December 15, 2022 - The RightLine Report
Notes From The Editor
The Head-Fake Reversal
We've all been there. A promising breakout or breakdown is going exactly as planned, until prices suddenly reverse without warning. The technical momentum shifts in the opposite direction as waves of traders pile onboard.
Head-fakes are an unavoidable part of trading. The good news is that by using some straight-forward technical analysis, you can spot "suspect" patterns that are likely to produce reversals. Here's what to watch for:
- Volume, volume, volume. Volume provides confirmation. Imagine that a stock breaks through major resistance with a surge of buying. That would hint at a sustained breakout. However, thin volume on the breakout would indicate that the price action is being driven more by short-term players (daytraders, for example) than committed traders. These should be viewed with suspicion. To gauge whether volume is high, low, or average, compare it with recent volume bars. This can be done on the daily chart, or on smaller intervals such as the 15-minute.
- Oscillators. Stochastics are a window into a stock's momentum. If a stock is breaking down and its stochastics are already oversold, there's a higher probability of a head-fake. On the other hand, if the oscillator has just given a sell signal from the overbought region, the breakdown will probably see plenty of follow-through. Some traders prefer to watch the MACD as well, although that indicator tends to give fewer buy/sell signals.
- The broader market. A large chunk of any stock's movement is dictated by the market's underlying bias. Head-fakes are more likely when the major indices are moving the opposite direction. If you "go with the flow" when taking a breakdown/breakout entry, your odds of success will be higher. Also pay attention to what the equity's sector is doing; sector movement also influences stock price.
And what about those inevitable times when you get caught in a head- fake? Don't sweat it! Proper risk management will limit your exposure, and it's not uncommon for head-fakes to lose steam before your stop is violated. So rather than bail out at the first signs of a reversal, stick with your original plan and "ride it out," knowing that the worst-case scenario will be a small, manageable loss.
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits
Quick List
Stock 12/15 12/15 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
CI 331.55 -3.13 338.39 19.04/9.52 12.48
UTHR 275.85 -0.86 281.12 18.44/9.22 13.14
TRDA 20.20 0.14 21.07 19.37 1.7/0.85 3.48
ISEE 21.92 -0.36 22.64 21.04 1.6/0.8 2.16
BMBL 23.02 -0.64 23.65 21.94 1.71/0.86 2.8
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
Market Summary
The major US stock indexes were sharply lower on Thursday as traders continue to contemplate the economic implications of Wednesday's 50 basis point rate hike from the Federal Reserve Bank. The rate hike was followed by similar sized increases from the Bank of England, European Central Bank, and the Swiss National Bank. Economic headlines offered diverse data, as manufacturing activity in Philadelphia and New York both contracted, retail sales dropped more than expected, industrial production declined, and unemployment claims were much lower than predicted. The equity front was relatively quiet, with Lennar Corporation (LEN $94) posting mixed results and offering a cautious outlook, while shares of Netflix (NFLX $290) were sold following a report about weak ad-supported viewership. Gold, treasury yields and oil prices were lower, the USD/dollar advanced higher.
Dec 14, 2022 Dec 15, 2022
-------------------- --------------------
Dow 33,966.35 -142.29 33,202.22 -764.13
Nasdaq 11,170.89 -85.93 10,810.53 -360.36
S&P 500 3,995.32 -24.33 3,895.75 -99.57
NYSE Volume 4.51B 4.55B
NYSE Advancers 1,305 600
NYSE Decliners 1,791 2,538
Nasdaq Volume 5.51B 5.6B
Nasdaq Advancers 1,873 1,222
Nasdaq Decliners 2,720 3,420
New Highs/Lows
12/08 12/09 12/12 12/13 12/14 12/15
--------------------------------------------
NYSE New Highs 49 43 48 91 46 38
NYSE New Lows 71 63 90 56 92 126
Nasdaq New Highs 111 68 87 123 100 84
Nasdaq New Lows 254 248 295 249 247 377
Stocks Covered Today Stock Splits
TRADER'S TIP: "Chutes and Ladders"
All trends are not created equal. Up moves tend to take longer than down moves with similar ranges. In other words, even when the distance in price movement is the same, declines usually occur faster than rallies.
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 - 3895.75 December 15, 2022
52-Week High: 4818.62
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4236.52
Resistance 2: 4102.46
Resistance 1: 4018.42
Pivot: 3968.40
Support 1: 3884.36
Support 2: 3834.34
Support 3: 3700.28
NASDAQ Composite - 10810.53 December 15, 2022
52-Week High: 15901.47
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12143.36
Resistance 2: 11628.47
Resistance 1: 11316.54
Pivot: 11113.58
Support 1: 10801.65
Support 2: 10598.69
Support 3: 10083.80
Dow Industrials - 33202.22 December 15, 2022
52-Week High: 36952.65
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35577.87
Resistance 2: 34660.73
Resistance 1: 34068.59
Pivot: 33743.59
Support 1: 33151.45
Support 2: 32826.45
Support 3: 31909.31
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, December 12, 2022: 12-Dec 11 am NY Fed 1-year inflation expectations 12-Dec 11 am NY Fed 5-year inflation expectations 12-Dec 2 pm Federal budget (compared with Nov. 2021) Tuesday, December 13, 2022: 13-Dec 6 am NFIB small-business index 13-Dec 8:30 am Consumer price index 13-Dec 8:30 am Core CPI 13-Dec 8:30 am CPI (year-on-year) 13-Dec 8:30 am Core CPI (year-on-year) 13-Dec 8:30 am CPI excluding shelter (3-month rolling annualized rate) Wednesday, December 14, 2022: 14-Dec 8:30 am Import price index 14-Dec 2 pm Federal funds rate announcement 14-Dec 2 pm SEP median federal funds rate for end of 2023 14-Dec 2:30 pm Fed Chair Jerome Powell news conference Thursday, December 15, 2022: 15-Dec 8:30 am Initial jobless claims 15-Dec 8:30 am Continuing jobless claims 15-Dec 8:30 am Retail sales 15-Dec 8:30 am Retail sales excluding motor vehicles 15-Dec 8:30 am Empire state manufacturing index 15-Dec 8:30 am Philadelphia Fed manufacturing index 15-Dec 9:15 am Industrial production index 15-Dec 9:15 am Capacity utilization rate 15-Dec 10 am Business inventories Friday, December 16, 2022: 16-Dec 9:45 am S&P U.S. manufacturing PMI 16-Dec 9:45 am S&P U.S. services PMI 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: "Setting Stops For Long Positions"
Here are a few suggestions on how to set stops for long (buy) positions.
1. Set the stop just under yesterday's low unless yesterday was a big up day. Then move the stop closer to today's open.
2. Set the stop just under a recent minor support level.
3. Use the Average True Range - ATR - to determine the expected movement for the stock in the time frame you trade, and set the stop to a reasonable distance beyond the range amount. (ATR is a feature found in RightLine Charts.)
4. Set the stop the instant your buy order gets filled.
5. Move stops up as the stock rises, first to break even, then to protect profits. On a long position when you use trailing stops, don't lower stops - only raise them.
6. As the stock moves up and tends to "top out" or market conditions become unfavorable, "tighten the stop." In other words, move your stop closer to the current market price. Doing this will effectively employ an "up or out" strategy" - either the price goes up, or you are out of the trade.
Stocks Covered in This Issue
HEALTHCARE SECTOR
Cigna Corporation (CI: Healthcare/Healthcare Plans) - NEW HIGH DIP. It's no secret that strong stocks tend to get even stronger. CI's recent 52-week high is a clear indication that the ongoing uptrend is still healthy, though traders have taken some profits off the table during the past few sessions. Thursday's bounce from support confirms the stock's intention to move even higher. This New High Dip setup takes advantage of the tendency for strong stocks to bounce skyward after pulling back from new highs. Prepare to BUY shares in CI should price reach the 338.39 level. Enter a trailing stop of 19.04 as soon as your order is filled, then tighten the stop to 9.52 on a 12.48 gain. Earnings Report Date: Feb 01, 2023. Beta: 0.72. Market-Cap: 101.368B. Optionable.
United Therapeutics Corporation (UTHR: Healthcare/Biotechnology) - 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 275.85. Anticipate the rebound to continue, and be ready to buy UTHR at 281.12. Follow your entry with a trailing stop of 18.44 which can be tightened to 9.22 on a 13.14 profit. Earnings Report Date: Feb 22, 2023. Beta: 0.63. Market-Cap: 12.572B. Optionable.
Entrada Therapeutics, Inc. (TRDA: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in TRDA's narrowest trading range of the past seven sessions. With neither group able to take complete control on Thursday, the stock's short term destiny is up for grabs. You can capitalize on this unusually tight condition by placing both a BUY order at 21.07 and a SELL order at 19.37. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.7 trailing stop. Tighten the stop to 0.85 once you have a 3.48 gain. TRDA closed Thursday at 20.20. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 634.405M. Not Optionable.
IVERIC bio, Inc. (ISEE: 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. ISEE 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 22.64 and a SELL short trigger at 21.04. 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 2.16 gain. ISEE closed Thursday at 21.92. Earnings Report Date: Feb 22, 2023. Beta: 1.02. Market-Cap: 2.939B. Optionable.
TECHNOLOGY SECTOR
Bumble Inc. (BMBL: Technology/Software-Application) - SQUEEZE PLAY. BMBL 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 23.65 and a SELL short trigger at 21.94. When one of the orders is filled, cancel the remaining order and enter a 1.71 trailing stop. When you've reached a 2.8 paper profit, tighten the stop to 0.86. BMBL closed at 23.02 on Thursday. Earnings Report Date: Mar 06, 2023. Beta: N/A. Market-Cap: 4.249B. 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
---------------- ------- -------- ------- ------ -------
Copart CPRT 11/4/2022 11/4/2022 2-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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