Notes From The Editor

One measure of a trader's strength is the ability to adapt quickly - both mentally and emotionally. This often means preparing for potential price reversals that other market participants are completely unaware of.

Much of the daily price movement in the market results from shorter-term traders who base their buy and sell decisions on a completely different set of guidelines than the average investor. While investors spend most of their time watching the action from the sidelines, traders move in and out of stocks at a faster pace.

This group of traders anticipate potential reversals, knowing that once a chosen market or stock stops moving in one direction, the crowd is forced to make a decision. They can get in, get out, stay in, or stay out. No matter what the majority chooses to do, those choices will begin to move the market in one direction or the other. More traders will then jump into the short-term trend, adding to momentum and creating a snowball effect.

When stocks fall hard and fast, price movement quickly reaches a point where traders decide to take profits. Since many use support and resistance levels to determine where to enter and exit short-term positions, it isn't unusual to see stocks that had been headed in one direction suddenly stop and reverse at these junctions.

This is one reason traders should take a look at the Technical Analyst section of the RL Report when planning and managing positions. Speaking from experience, a bit of homework certainly helps traders who trade "the bounces" prepare for the ride.

Trade well,

- Thomas Sutton, Editor

Quick List

    
Stock     12/27     12/27      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

PLMR      50.64     -1.34     52.58                  6.46/3.23      4.92
MIRM      25.90      0.72     26.59     24.47        2.12/1.06      1.20
BNTX      32.58     -0.62     34.00     31.07        2.93/1.47      4.64
ALLK      97.69     -2.82    101.94     92.64        9.30/4.65     18.04

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 access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

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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Market Summary

The US major stock averages closed in a mixed fashion on Friday, as the Dow climbed further into record territory while the NASDAQ and S&P gave back some recent gains. With the holidays still in play, trading volume was light and a dormant economic calendar gave traders little news to consider. In keeping with tradition, there was no significant equity news on the final Friday of 2019 that ended a shortened Christmas holiday week where stocks posted record highs. Treasury yields and the USD/dollar ended the session lower, oil prices and gold finished near even.

                        Dec 26, 2019           Dec 27, 2019   
                  --------------------   --------------------
Dow                    28,621  +105.94        28,645   +23.87
Nasdaq                  9,022   +69.51         9,007   -15.77
S&P 500                 3,240   +16.53         3,240    +0.11

NYSE Volume                      2.22B                  2.49B
NYSE Advancers                    1791                   1341
NYSE Decliners                    1124                   1575

Nasdaq Volume                    1.66B                  1.86B
Nasdaq Advancers                  1739                   1260
Nasdaq Decliners                  1432                   1913

                                 New Highs/Lows

                   12/20  12/23  12/24  12/25  12/26  12/27
                 --------------------------------------------
NYSE New Highs       272    199    133      0    175    203
NYSE New Lows          9     12      5      0      7      4
Nasdaq New Highs     337    240    158      0    216    216
Nasdaq New Lows       51     45     33      0     27     29
   

TRADER'S TIP: "Hi-Tech Trading Platforms"

A direct access trading platform will help a good trader make more money, but it does nothing for those who are still trying to grasp the basics of the stock market. Success in this business is more dependent on accurate chart interpretation than buying the newest hi-tech software or hardware.

Huge profits are made each month by long-time professional traders who still use the phone to place their orders and manage open positions. As your execution and trade management abilities improve, it becomes obvious that what you know is far more important to your bottom line than any state-of-the-art trading platform.

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 3240.02 December 27, 2019

52-Week High: 3247.93
52-Week Low: 2443.96
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3290.99
Resistance 2: 3263.57
Resistance 1: 3251.79
Pivot: 3236.15
Support 1: 3224.37
Support 2: 3208.73
Support 3: 3181.31


NASDAQ Composite - 9006.62 December 27, 2019

52-Week High: 9052.00
52-Week Low: 6457.13
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9232.94
Resistance 2: 9115.30
Resistance 1: 9060.96
Pivot: 8997.66
Support 1: 8943.32
Support 2: 8880.02
Support 3: 8762.38
        
Dow Industrials - 28645.26 December 27, 2019

52-Week High: 28701.66
52-Week Low: 22638.41
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 29032.66
Resistance 2: 28822.78
Resistance 1: 28734.01
Pivot: 28612.90
Support 1: 28524.13
Support 2: 28403.01
Support 3: 28193.13
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, December 30, 2019:
30-Dec  8:30 am   Advance trade in goods
30-Dec  9:45 am   Chicago PMI
30-Dec  10 am   Pending home sales

Tuesday, December 31, 2019:
31-Dec   9 am   Case-Shllier home price index
31-Dec  10 am   Consumer confidence index

Wednesday, January 01, 2020:
01-Jan          None scheduled New Year's Day

Thursday, January 02, 2020:
02-Jan  8:30 am   Weekly jobless claims
02-Jan  9:45 am   Markit manufacturing PMI

Friday, January 03, 2020:
03-Jan  10 am   ISM manufacturing index
03-Jan  10 am   Construction spending
03-Jan  Varies   Motor vehicle sales
         



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

TRADER'S TIP: "Trader Tax Status"

"Trader tax status" is the IRS designation allowing traders to benefit from a number of positive tax rules. Quite a few of these rules are activated by "Mark-To-Market" accounting procedures. For example, Mark- To-Market converts capital losses - that can only be deducted against capital gains - into ordinary losses that can be deducted against ALL types of income. Be sure to check with your tax accountant for details.

Stocks Covered in This Issue

FINANCIAL SERVICES SECTOR

Palomar Holdings, Inc. (PLMR: Financial Services/Insurance-Property & Casualty) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, PLMR 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 50.64, plan to buy shares at 52.58 and use a 6.46 trailing stop. Tighten the stop to 3.23 on a 4.92 gain. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.2B. Optionable.

HEALTHCARE SECTOR

Mirum Pharmaceuticals, Inc. (MIRM: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in MIRM's narrowest trading range of the past seven sessions. With neither group able to take complete control on Friday, 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 26.59 and a SELL order at 24.47. Regardless of which order is triggered, cancel the other one and follow your entry with a 2.12 trailing stop. Tighten the stop to 1.06 once you have a 1.20 gain. MIRM closed Friday at 25.90. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 595M. Not Optionable.

BioNTech SE (BNTX: 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. BNTX traders reached this state of stand-off on Friday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 34.00 and a SELL short trigger at 31.07. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 2.93 which can be tightened to 1.47 on a 4.64 gain. BNTX closed Friday at 32.58. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 7.4B. Not Optionable.

Allakos Inc. (ALLK: Healthcare/Biotechnology) - SQUEEZE PLAY. ALLK traders on both sides of the fence are now locked in a head-to-head shootout. Friday'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 101.94 and a SELL short trigger at 92.64. When one of the orders is filled, cancel the remaining order and enter a 9.30 trailing stop. When you've reached a 18.04 paper profit, tighten the stop to 4.65. ALLK closed at 97.69 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 4.8B. 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  
---------------- -------     --------    -------     ------  -------   

Penns Woods Banc   PWOD    09/03/2019  10/01/2019   3-for-2   No
Equity Lifestyle   ELS     09/20/2019  10/16/2019   2-for-1   Yes
Middlefield Banc   MBCN    10/07/2019  11/12/2019   2-for-1   No
    

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.

Trader's Corner

Trading the Stochastics Indicator

I used to think only price bars could predict the future. I started as a novice, experimenting with every indicator in the book. I could never get the markets to match my mathematics, so I finally gave up and became a pattern reader. In fact, my early writings are so pattern-centric they appear intolerant of all other trading techniques.

I've had a change of heart in recent years because of a tool that's saved my neck on a ton of trades -- the overused and underappreciated stochastics.

What exactly is the stochastics oscillator? It may seem like a simple question, but the answer isn't. The term describes a mathematical process that has an infinite progression of random variables. Let's dumb it down a bit. Stochastics measures how a market closes each price bar relative to its range over time.

This is urgent information for all types of traders. Scalpers use it to read the tempo as money flows through their one-minute charts. Investors use it to identify cycles as weekly stochastics alter the balance of power. But this valuable tool won't give up its secrets easily, and it requires thoughtful interpretation.



The settings you choose don't matter because stochastics print valid patterns with any set of inputs. Different settings will emit different levels of "noise" in the subsequent output. For example, notice how the five-, 13- and 21-day settings on the PetsMart chart affect crossovers at key turning points.

The approach here is to match your inputs with your trading style. For example, daytraders capitalize on subtle shifts in market direction and will benefit from short-term settings. On the other hand, long-term settings help position traders avoid false signals.



Many traders get fooled when stochastics flip to an extreme because they look for a reversal instead of trend continuation. Ironically, the most dynamic price movement often takes place right after these levels are breached. So how do you avoid bad signals and use stochastics for its intended purpose? Look at the unique patterns.

The stochastics middle ground tells you the trend is your friend. Watch when the fast line pulls away from the slow line in this zone. This reveals increasing momentum in the direction of the short-term trend.How can you use this information? Look to buy on the dip (rising) or sell on the bounce (falling) as long as the indicator doesn't roll over. One effective variation of this pattern is a 1-2-3 move where the indicator thrusts out of one extreme, pulls back a little and then thrusts again.



Take advantage of the price surge when stochastics break into an overbought or oversold level. Watch for the fast line to thrust away from the slow line right here. This tiny signal often corresponds with a final burst of buying or selling before a market reverses or goes flat.



Stand aside when stochastics flat line across the top or bottom of the indicator plot, but act quickly when they start breaking in the other direction. This Mesa reversal signal is often timed perfectly with the break of a key support or resistance level. One problem is you can't tell how far a move might carry from the indicator alone. Look at the price pattern to find natural targets for the subsequent swing.



My favorite oscillator patterns are double-tops and double-bottoms. As with price bars, I look for a lower second high to signal a top, and a higher second low to signal a bottom.

Be patient when this pattern develops and let the lines drop away from extreme levels to confirm the signal. This pattern is similar to the Mesa reversal described above, but with one key difference -- it often triggers more follow-through on the subsequent pivot because it reflects more underlying divergence.

************************

This special guest article was written by Alan Farley, author of "The Master Swing Trader." To order a copy of Alan's book, go to http://www.invest-store.com/rightline/

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

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