December 30, 2023 - The RightLine Report
Notes From The Editor
Everyone seems to love the market when it's going up, and hate it when it's going down. In fact, most traders have a typical love-hate relationship with Wall Street.
In truth the immense network of anonymous buyers and sellers has no feelings for us at all. There is absolutely nothing we can do to control what it does, or even influence it. No matter how much noise we make or the actions we take, it doesn't respond. We're each just an anonymous part of an anonymous crowd.
What we can do is learn to control how we react to price movement. This means that we have to first recognize our behavior and the emotions that motivate us to take action. Anger, fear, greed, and even joyful elation are a few of the more common stimulants -- think of them as biochemicals -- that cause people to do things that they often regret.
Becoming too emotionally involved with the market can interfere with our ability to make rational decisions, usually at the precise moment we should be calm and clear headed. We don't have to smother our feelings and become computerized robots, yet we do have to become more aware of our own personal decision making process.
Self-examination enables us to understand how much of our judgment is based on emotional reactions or rational thinking. Then we can adjust for our personal traits.
The objective here is balance. Being human, most of us allow too much sentiment into the equation. While a strong passion for trading is certainly desirable, success in this business depends on our ability to use intelligent reasoning rather than acting solely on our emotions.
Trade well!
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 12/29 12/29 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
RCKY 30.18 -0.94 31.4 2.37/1.19 3.36
ANF 88.22 -1.79 91.69 7.01/3.51 5
PHR 23.15 -0.44 24.08 22.3 1.78/0.89 2.12
ACAD 31.31 -0.08 32.22 30.23 1.99/1 2.42
GYRE 25.69 -0.58 27.42 24.91 2.51/1.26 6.88
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 Trader's Corner
Market Summary
The US stock markets concluded 2023 with a modest decline as the S&P 500 maintained a slight gain for the week, extending its streak of consecutive positive returns to nine. Defensive sectors took the lead on Friday, with consumer staples and health care being the only sectors in the S&P 500 to finish higher.
Throughout December, leadership was widespread across asset classes and sectors. All sectors of the S&P 500, except energy, closed higher in December. Real estate emerged as the top-performing sector for the month, experiencing an approximately 8% rise. Furthermore, the Bloomberg US Aggregate Bond Index, building on a robust November, posted another positive month, increasing by roughly 4% in December. Small-cap stocks also made an impressive move, with the Russell 2000 Index surging over 12% in December. Bond yields showed mixed movements during the final session of the year, with the 2-year Treasury yield declining to around 4.25%, while the 10-year yield moved higher, settling at approximately 3.88%.
Looking ahead to the upcoming week, which marks the start of 2024, market focus will be on various labor-market reports, commencing with Wednesday's JOLTS job openings report. Throughout 2023, job openings have exhibited a gradual decline, indicating a easing of labor-market conditions. However, as of October, there were approximately 8.7 million job openings compared to 6.5 million unemployed, underscoring the disparity between labor supply and demand.
Next Friday, the employment-situation report will offer insights into nonfarm payrolls, average hourly earnings, and the unemployment rate. Despite healthy job gains, wage growth has been slowly moderating throughout the year, supporting robust household consumption without fueling higher inflation. While expectations suggest easing labor-market conditions in the coming year, a significant spike in unemployment is not anticipated, and the labor market is expected to continue providing support to household consumption.
Reflecting on 2023, it marked a bounce-back year after the challenges of 2022, where the S&P 500 ended the year with a 19% decline, and the Bloomberg US Aggregate Bond Index dropped by 13%. Despite hurdles like the regional-bank crisis in March and rising interest rates in the summer and early fall, the S&P 500 surged by approximately 24%, and US investment-grade bonds gained about 5%. The catalyst for this rebound was the delicate balance of falling inflation, resilient economic activity, and a clear signal from the Fed that it had concluded its rate-hiking cycle.
The strong performance in 2023 extended beyond U.S. large-cap stocks and investment-grade bonds, encompassing the MSCI EAFE Index (primarily Japanese and European stocks), which rose over 15%, and the Russell 2000 Index (representing US small-cap stocks), which posted a gain of roughly 16%. As attention turns to 2024, there are fundamental factors in place that offer reasons for optimism in the new year.
Friday On The Week
-------------------- --------------------
Dow 37,689.54 -20.56 +303.57 0.81%
Nasdaq 15,011.35 -83.78 +18.38 0.12%
S&P 500 4,769.83 -13.52 +15.2 0.32%
NYSE Volume 3.15B
NYSE Advancers 787
NYSE Decliners 2,058
Nasdaq Volume 5.46B
Nasdaq Advancers 1,280
Nasdaq Decliners 3,079
New Highs/Lows
12/22 12/25 12/26 12/27 12/28 12/29
--------------------------------------------
NYSE New Highs 183 186 222 235 133 101
NYSE New Lows 10 11 3 4 7 9
Nasdaq New Highs 276 285 392 398 255 59
Nasdaq New Lows 83 81 65 80 60 37
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Stubborn?"
Is it really wise to fight the market? The tendency for new traders to stubbornly hold onto losing positions usually results in deep regret. Cut losses quick, and get on to the next trade. Remember, only the market is ALWAYS right. No one else.
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 - 4769.83 December 29, 2023
52-Week High: 4793.30
52-Week Low: 3780.78
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4879.77
Resistance 2: 4823.19
Resistance 1: 4796.51
Pivot: 4766.61
Support 1: 4739.93
Support 2: 4710.03
Support 3: 4653.45
NASDAQ Composite - 15011.35 December 29, 2023
52-Week High: 15150.07
52-Week Low: 10207.47
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15475.42
Resistance 2: 15252.47
Resistance 1: 15131.91
Pivot: 15029.51
Support 1: 14908.95
Support 2: 14806.55
Support 3: 14583.59
Dow Industrials - 37689.54 December 29, 2023
52-Week High: 37778.85
52-Week Low: 31429.82
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 38599.12
Resistance 2: 38089.10
Resistance 1: 37889.32
Pivot: 37579.07
Support 1: 37379.29
Support 2: 37069.04
Support 3: 36559.01
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, JAN 1 New Year's holiday, markets closed TUESDAY, JAN 2 9:45 am S&P final U.S. manufacturing PMI Dec. 10:00 am Construction spending Nov. WEDNESDAY, JAN 3 10:00 am U.S. job openings Nov. 10:00 am ISM manufacturing Dec. 2 pm Minutes of Fed's December meeting TBA Auto sales Dec. THURSDAY, JAN 4 8:15 am ADP employment Dec. 8:30 am Initial jobless claims Dec. 30 9:45 am S&P final U.S. services PMI Dec. FRIDAY, JAN 5 8:30 am U.S. employment report Dec. 8:30 am U.S. unemployment rate Dec. 8:30 am U.S. hourly wages Dec. 8:30 am Hourly wages (year over year) 10:00 am ISM services Dec. 10:00 am Factory orders Nov. 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: "More Winners, or More Profits?"
It's always nice to have a winning trade, yet a large number of winners don't always guarantee a large amount of profits. A review of the top ten most profitable mechanical trading systems of all time revealed that the best winning rate was 57.5%. Surprisingly, several of the top performers had more losers than winners. The key to the success of these systems is that winning trades outperformed losers by a wide margin. The stock market can be a finicky at times, so make sure to use risk control to protect your profits and capital. One big winner can offset several small losers. Always cut losses quickly and let the winners grow. And remember, profits matter more than the percentage of winners.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Rocky Brands, Inc. (RCKY: Consumer Cyclical/Footwear & Accessories) - NEW HIGH DIP. "Buy the dip" is usually good advice when applied to an up-trending stock. This is expecially true when a new 52-week high has recently made its mark on the charts. RCKY meets the setup requirements, so get ready to BUY if shares reach our trigger price of 31.4. Once you've confirmed that your order is filled, follow it with a 2.37 trailing stop which can be changed to 1.19 when you have a 3.36-point gain. RCKY closed Friday at 30.18. Earnings Report Date: Feb 21, 2024. Beta: 1.87. Market-Cap: 222.663M. Not Optionable.
Abercrombie & Fitch Co. (ANF: Consumer Cyclical/Apparel Retail) - NEW HIGH DIP. As a rule of thumb, outstanding stocks like ANF continue to perform well for extended periods of time. The recent pullback from a new 52-week high gives us a chance to enter a position without taking much risk. ANF's price behavior on Friday points to another move higher, so prepare to BUY shares at the trigger price of 91.69. Once in, follow the purchase with a 7.01 trailing stop. Change the stop to 3.51 upon gaining 5 points. ANF closed Friday at 88.22. Earnings Report Date: Feb 28, 2024. Beta: 1.47. Market-Cap: 4.447B. Optionable.
HEALTHCARE SECTOR
Phreesia, Inc. (PHR: Healthcare/Health Information Services) - SQUEEZE PLAY. PHR 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 24.08 and a SELL short trigger at 22.3. When one of the orders is filled, cancel the remaining order and enter a 1.78 trailing stop. When you've reached a 2.12 paper profit, tighten the stop to 0.89. PHR closed at 23.15 on Friday. Earnings Report Date: Mar 20, 2024. Beta: 0.84. Market-Cap: 1.288B. Optionable.
ACADIA Pharmaceuticals Inc. (ACAD: Healthcare/Biotechnology) - SQUEEZE PLAY. ACAD 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. ACAD closed Friday at 31.31. The plan is to enter in the right direction by placing a BUY trigger at 32.22 and a SELL short trigger at 30.23. Once ACAD establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.99. After you've collected a 2.42 profit, tighten the stop to 1. Earnings Report Date: Feb 26, 2024. Beta: 0.59. Market-Cap: 5.14B. Optionable.
N/A SECTOR
Gyre Therapeutics, Inc. (GYRE: N/A/N/A) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. GYRE found itself in this condition on Friday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 27.42 and a SELL short trigger at 24.91. When GYRE moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2.51 trailing stop. After you've got a 6.88 profit, tighten the stop to 1.26. GYRE closed at 25.69 on Friday. Earnings Report Date: Mar 28, 2024. Beta: N/A. Market-Cap: N/A. 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
---------------- ------- -------- ------- ------ -------
NOTE: The number of stock split announcments goes up during Bull markets,
and goes down during Bear market cycles. There are currently no upcoming
stock splits that meet RightLine's proprietary criteria for split ratio,
trading volume and price action.
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
Buying The Pullback
Buying the pullback makes good sense after a strong rally, but it's a great way to lose money if you jump in too early or too late.
How can you find perfect timing when it comes to this classic play? The key lies in reading the clues of the charting landscape. It's natural for markets to correct after big rallies. This countertrend move lowers the emotional fires and sets up the ideal conditions for a swing back to higher prices.
But any pullback can turn into a reversal and trap your position in a downward spiral. So let's look at the types of pullbacks we want to buy and those that should be avoided at all costs.
Volume presents important evidence about a stock's intentions when it starts to pull back. Look for selling to contract when bars test lower prices. The most bullish volume shows a steady downslope in the histograms under the price bars. This suggests shareholders are hanging tough because they believe in higher prices. Alternatively, big red volume spikes show fear and may signal important tops.
Don't trade a pullback against a gap. There are two types of gaps you need to worry about. The first shows up on a high-volume move near the end of the rally. This corresponds with an exhaustion gap that warns traders a reversal is near. It also marks resistance after a stock finds support on the pullback and starts to rally again.
Second, don't buy into a gap down when the stock is pulling back unless it gets filled the same day. This is a tough one because falling stocks often find support right after the longs give up and sell into a gap down opening. The problem comes when the gap doesn't fill by day's end. This prints a bearish reversal on the price chart and attracts more selling.
The simplest entry comes from a pullback into a strong support level. Trend lines, old highs and Bollinger Bands ease selling pressure, and allow buyers to carry the market back in the other direction. The biggest problem with these falling-knife entries is usually psychological. The trader loses confidence while watching the intensity of the selloff and fails to act when it's time to pull the trigger.
A trip down to the 50-day moving average offers an excellent opportunity for dip buyers who want to hold positions for a few days or a few weeks. This price zone usually marks strong support after a rally. A market pulling back here also suggests early dip buyers got beat up on the ride down.
Pullbacks tend to feed on traders who buy too early. In other words, they buy and the market drops, stopping them out and forcing prices even lower. This downward spiral continues until prices reach a large pool of buying interest. This fresh demand often sits right at the 50- day moving average.
Many traders use Fibonacci retracements to uncover hidden support on a pullback. But this is a lot harder than it looks. Stocks commonly drop to three different retracement levels, and you can lose a lot of money when you pick the wrong one. Fortunately there are ways to focus in and locate the most likely support level. Put the odds squarely in your favor by standing aside until price reaches a deep retracement that corresponds with other types of support. This means the safest strategy is to focus on the 62% retracement and look for intermediate averages or old highs at the same prices. This process is called cross-verification. It works because it's self- fulfilling. Different traders look for different types of support in various pullback scenarios. Finding convergence of multiple support types at narrow price levels taps into this broad set of buying signals.
The intraday chart holds the key to pullback profits. Often, it's hard to make sense of a market pulling back on a daily chart. Fortunately trends evolve in all time frames, and traders can use the intraday chart to uncover hidden support and resistance levels.Focus on the 60-minute chart because this gives you many days of intraday price bars to work with. Pull one up when you see a correction in progress, and start searching for common patterns, such as bull flags or double bottoms. These inflection points reveal low- risk entry prices for positions taken in much longer time frames.
This special guest article was written by Alan Farley, author of "The Master Swing Trader."
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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