Notes From The Editor

The Market Goes Up, The Market Goes Down

One of the unique benefits of trading stocks is the opportunity to make money in any market. While traditional investors are limited to up- trends in bull markets, active traders with shorting skills can easily find opportunities in both bullish and bearish environments.

There are a number of reasons that investors normally don't short stocks. Most have never heard of shorting and have no idea what is involved. Those who are fortunate enough to hear about it are usually told that it's too hard or too risky.

In truth, shorting stocks is neither more difficult nor dangerous than buying stocks. Over the years two major fear tactics have been used to keep investors from learning how to short stocks:

1) "It's just too hard to short stocks because of the up-tick rule."

2) "It's too risky to short stocks because a loss can continue to grow indefinitely."

The first objection to shorting is outdated. The old rule that you could only go short on an up-tick was replaced years ago with a limited rule. It applies only to stocks which have fallen by 10% in price during a trading day, and applies only to the remainder of that trading day and the following trading day. During that period of time, a stock can only be sold short when the sale price is higher than the highest bid price maintained by any market maker in the stock. In other words, after a stock has fallen by 10% a short position has to be entered on an uptick. Before that, it can be entered at any time. In most cases you no longer have to wait for a stock's price to be moving up to get a short order filled.

As for the second objection, anyone who would let a loss go on forever would have to be completely incompetent or in a coma. Theoretically a perpetual loss could happen, but it actually never does. Experienced traders use stop losses and other forms of risk control. In addition, brokerages monitor shorting activities very carefully and will pull the plug on a short sale before it gets completely out of hand.

Remember that things never stay the same. To be competitive we all have to embrace change and become more flexible. If you've been thinking about learning how to short, now is a good time to get started.

Trade well!

- Thomas Sutton, Editor

Quick List

    
Stock     08/17     08/17      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

CTRN      20.95      0.51     21.63                  1.93/0.97      1.54
SNBR      25.09      0.25        26        24              2/1      3.94
EGBN      24.71      0.33     25.18     23.65        1.53/0.77      2.26
GNLX      23.47     -0.43               22.55        2.98/1.49      6.28
SAGE      20.01     -0.36     20.75     19.15          1.6/0.8      4.04

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

US stocks are extending their weekly declines, as losses accumulate in August due to a resurgence in Treasury yields that's negatively impacting growth-related sectors. On Thursday the S&P 500 index hit its lowest levels since late June, and for the second consecutive session closed near its daily lows. The increasing belief is that the Federal Reserve might need to intensify its rate hikes due to strong economic data and persistent high inflation. Another factor drawing attention is the Federal Reserve Jackson Hole Symposium, scheduled to commence next ThursdayAugust 24th.

While stocks began the day with some positive momentum, they gradually drifted lower during afternoon trading. Market volatility remains at elevated levels similar to those seen earlier this summer, as investors weigh the signals from the Federal Reserve regarding potential further policy tightening against the backdrop of ongoing economic strength. Cisco (CSCO) contributed to a boost in the Dow after surpassing earnings expectations, but Walmart (WMT) failed to rally despite posting better results for the quarter.

The Nasdaq has seen a 6.5% decline month-to-date (MTD), the S&P 500 is down 4.25%, the Dow has dipped 2.5%, and the Russell 2000 has experienced a 7% MTD decline. All of these averages are poised to break their five-month winning streak. This month, the trend has shifted from the previous 2023 mantra of "buy the dip" to "sell the rip," which had proven effective earlier this year.

The 10-year yield climbed to 4.32%, reaching its highest level since the 2008 financial crisis. This surge followed another round of robust economic data and the release of minutes from the Federal Reserve's July meeting, which indicated the central bank's intent to continue raising interest rates to combat inflation. In the healthcare sector, CVS shares took a hit after Blue Shield of California announced it was discontinuing its relationship with PBM Caremark in an effort to reduce costs.

Among the S&P sectors, Energy and Materials experienced gains, while Staples, Discretionary, Healthcare, and Technology sectors declined. Housing stocks and other sectors sensitive to interest rates, such as Utilities, REITs, and Towers, displayed weakness as mortgage rates reached their highest levels since 2002.

                        Aug 16, 2023           Aug 17, 2023   
                  --------------------   --------------------
Dow                 34,765.74  -180.65     34,474.83  -290.91
Nasdaq              13,474.63  -156.42     13,316.93  -157.70
S&P 500              4,404.33   -33.53      4,370.36   -33.97

NYSE Volume                      3.76B                  3.95B
NYSE Advancers                     760                    897
NYSE Decliners                   2,155                  2,017

Nasdaq Volume                    6.26B                   5.3B
Nasdaq Advancers                 1,166                  1,440
Nasdaq Decliners                 3,147                  2,879

                                 New Highs/Lows

                   08/10  08/11  08/14  08/15  08/16  08/17
                 --------------------------------------------
NYSE New Highs        72     40     47     34     42     19
NYSE New Lows         31     37     55     80     95     88
Nasdaq New Highs      79     59     56     66     45     30
Nasdaq New Lows      181    177    205    224    284    291
   

TRADER'S TIP: "Key Split Dates"

There are several dates to understand in the life cycle of a split.

~ The Announcement Date is the date that the stock split is announced.

~ The Record Date is the date that owners of the stock are technically entitled to the stock dividend or split.

~ The Pay Date is the date that owners of record are paid the stock dividend or split.

~ The Execution Date - usually one business day after the Pay Date - is the date that the stock price adjusts for the split on its respective exchange.

Simple enough, but in addition to these definitions there is further date distinction between which shareholders receive dividends vs splits. To receive a cash dividend you must own the stock ON the Record Date. Any time thereafter you will still receive the dividend even if you have sold the stock before its pay date. In the case of a stock split, as long as you buy the stock BEFORE the Execution Date you will see the effect of the split in your account; the date of record has no bearing. As traders, we are primarily interested in the announcement and execution dates. These dates have stock price movements associated with them. The Date of Record has relevance and often can be a turning point in the trend of the stock. However, it doesn't affect whether you are entitled to the split on the Execution Date.

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 - 4370.36 August 17, 2023

52-Week High: 4607.07
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4645.24
Resistance 2: 4561.85
Resistance 1: 4512.95
Pivot: 4478.46
Support 1: 4429.56
Support 2: 4395.07
Support 3: 4311.68

NASDAQ Composite - 13316.93 August 17, 2023

52-Week High: 14446.55
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 14524.99
Resistance 2: 14137.82
Resistance 1: 13891.33
Pivot: 13750.65
Support 1: 13504.16
Support 2: 13363.48
Support 3: 12976.31
        
Dow Industrials - 34474.83 August 17, 2023

52-Week High: 35679.13
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 36431.47
Resistance 2: 35860.30
Resistance 1: 35570.85
Pivot: 35289.13
Support 1: 34999.68
Support 2: 34717.96
Support 3: 34146.79
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Friday, August 18, 2023:
18-Aug          None scheduled


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

TRADER'S TIP: "Accredited Investor"

This is the SEC term for a person or entity meeting any of the criteria listed below. Certain restricted offerings, hedge funds, limited partnerships, and angel investor networks are open only to accredited investors.

1) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer or general partner of a general partner of that issuer.

2) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000.

3) Any natural person who had individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.

4) Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase of the securities is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.

5) Any organization that was not formed for the purpose of acquiring the securities being sold, with total assets in excess of $5,000,000.

6) Any entity in which all of the equity owners are Accredited Investors.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Citi Trends, Inc. (CTRN: Consumer Cyclical/Apparel Retail) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Thursday's session to close at 20.95. Anticipate the rebound to continue, and be ready to buy CTRN at 21.63. Follow your entry with a trailing stop of 1.93 which can be tightened to 0.97 on a 1.54 profit. Earnings Report Date: Aug 22, 2023. Beta: 2.35. Market-Cap: 174.155M. Optionable.

Sleep Number Corporation (SNBR: Consumer Cyclical/Furnishings, Fixtures & Appliances) - 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. SNBR found itself in this condition on Thursday 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 26 and a SELL short trigger at 24. When SNBR moves outside of Thursday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2 trailing stop. After you've got a 3.94 profit, tighten the stop to 1. SNBR closed at 25.09 on Thursday. Earnings Report Date: Oct 24, 2023. Beta: 1.96. Market-Cap: 556.597M. Optionable.

FINANCIAL SERVICES SECTOR

Eagle Bancorp, Inc. (EGBN: Financial Services/Banks-Regional) - SQUEEZE PLAY. EGBN traders on both sides of the fence are now locked in a head-to-head shootout. Thursday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 25.18 and a SELL short trigger at 23.65. When one of the orders is filled, cancel the remaining order and enter a 1.53 trailing stop. When you've reached a 2.26 paper profit, tighten the stop to 0.77. EGBN closed at 24.71 on Thursday. Earnings Report Date: Oct 17, 2023. Beta: 0.92. Market-Cap: 759.002M. Optionable.

HEALTHCARE SECTOR

Genelux Corporation (GNLX: Healthcare/Biotechnology) - BEARISH U-TURN. GNLX's weekly downtrend was recently interrupted by a bullish counter-trend rebound. Unfortunately for Bulls this uphill bounce reversed on Thursday after running into resistance. GNLX is now at risk of dropping even lower. On a continued pullback, short entries can be taken at 22.55. Manage your position with a 2.98 stop, pulling it up to 1.49 on a gain of 6.28. GNLX closed at 23.47 on Thursday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 609.842M. Not Optionable.

Sage Therapeutics, Inc. (SAGE: Healthcare/Biotechnology) - SQUEEZE PLAY. In certain stocks a tightly constricted price range is a sign that neither bulls nor bears are confident of winning in the near term. This often means that the side that gives up first causes a quick move in the opposite direction. In these fear dominated skirmishes, opposing traders always benefit from the retreat. In the Squeeze Play setup you can actually play both sides of the inevitable surge. SAGE traders reached this state of stand-off on Thursday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 20.75 and a SELL short trigger at 19.15. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.6 which can be tightened to 0.8 on a 4.04 gain. SAGE closed Thursday at 20.01. Earnings Report Date: Nov 06, 2023. Beta: 1.10. Market-Cap: 1.196B. 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.

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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