August 23, 2022 - The RightLine Report
Notes From The Editor
How To Trade Morning Reversals
Up trending markets often experience early morning moves to the downside, and then reverse to move above the opening price by mid-day. These reversals frequently signal the beginning of powerful price moves in the direction of the original up trend.
The setup & trigger for this type of trade is pretty simple. Here's how to trade Morning Reversals...
1) The Trade Setup - Watch for the market to move down from the open price and then reverse sometime during the first half of the day. To qualify for this trade the range of the down movement should be less than half of the 10-day Average True Range for the stock you're trading.
For example, if the ATR - Average True Range - is 4, the downward movement of the stock from the open price to the point of reversal should be 2 points or less. (points = dollars)
2) Entry Trigger - Once you see that a reversal is probably underway, place a buy-stop order just above the high of the day. Here's the info to determine the exact amount to place your enter price above the high:
For stocks priced up to . . . $10 . . . . . . . . Add 0.11
For stocks priced from . . . $10.01 to $20 . . . Add 0.16
For stocks priced from . . . $20.01 to $50 . . . Add 0.26
For stocks priced from . . . $50.01 to $100 . . . Add 0.51
For stocks priced over . . . $100 . . . . . . . . Add 1.01
3) Initial Stop - Once your order is filled, enter a sell stop order just below the low of the day. Use the amounts in the chart above to calculate exactly where to set your exit stop.
For example, if you are trading a stock priced below $10 you will subtract 0.11 from the low of the day and enter a sell stop order at that level.
4) Exit Procedure - As the price moves in the desired direction, your initial stop becomes a trailing stop. Set your trading software or tell your broker to adjust the initial stop upward as positive price movement occurs.
Example: if your initial stop is 1.20 below your entry price, then your trailing stop is 1.20.
It's usually best to continue moving your trailing stop upward until you either accumulate profits that you feel are adequate, or wait for your trailing stop to be hit, which ends the trade.
Trade well!
Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 08/23 08/23 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
CMP 41.49 0.21 42.75 2.79/1.4 2.72
JYNT 20.13 0.37 20.69 19.18 1.51/0.76 2.44
CSX 33.63 0.06 34.29 1.9/0.95 1.26
EVBG 34.12 0.88 35.02 2.5/1.25 4.56
PUBM 20.09 -0.05 20.92 19.39 1.53/0.77 2.18
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
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Stocks Covered Today Stock Splits
Market Summary
US stocks were lower on Tuesday following the release of economic data indicating business activity has slowed. New home sales for July fell sharply, manufacturing activity in the Richmond region dropped into the contraction zone, domestic manufacturing PMI declined and the services PMI unexpectedly moved lower. In equities, Macy's (M $19) topped quarterly earnings forecasts but lowered its guidance, and Palo Alto Networks (PANW $570) also beat profit expectations, announced favorable guidance and a 3-for-1 stock split. Treasury prices were mixed ahead of this week's Federal Reserve symposium in Jackson Hole Wyoming, the USD/dollar, gold and oil prices all moved higher.
Aug 22, 2022 Aug 23, 2022
-------------------- --------------------
Dow 33,063.61 -643.13 32,909.59 -154.02
Nasdaq 12,381.57 -323.64 12,381.30 -0.27
S&P 500 4,137.99 -90.49 4,128.73 -9.26
NYSE Volume 3.95B 3.88B
NYSE Advancers 550 1,523
NYSE Decliners 2,650 1,657
Nasdaq Volume 4.28B 3.84B
Nasdaq Advancers 1,010 2,297
Nasdaq Decliners 3,519 2,248
New Highs/Lows
08/16 08/17 08/18 08/19 08/22 08/23
--------------------------------------------
NYSE New Highs 64 35 55 26 20 29
NYSE New Lows 21 34 30 57 88 62
Nasdaq New Highs 91 50 79 46 42 65
Nasdaq New Lows 61 76 73 109 195 175
Stocks Covered Today Stock Splits
TRADER'S TIP: "Let The Trade Come To You"
It rarely pays to chase a stock, so don't chase it - let the trade come to you. You have two options when you realize a move is already underway. Either forget the trade and look for another one, or wait for the price to move back to support or resistance THEN enter on the rebound. Waiting for a pullback usually provides a relatively low risk entry - because you can place a tight stop just beyond the support or resistance level. Remember - don't worry if you miss a trade, there is always another.
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 - 4128.73 August 23, 2022
52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4470.64
Resistance 2: 4364.06
Resistance 1: 4296.27
Pivot: 4257.48
Support 1: 4189.69
Support 2: 4150.90
Support 3: 4044.32
NASDAQ Composite - 12381.30 August 23, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 13866.16
Resistance 2: 13359.94
Resistance 1: 13032.58
Pivot: 12853.72
Support 1: 12526.36
Support 2: 12347.50
Support 3: 11841.28
Dow Industrials - 32909.59 August 23, 2022
52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35253.82
Resistance 2: 34555.42
Resistance 1: 34131.07
Pivot: 33857.01
Support 1: 33432.67
Support 2: 33158.61
Support 3: 32460.21
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, August 22, 2022: 22-Aug 8:30 am Chicago Fed national activity index Tuesday, August 23, 2022: 23-Aug 9:45 am 23-Aug 9:45 am 23-Aug 10 am New home sales (SAAR) Wednesday, August 24, 2022: 24-Aug 8:30 am Durable goods orders 24-Aug 8:30 am Core capital equipment orders 24-Aug 10 am Pending home sales index Thursday, August 25, 2022: 25-Aug 8:30 am Initial jobless claims 25-Aug 8:30 am Continuing jobless claims 25-Aug 8:30 am Real gross domestic product. revision (SAAR) 25-Aug 8:30 am Real gross domestic income (SAAR) 25-Aug 8:30 am Real final sales to domestic purchasers, revision (SAAR) Friday, August 26, 2022: 26-Aug 8:30 am PCE price index monthly 26-Aug 8:30 am Core PCE price index monthly 26-Aug 8:30 am PCE price index year-over-year 26-Aug 8:30 am Core PCE price index year-over-year 26-Aug 8:30 am Real disposable incomes 26-Aug 8:30 am Real consumer spending 26-Aug 8:30 am Nominal personal incomes 26-Aug 8:30 am Nominal consumer spending 26-Aug 8:30 am Trade in goods, advance 26-Aug 10 am UMich consumer sentiment index (final) 26-Aug 10 am UMich 5-year inflation expectations (final) 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 TIP: "Earnings Announcement Dates"
As a rule, it's usually not a good idea to hold short-term positions over earnings announcements. There are exceptions, but unless you are a very experienced trader and have done all of your homework, smart money says to head for the sidelines before the actual numbers are announced.
It's important to know exactly when a stock you hold a position in plans to announce earnings, and be sure to include this information in your trading plan. Every earnings season there are traders who lose money simply because they don't know when earnings announcements is scheduled. Make it a point to always know exactly when earning reports for YOUR companies are set for release.
To make it easier for RightLine readers, our research team provides the earnings date (when available) for each stock included in the "Stocks Covered in This Issue" section of the RightLine Report. Keep in mind however, that companies are under no legal obligation to report when they say they will, and sometimes change their reporting dates. Always verify the time and date from more than one source. If you find a discrepancy, don't risk it. Call the company's investor relations toll free number, and when in doubt, get out.
Stocks Covered in This Issue
BASIC MATERIALS SECTOR
Compass Minerals International, Inc. (CMP: Basic Materials/Other Industrial Metals & Mining) - BULLISH BOUNCE. This trader-friendly setup turns repetitive stock behavior into real profits. Based on the tendency for up-trending stocks to drop briefly and then resume the up-trend, the Bullish Bounce places traders into excellent stocks when conditions are primed for more skyward movement. CMP's current price action near moving average support signals a potential BUY entry at 42.75, followed by a 2.79 trailing stop which can be tightened to 1.4 upon earning 2.72. CMP closed Tuesday at 41.49. Earnings Report Date: N/A. Beta: 1.57. Market-Cap: 1.417B. Optionable.
HEALTHCARE SECTOR
The Joint Corp. (JYNT: Healthcare/Medical Care Facilities) - SQUEEZE PLAY. JYNT traders on both sides of the fence are now locked in a head-to-head shootout. Tuesday'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 20.69 and a SELL short trigger at 19.18. When one of the orders is filled, cancel the remaining order and enter a 1.51 trailing stop. When you've reached a 2.44 paper profit, tighten the stop to 0.76. JYNT closed at 20.13 on Tuesday. Earnings Report Date: Nov 02, 2022. Beta: 1.32. Market-Cap: 291.784M. Optionable.
INDUSTRIALS SECTOR
CSX Corporation (CSX: Industrials/Railroads) - BULLISH BOUNCE. CSX has charted an upward weekly trend until recently when sellers showed up to push prices lower. On Tuesday the selling ran into solid support. A potential bounce up from this level should attract buyers and likely return CSX to the previously established uptrend. The Bullish Bounce set-up is the basis for our BUY entry, so be ready to go long on a rise to our trigger at 34.29. Set a trailing stop of 1.9, tightening to 0.95 on a 1.26 profit. CSX closed at 33.63 on Tuesday. Earnings Report Date: Oct 18, 2022. Beta: 1.22. Market-Cap: 72.01B. Optionable.
TECHNOLOGY SECTOR
Everbridge, Inc. (EVBG: Technology/Software-Application) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, EVBG fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 34.12, plan to buy shares at 35.02 and use a 2.5 trailing stop. Tighten the stop to 1.25 on a 4.56 gain. Earnings Report Date: Nov 07, 2022. Beta: 0.90. Market-Cap: 1.356B. Optionable.
PubMatic, Inc. (PUBM: Technology/Software-Application) - 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. PUBM traders reached this state of stand-off on Tuesday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 20.92 and a SELL short trigger at 19.39. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.53 which can be tightened to 0.77 on a 2.18 gain. PUBM closed Tuesday at 20.09. Earnings Report Date: Nov 07, 2022. Beta: N/A. Market-Cap: 1.052B. 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
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
---------------- ------- -------- ------- ------ -------
Nasdaq Inc NDAQ 7/20/2022 8/29/2022 3-for-1 Yes
Palo Alto Net PANW 8/23/22 9/14/22 3-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.
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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