December 17, 2022 - The RightLine Report
Notes From The Editor
Tech stocks are often a great choice for traders who crave volatility, rapidly evolving products, and a steady stream of new developments. But what if you're looking for just the opposite?
Some traders prefer a more conservative approach, opting for stocks that are slower movers with relatively predictable business models. If this is you, you're in luck; there are plenty of sectors that typically fit the bill.
One of the best conservative groups is utilities. With reliable sources of revenue and quarterly dividends -- always a plus! -- these stocks can provide excellent set-ups that may come to fruition over weeks and months, rather than days. They also tend to attract defensive buying during times of market weakness.
Another area for non-volatile traders is non-durable goods. We're talking about the products that people always use, regardless of economic conditions. Think toothpaste, toilet paper, shampoo, and other necessities. Companies that specialize in these non-cyclicals, such as Procter & Gamble (PG), often provide a relatively safe harbor during times of market volatility.
A good way to gauge a stock's volatility is its Beta. This number, which you'll find listed with every RightLine set-up, measures volatility versus the S&P 500. A Beta of 1.00 means that the equity is roughly as volatile as the broader market. A reading of 0.50 would equate to half as much movement, while a reading of 2.00 would indicate twice as much volatility. You get the idea.
Note that the two approaches, aggressive and conservative, aren't mutually exclusive. Even the most devoted tech traders may occasionally find great set-ups in utilities. Similarly, conservative types can uncover solid opportunities in chips or software. Underlying market conditions, as well as sector-specific dynamics, both play a role in creating these conditions. So keep your eyes and mind open, also remembering that we have both long and short set-ups in our arsenal!
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 12/16 12/16 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
LTHM 22.24 -0.18 22.98 21.35 1.63/0.82 2.8
MANU 21.85 0.23 22.19 20.75 1.44/0.72 2.68
GFF 34.95 0.11 35.56 2.77/1.39 3.1
HEES 43.70 0.08 44.34 3.29/1.65 2.6
UEIC 21.76 0.01 22.35 20.7 1.65/0.83 2.32
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 Trader's Corner
Market Summary
US stocks were lower on Friday as the markets posted a second consecutive weekly loss in the wake of intensified recession worries following global central bank actions. The USA Federal Reserve Bank's 50 basis point rate increase earlier this week was followed by similar actions from several global government banks. The rate spikes arrived as evidence of a slowdown in global economic growth continues to accumulate, with Friday's data showing most manufacturing and services PMIs domestically and across the globe continue to see a contraction in activity. Equity headlines were relatively quiet, as Adobe (ADBE $339) topped quarterly earnings estimates and the company reaffirmed its outlook, while Darden Restaurants (DRI $140) shares fell despite the company reporting good earnings and upbeat guidance. Gold moved higher, oil price declined, treasury yields were mixed and the USD/dollar finished near the flatline.
Friday On The Week
-------------------- --------------------
Dow 32,920.46 -281.76 -556 -1.66%
Nasdaq 10,705.41 -105.11 -299.21 -2.72%
S&P 500 3,852.36 -43.39 -82.02 -2.08%
NYSE Volume 8.26B
NYSE Advancers 963
NYSE Decliners 2,140
Nasdaq Volume 8.42B
Nasdaq Advancers 1,734
Nasdaq Decliners 2,885
New Highs/Lows
12/09 12/12 12/13 12/14 12/15 12/16
--------------------------------------------
NYSE New Highs 43 48 91 46 38 31
NYSE New Lows 63 90 56 92 126 178
Nasdaq New Highs 68 87 123 100 84 67
Nasdaq New Lows 248 295 249 247 377 462
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "The Big Kid On The Block"
The S&P 500 index is a powerful force for the market to reckon with, yet its influence varies from one individual stock to the next. This is one reason we include the "beta" for each stock we put into play - so that you will know how much effect movement in the S&P 500 has on YOUR stock!
For more on beta, click on this link: http://www.rightline.net/education/beta.html
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 - 3852.36 December 16, 2022
52-Week High: 4818.62
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4473.17
Resistance 2: 4200.12
Resistance 1: 4026.24
Pivot: 3927.07
Support 1: 3753.19
Support 2: 3654.02
Support 3: 3380.97
NASDAQ Composite - 10705.41 December 16, 2022
52-Week High: 15901.47
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12832.12
Resistance 2: 11902.58
Resistance 1: 11303.99
Pivot: 10973.04
Support 1: 10374.45
Support 2: 10043.50
Support 3: 9113.96
Dow Industrials - 32920.46 December 16, 2022
52-Week High: 36952.65
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 37544.49
Resistance 2: 35486.79
Resistance 1: 34203.62
Pivot: 33429.10
Support 1: 32145.93
Support 2: 31371.41
Support 3: 29313.72
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, December 19, 2022: 19-Dec 10 am NAHB home builders' index Tuesday, December 20, 2022: 20-Dec 8:30 am Building permits (SAAR) 20-Dec 8:30 am Housing starts (SAAR) Wednesday, December 21, 2022: 21-Dec 8:30 am Current account deficit 21-Dec 10 am Consumer confidence index 21-Dec 10 am Existing home sales (SAAR) Thursday, December 22, 2022: 22-Dec 8:30 am Initial jobless claims 22-Dec 8:30 am Continuing jobless claims 22-Dec 8:30 am Real gross domestic product revision (SAAR) 22-Dec 8:30 am Real gross domestic income revision (SAAR) 22-Dec 8:30 am Real final sales to domestic purchasers (SAAR) 22-Dec 8:30 am Chicago Fed national activity index 22-Dec 10 am Index of leading economic indicators Friday, December 23, 2022: 23-Dec 8:30 am PCE price index 23-Dec 8:30 am Core PCE price index 23-Dec 8:30 am PCE price index (year-on-year) 23-Dec 8:30 am Core PCE price index (year-on-year) 23-Dec 8:30 am Real disposable income (SAAR) 23-Dec 8:30 am Real consumer spending (SAAR) 23-Dec 8:30 am Durable goods orders 23-Dec 8:30 am Core capital equipment orders 23-Dec 10 am UMich consumer sentiment index (late) 23-Dec 10 am UMich 5-year inflation expectations (late) 23-Dec 10 am New home sales (SAAR) 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 Corner
TRADER'S TIP: "Setting Stops"
Sometimes you'll notice that we include irregular numbers - like 1.02, or 2.56 - in the Initial or Trailing Stop section of our Quick List. There is a calculated reason for this. Market makers - better known by their brokerage firm names - will often manipulate prices to just above or below the daily highs and lows to generate order flow and broker commissions. One key to successful stop placement is to avoid getting swept by market makers in these artificial price moves. A penny or two beyond the usual stop amounts (0.10, .25, .50, etc) will often keep the trade alive. This is because market makers know that many traders with long positions will set stops at ten cents, a quarter, or fifty cents beyond the daily range levels.
Stocks Covered in This Issue
BASIC MATERIALS SECTOR
Livent Corporation (LTHM: Basic Materials/Specialty Chemicals) - SQUEEZE PLAY. Friday's trading session left LTHM in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 22.98 and your SELL short trigger at 21.35. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.63 trailing stop. Once you have a 2.8 profit, reduce the stop to 0.82. Earnings Report Date: Feb 15, 2023. Beta: 1.67. Market-Cap: 3.989B. Optionable.
COMMUNICATION SERVICES SECTOR
Manchester United plc (MANU: Communication Services/Entertainment) - SQUEEZE PLAY. The ticker for Friday's session shows MANU 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 22.19 and a SELL short trigger at 20.75. When MANU 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 1.44 trailing stop. Upon reaching a 2.68 profit, resize the stop to 0.72. Earnings Report Date: Feb 27, 2023. Beta: 0.72. Market-Cap: 3.563B. Optionable.
INDUSTRIALS SECTOR
Griffon Corporation (GFF: Industrials/Conglomerates) - NEW HIGH DIP. GFF's recent new 52-week high proves just how well this stock is performing. Sellers have pushed prices down the past few sessions, but Friday's rebound near support has given us an excellent BUY setup. A continuation of this latest bounce has the potential to push above the recent 52-week high and set a new one. Be ready to get on board if GFF moves up to the 35.56 level, and set a 2.77 trailing stop to control risk. Tighten the stop to 1.39 when you have banked a 3.1-point gain. Earnings Report Date: Jan 30, 2023. Beta: 1.53. Market-Cap: 1.994B. Optionable.
H&E Equipment Services, Inc. (HEES: Industrials/Rental & Leasing Services) - NEW HIGH DIP. HEES's strong performance produced a new 52-week high several days ago. Since then we've been waiting for a pullback from that high in order to get on board with a low-risk entry. Friday's reversal near Moving Average support provides us with a New High Dip setup. Set your BUY trigger at 44.34, and follow your purchase with a 3.29 trailing stop which can be tightened to 1.65 when you have a 2.6-point gain. HEES closed Friday at 43.70. Earnings Report Date: Feb 22, 2023. Beta: 2.10. Market-Cap: 1.587B. Optionable.
TECHNOLOGY SECTOR
Universal Electronics Inc. (UEIC: Technology/Consumer Electronics) - SQUEEZE PLAY. UEIC 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. UEIC closed Friday at 21.76. The plan is to enter in the right direction by placing a BUY trigger at 22.35 and a SELL short trigger at 20.7. Once UEIC establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.65. After you've collected a 2.32 profit, tighten the stop to 0.83. Earnings Report Date: Feb 15, 2023. Beta: 1.11. Market-Cap: 275.956M. 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 Trader's Corner
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
"Money Management"
Here are some quotes from some great traders and investors:
"I haven't met a rich technician." - Jim Rogers
"I always laugh at people who say "I've never met a rich technician" I love that! It's such an arrogant, nonsensical response. I used fundamentals for 9 years and got rich as a technician." - Mary Schwartz
"Diversify your investments." - John Templeton
"Diversification is a hedge for ignorance." - William O'Neil
"Don't bottom fish." - Peter Lynch
"Don't try to buy at the bottom or sell at the top." - Bernard Baruch
"Maybe the trend is your friend for a few minutes in Chicago, but for the most part it is rarely a way to get rich." - Jim Rogers
"I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms." - Paul Tudor Jones
So here we have a group of guys who have collectively taken billions of dollars out of the market and they don't agree on a darn thing regarding how to make money. Not one. So what is a person to do? Is there anything they do agree on? Just one:
"My basic advice is don't lose money." - Jim Rogers
"I'm more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand." - Marty Schwartz
"I'm always thinking about losing money as opposed to making money. Don't focus on making money, focus on protecting what you have." - Paul Tudor Jones "Rule number one of investing is never lose money. Rule number two is never forget rule number 1." - Warren Buffet
There really are a lot of ways to make money in the market. There are tons of seminars you can pay for that will tell you "How I made $1 katrillion dollars in the stock market" and its sister book "How I Double my Money Every Hour" is available in many different forms too for only $29.95. All of these will tell you some patterns that will work sometimes and won't others. Some might have you going long with Jimmy Rogers, while others will have you doing it with Bernard Baruch, but when it gets right down to it the most critical part of making money, is not losing much. You're always going to take stops and lose some. But you don't want to lose much, because you won't make a penny tomorrow if you go broke today.
One of the most common mistakes traders will make is that of "risking the whole wad." There is not a faster way to have bad things happen to you than to do this. Studies have been done that suggest the most you should risk on any one trade is 2%. And most pros will tell you that is way too much and they risk 1/4 % to 1% on each trade. The idea here is that no one trade is going to really affect you either way. You're not going to get rich, but you're also not going to have to sell the house, as has happened to people.
One other benefit of small positions is that it allows you some freedom from worry. If you are risking a fairly small amount, you're not going to get shaken out. You're also not going to find yourself in a position where you say "Sheesh, I can't lose this much money" and you turn a bad trade into a terrible investment. So, if you are serious about this, if you want to make it long term you will practice sound money control. Before you ever enter a trade, the first thing you should ask yourself is how much am I risking here because, remember that while we are here to make money, we won't make any if we go broke.
The key to not going broke is to respect risk, take small positions that won't allow you to blow out. You must always keep in mind that in trading you are only playing the odds. You may have a setup that is correct 75% of the time but each trade is a random event. It doesn't take into account the last trade. If you have a 75% system, you can still be wrong 10 times in a row, and if you trade for any amount of time it will happen.
I once thought I had a foolproof way to make money at roulette. I would bet on black and red. I would sit at the table, and after the ball had landed on black or red 5 times in a row I would start to bet on the opposite color (so if it were 5 reds in a row I would start to bet on black) Then, if I was wrong, I would go ahead and double down, meaning that if my starting bet is $1, the next time I will be $2, then $4, then $8, then $16, etc. Eventually I would win, and would come out $1 ahead. So I am 13 years old and really thinking I have the Holy Grail. If it's so easy for a 13 year old to figure out, why is it that all the casinos are not out of business and we are all millionaires? Simple. It does not work.
If we are flipping coins, heads has a 50% chance of turning up on each roll, and so does tails. But each flip is independent of the last. The last coin toss has nothing to do with the one before it. It's a random event. There is a certain chance heads will occur on this roll, or that tails will. But which of them it is that comes up is a random occurrence. Each time you flip a coin it is one flip of a coin amongst the billions of times coins have been flipped. That's why you can roll 100 heads in a row if you do it long enough. That's why the first time I played roulette black came up 19 times in a row and I went home defeated.
Trading is the same. We have a certain percentage of our trades that will work out, and a certain percentage that will not. But your next trade has nothing to do with your last one. So even if you have the world's most accurate method, over time you will go broke if you don't practice good money management and risk control.
So now that we all understand why money management and risk control are very important lets cover exactly how to apply these rules to your trading. As I stated before, you shouldn't ever risk more than 2% of your account on one trade. But, as I also said, that's a bit much for most people and I'm in that group of most people. I like to keep my risk to around 1%. So lets focus our attention on risking 1% of your account on a trade. For the sake of this example let's just assume you have a very average account size, $25,000:
Say you are scanning tonight and come across XYZ, which looks like it might be a great swing-trade buy if it trades at 15 3/16. The low of the prior day is 14 1/2. This means you will place your stop at 14 7/16, risking 3/4 of a point on this trade. Assuming a $25,000 trading account you can lose up to $250 per trade. You will use this number to determine how many shares you can buy, which in this case is up to, but not more than 333. Most people don't like to do odd lots, so would round down to 300. Never round up because then you throw the risk control out the window.
Let me leave you with a few more quotes on risk control:
"If you have an approach that makes money, then money management can make the difference between success and failure... ... I try to be conservative in my risk management. I want to make sure I'll be around to play tomorrow. Risk control is essential." - Monroe Trout
"If you personalize losses, you can't trade." - Bruce Kovner
"The best traders have no ego. You have to swallow your pride and get out of the losses." - Tom Baldwin
"Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." - Larry Hite
While all of these guys have different methods for making money, each of them agrees that risk control is the single most important aspect of trading. These individuals are the best in the world and the only thing they agree on is risk control. Think about it...
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.
Disclaimer
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.
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