December 29, 2022 - The RightLine Report
Notes From The Editor
Success in the market rarely comes from some innate sense of where stocks are headed. While a "seat-of-your pants" approach might work temporarily, growing an account over the long run requires a consistent approach that incorporates some basic trading rules.
The stock selection process is the first step in any trade, and a good time to start utilizing a consistent framework. This begins with trade filters.
Trade filters perform two functions. In addition to weeding out unacceptable candidates and narrowing the field of potential set-ups, they also increase the odds for success.
Following are some basic filters and their rationale:
* Average Daily Volume of at least 100,000 shares. With this limitation, you've thrown away hundreds of micro-cap and small-cap stocks from the list of potential trades. The reason for this is that stocks with low volume are more easily manipulated and often show unpredictable price movement. Technical analysis is less effective in these cases. A corresponding filter uses the actual market cap, rather than volume.
* Share cost of at least $7.00. The reasoning is similar to the first filter; the lower the stock price, the more volatile and predictable the equity tends to be. If you've ever received one of those spam emails hyping a certain stock, it's most likely been one trading in the low single-digits. Sure, it might easily double within just a few days - but it could just as easily be halved in value. Caveat Emptor!
* A risk/reward ratio of at least 1:2. Unlike the first two criteria, this one is subjective. This is where a trader must employ technical analysis to gauge where a stock is likely to move within their chosen timeframe. For every one dollar of risk, there should be at least 2 dollars of potential gains. If not, move along to greener pastures.
* No earnings reports scheduled for the following week. The heightened volatility and increased likelihood of gapping action means that stocks with upcoming quarterly announcements should be avoided.
Of course, rules are made to be broken. Occasionally there will be an enticing set-up with a lower-volume equity, or even one priced at just a few dollars. If recent trading history suggests that price action won't be overly volatile, it might be reasonable to make an exception.
Finally, it's important to note that the specifics of a trader's filters will depend on their own strategy. Those outlined above are ideal for a swing trading approach. Daytraders - who thrive on volatility - might opt for choppy lower-priced stocks, while longer- term traders might look for higher average volume.
Here's to Profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits
Quick List
Stock 12/30 12/30 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
VTRU 22.40 0.38 22.69 20.9 1.79/0.9 2.78
ISEE 20.95 -0.08 21.79 20.28 1.51/0.76 2.24
POWL 35.20 0.90 36.16 3.5/1.75 3.1
ESAB 48.39 0.59 49.37 2.97/1.49 2.62
AEHR 20.63 0.72 21.08 19.41 1.67/0.84 4.18
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
Questions? Send us an email using our Contact Form.
Stocks Covered Today Stock Splits
Market Summary
Stocks were solidly higher on Thursday, as light trading volume in the final sessions of 2022 reveals that a signficant number of professional traders and market makers will remain on holiday vacation until the 2023 New Year gets underway. The economic calendar offered fresh labor info, with unemployment claims moving slightly higher than the previous week. Light equities news headlined Cal-Maine Foods (CALM $53), whose stock price dropped after the company fell short of quarterly earnings projections. Gold moved higher, oil prices and the USD/dollar were lower, treasury yields finished the day mixed.
Dec 28, 2022 Dec 29, 2022
-------------------- --------------------
Dow 32,875.71 -365.85 33,220.80 345.09
Nasdaq 10,213.29 -139.94 10,478.09 264.80
S&P 500 3,783.22 -46.03 3,849.28 66.06
NYSE Volume 3.1B 3.01B
NYSE Advancers 718 2,629
NYSE Decliners 2,455 525
Nasdaq Volume 3.86B 4.17B
Nasdaq Advancers 1,546 3,740
Nasdaq Decliners 3,042 868
New Highs/Lows
12/22 12/23 12/26 12/27 12/28 12/29
--------------------------------------------
NYSE New Highs 47 52 65 62 56
NYSE New Lows 201 82 137 180 84
Nasdaq New Highs 96 71 0 103 99 89
Nasdaq New Lows 483 274 0 536 504 209
Stocks Covered Today Stock Splits
TRADER'S TIP: "What If I Had A Crystal Ball?"
You don't need a crystal ball if you prepare for each trade with the "what if" approach. Always remember to ask these questions before entering any position - "What will I do if price moves in my favor?" And "What will I do if price moves against me?" Most traders and investors never consider these questions at all, so simply writing down specific answers will put you way ahead of the game.
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 - 3849.28 December 29, 2022
52-Week High: 4818.62
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 2701.14
Resistance 2: 2623.73
Resistance 1: 1311.86
Pivot: 2546.32
Support 1: 1234.45
Support 2: 2468.91
Support 3: 2391.50
NASDAQ Composite - 10478.09 December 29, 2022
52-Week High: 15868.09
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 7522.01
Resistance 2: 7214.71
Resistance 1: 3607.35
Pivot: 6907.41
Support 1: 3300.05
Support 2: 6600.11
Support 3: 6292.81
Dow Industrials - 33220.80 December 29, 2022
52-Week High: 36952.65
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 23214.56
Resistance 2: 22640.91
Resistance 1: 11320.45
Pivot: 22067.26
Support 1: 10746.80
Support 2: 21493.61
Support 3: 20919.96
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Sunday, January 02, 2022: 26-Dec Christmas holiday. None scheduled. Monday, January 03, 2022: 27-Dec 8:30 am Trade in goods, advance report 27-Dec 9 am 27-Dec 9 am FHFA U.S. home price index (SAAR) Tuesday, January 04, 2022: 28-Dec 10 am Pending home sales index Thursday, December 29, 2022: 29-Dec 8:30 am Initial jobless claims 29-Dec 8:30 am Continuing jobless claims Friday, December 30, 2022: 30-Dec 9:45 am Chicago 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: "When Volatility Steps Up On Fed Day"
When volatility steps up, it may be time for some traders to sit down. During times of wild and erratic trading, don't be afraid to let things settle down before attempting to take advantage of the situation. Often times, new traders get caught up in the euphoria of rapidly changing prices, but then get stung on poor fills, slow fills, market manipulation, and the likes. Unless you've got the experience and tools to successfully trade during "crunch" times, it may be best to just sit and watch. A good example of this type of trading situation arrives with each Fed interest rate announcement, after which, the pits tend to go wild for a time before traders and investors settle down to more orderly trading.
Stocks Covered in This Issue
CONSUMER DEFENSIVE SECTOR
Vitru Limited (VTRU: Consumer Defensive/Education & Training Services) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in VTRU'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 22.69 and a SELL order at 20.9. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.79 trailing stop. Tighten the stop to 0.9 once you have a 2.78 gain. VTRU closed Thursday at 22.40. Earnings Report Date: Mar 08, 2023. Beta: -0.14. Market-Cap: 749.757M. Not Optionable.
HEALTHCARE SECTOR
IVERIC bio, Inc. (ISEE: Healthcare/Biotechnology) - SQUEEZE PLAY. Trader indecision has put ISEE squarely in the center of a Bull versus Bear standoff. This tight spot should soon give way to a clear winner in the short-term, and we want to be in position for the move. To do that we've set a BUY entry at 21.79 and a SELL short entry at 20.28. Now it's up to ISEE to show us which entry will be filled. Once the trade is underway place a 1.51 trailing stop, which can be tightened to 0.76 after you achieve a 2.24 profit. ISEE closed on Thursday at 20.95. Earnings Report Date: Feb 22, 2023. Beta: 1.02. Market-Cap: 2.809B. Optionable.
INDUSTRIALS SECTOR
Powell Industries, Inc. (POWL: Industrials/Electrical Equipment & Parts) - BULLISH BOUNCE. POWL's positive weekly uptrend is still intact despite recent selling that has driven share prices lower. Price action on Thursday shows that traders are aware of the moving average support zone now in play, and they are ready to consider buying again. A shift up from this point will attract even more buyers. The new buying should move POWL back in step with the bullish weekly trend, so our BUY entry trigger is set at 36.16. Once you hold a position, trail a stop of 3.5. Tighten it to 1.75 on a 3.1 gain. POWL closed at 35.20 on Thursday. Earnings Report Date: Feb 06, 2023. Beta: 1.19. Market-Cap: 416.117M. Optionable.
ESAB Corporation (ESAB: Industrials/Metal Fabrication) - BULLISH BOUNCE. The charts for ESAB show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Thursday, resulting in the early stages of a rebound that started near moving average support. The resulting Bullish Bounce set-up offers a potential entry point for a long play. Set your trigger to BUY shares at 49.37, and follow your entry with a trailing stop of 2.97. Tighten it to 1.49 when a 2.62 profit is reached. ESAB ended the latest session at 48.39. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.907B. Optionable.
TECHNOLOGY SECTOR
Aehr Test Systems (AEHR: Technology/Semiconductor Equipment & Materials) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In AEHR's case we will enter a BUY should it reach the 21.08 level, or a SELL short trade if it drops to 19.41. As usual a trailing stop is essential, 1.67 which should be tightened to 0.84 on a 4.18 gain. AEHR closed Thursday at 20.63. Earnings Report Date: Jan 05, 2023. Beta: 1.73. Market-Cap: 567.23M. 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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