.69 on a 1.18 gain. Earnings Report Date: Nov 08, 2022. Beta: N/A. Market-Cap: 292.141M. Optionable. INDUSTRIALS SECTOR PROG Holdings, Inc. (PRG: Industrials/Rental & Leasing Services) - SQUEEZE PLAY. The ticker for Friday's session shows PRG 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 21.18 and a SELL short trigger at 19.67. When PRG 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 1.51 trailing stop. Upon reaching a 1.54 profit, resize the stop to 0.76. Earnings Report Date: Nov 01, 2022. Beta: 1.98. Market-Cap: 1.119B. Optionable. IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy. Link: https://prorightline.com/index.php/rightline-risk-control-system/ Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels. Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/ ***********************************
STOCK SPLIT SUMMARY
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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 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 ---------------- ------- -------- ------- ------ ------- Gamestop GME 7/7/2022 7/22/2022 4-for-1 Yes Alphabet GOOG 2/1/2022 7/18/2022 20-for-1 Yes Nasdaq Inc NDAQ 7/20/2022 8/29/2022 3-for-1 Yes For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ **********************************
TRADER'S CORNER
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"Tactics For Short-Term Traders Trading The News" Everyone wants to trade the news, but it's often a fruitless exercise. In most cases, the big money has already acted upon the news by the time you read or hear it. So how can at-home traders take advantage of news-related opportunities without becoming the ultimate bag-holders? News events generally fall into three categories: economic, company and institutional releases. Economic releases are scheduled well in advance, with most of them hitting the airwaves at 6:30 a.m., 9:45 a.m. or 10 a.m. EST. Company releases can come at any time, but they surge in the weeks following the end of a quarter. Institutional releases spike on Monday mornings but continue throughout the week. Of the three categories, economic news reaches traders with the shortest delay from the source. Earnings reports come in second, because full-disclosure rules force companies to distribute news through a wide variety of sources at the same time. Institutional releases are the slowest of the three by a wide margin. Traders should assume that preferred clients hear about analyst upgrades and downgrades well in advance of the public. Realize that your real-time news feed doesn't get you most of the news in real time. Even with government releases, institutions and funds will be at the point of release and acting upon the news before you receive it. They will typically initiate program trades that act instantly to remove perceived inefficiencies triggered by the data. Traders face a bigger obstacle trying to decipher cause-and-effect relationships between news and price movement. Often they'll assume that good news is good, and buy a stock that's already risen for a few days. But smarter money has already bought the rumor and is now selling the news. The trader is left holding a loss that may persist for weeks or months. Trading earnings news requires considerable discipline and patience. Start by standing aside through most releases, or exiting positions minutes before the news hits the airwaves. Save your capital for releases that fall well outside current expectations for future revenue and per-share results. It's best to avoid all positions based on prior performance, because that performance is measured by managed numbers that are highly manipulated. It's still dangerous to play extreme releases, because after-hours trading can be very thin. Reduce your size and place a limit order only when you've done your homework and know the exact price you want to own or sell short. This is typically a few cents above major resistance or below major support. Selling short during extended hours can be quite rewarding, because the Nasdaq has no uptick rule during this time of day. The best entry often comes during the afternoon following the earnings release, or two to three days later. Here's the theory: Everyone who wants to buy or sell the news takes action within the first few hours after the release. Once they have come off the sidelines, there's no one left to take the side of the market that pushed the stock in its initial direction. A strong shakeout then begins, and it's your time to get to work. See chart - https://prorightline.com/rlr/TClpnt021404.gif Pull up a 60-minute chart and pick out the most obvious support and resistance levels. Assume a selloff will get a ride back to the 50- period exponential moving average before there's a substantial recovery. Be ready to hold positions at a loss until the underlying trend reasserts itself or your stops get hit. Place tiered limit orders and enter the trade one small piece at a time. This way you'll be positioned if the market turns ahead of schedule. When there's a sharp pullback following an early rally, conservative traders should stand aside and wait a few days. This price action suggests that the smart money is selling the news into the hands of an overeager public. This type of reversal often lasts two or three days before profit-taking runs its course and lets the stock move back to the highs. Be patient during this initial selloff and wait for a low- risk entry. See chart - https://prorightline.com/rlr/TCckfr021404.gif Selling pressure often will end with a breakout from a simple pullback pattern, such as a bull flag. Although you're making the trade a few days after the earnings release, the intraday chart still generates the feedback needed to find your entry. Once you get in, watch the highs of the earnings day very closely. If a double-top pattern starts to form, exit the position immediately. These techniques should give you enough courage to jump in the next time your favorite company blows away earnings expectations. But what about those government releases that move the markets every day? How can at-home traders turn a profit at the same time the big boys are firing their biggest guns? Let's start by looking at the market clock. Many government reports, including monthly unemployment numbers, get released one hour before the market opens at 9:30 a.m. ET. It's vital that you're awake and focused at this important time. Better yet, watch the index futures for at least an hour before the release. This premarket price action reflects an important bias that will get supported or faded, depending on the news. Don't trade the release directly. Instead, take note of price boundaries hit by the futures after the release, but before the open. The key observation is whether they trade into or through obvious support-resistance barriers. Trading into a "line in the sand" suggests the broad market will reverse shortly after the open. Trading through a barrier can trigger an equity breakout or breakdown within the first 45 minutes of the regular session. The strongest trend days appear when there's synergy between the prerelease bias and subsequent news. The broad market can gap up and hold above the opening price easily when these two forces work together. But watch out for a shakeout day when the unemployment numbers give neither side an advantage. These choppy sessions often present good opportunities to build swing positions for the following week. Pick your prices early and step in slowly as the shakeout pulls the market into your numbers. Then hold tight through the weekend and look for follow-through on Monday or Tuesday. Don't try to interpret the news on a fundamental basis -- just stick to the charts and play the numbers. When you second-guess yourself because a release looks bullish or bearish, you'll hesitate just as the best trade is being offered to you. The bottom line is, we're not smart enough to understand the news and what it suggests about the economy. But we can see how everyone else is interpreting it and then take appropriate action. Remember that you're a trader, not a gambler. Never buy or sell before economic numbers just to play the release. These are lottery tickets that have no place in a sound trading discipline. It's even worse if you make money by doing it because the profit reinforces a horse race mentality that leads to disaster. Many lesser economic reports are issued at 6:30 a.m., 9:45 a.m. and 10 a. m. ET. Some news is even released during the lunch hour. Keep in mind most of these reports are not market movers and will be traded as excuses rather than responses. In other words, focus your attention on the periods when the reports hit the airwaves, but don't get hung up on the data. This strategy becomes very important when releases take place 15 or 30 minutes into the new trading day. The big boys often paint the numbers into the news and then fade that direction. Beneath the surface, they're using the release to find better prices to sell short or shake the public out of long positions. You can often predict this reversal through a simple convergence- divergence analysis. Consider where the market closed the prior day and the sentiment at that time. A common scenario is a sell-off day that closes near the lows. You wake up the next morning expecting a red screen and a gap down. To your surprise, the index futures are up a few ticks and look ready to rally. Then you recall there's an economic release coming out at 10 a.m. A rally continues into the report, and then the market sells off on relatively good news. It turns out a bid was being kept under the index futures so big money could sell short at higher prices. This is typically done with reports the public thinks are market movers, but institutions recognize as old, flawed or inconsequential data. Gross domestic product reports, like the one released last week, fit perfectly into this category. Durable goods numbers, regional manufacturing data and even inflation indices such as the producer price index and consumer price index also fit into this category. Traders can still take advantage of real surprises on these secondary reports. Watch for economic numbers that fall well outside standard deviation. Earlier this year there was a massive rally following the relatively obscure Empire State Manufacturing Survey. The number was so far above expectations that everyone had to stop and take notice. All bets are off when the market spits out one of these unexpected events. The good news is you're standing on equal footing with the big boys when this happens, because they're just as surprised as everyone else. It's a perfect time to keep it simple and trade the trend. ********************************** This special guest article was written by Alan Farley, author of "The Master Swing Trader." ======================================================================
Best of luck and have a Great Week!
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The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk. The publishers of The RightLine Report recommend that anyone trading securities should do so with caution, exercise prudent trading discipline and have a personal risk management strategy in place before doing so. It is possible at this or some subsequent date, the publishers and staff of The Pro Right Line Corp. may own, buy or sell securities presented. The Pro Right Line Corp. is not a financial advisory service. Its publishers, owners or investors, are not liable for any losses or damages, monetary or otherwise, that result from the content of The RightLine Report. Past RightLine Report performance may not be indicative of future performance. All subscriptions and/or use of the RightLine.net website are subject to RightLine's "Terms of Use" and "Subscriber Terms & Conditions" which are posted at www.rightline.net. Any REDISTRIBUTION of the above information, without The RightLine's written consent, is STRICTLY PROHIBITED. Copyright / The Pro Right Line Corporation - All Rights Reserved To Unsubscribe, send an email to cs@prorightline.com or call 1-312-248-4241. |