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December 31, 2022 - The RightLine Report
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NOTES FROM THE EDITOR
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You may be familiar with the "three M's" of trading - Money, Management and Mind. Of the three, the "Mind" part tends to get the least attention when in fact it really deserves the most.
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"QUICK LIST"
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Stock 12/31 12/31 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
BILI 23.69 -0.60 24.49 22.32 2.17/1.09 4.44
SJM 158.46 -0.10 161.36 9.02/4.51 4.68
OM 25.82 -0.15 26.28 1.91/0.96 3.12
VCYT 23.73 -0.36 24.13 22.2 1.93/0.97 3.78
PAR 26.07 0.01 26.52 24.76 1.76/0.88 2.78
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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/. To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/ For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/ Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/
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MARKET SUMMARY
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US stocks closed out the final session of 2022 in the red, as all the major stock indices registered significant losses for the year. Friday's trading was subdued, with the only economic release showing an unexpected rebound in Chicago region manufacturing activity. Equity headlines were limited, though Southwest Airlines Company (LUV $34) continued to be in focus after the company said its latest problems will impact profits in the fourth quarter. Treasury yields, gold and oil prices were higher, the USD/dollar declined. Friday On The Week
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Dow 33,147.25 -73.55 -56.68 -0.17%
Nasdaq 10,466.48 -11.61 -31.38 -0.3%
S&P 500 3,839.50 -9.78 -5.32 -0.14%
NYSE Volume 2.99B
NYSE Advancers 1,400
NYSE Decliners 1,714
Nasdaq Volume 3.97B
Nasdaq Advancers 2,302
Nasdaq Decliners 2,370
New Highs/Lows
12/23 12/26 12/27 12/28 12/29 12/30
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NYSE New Highs 52 65 62 56 49
NYSE New Lows 82 137 180 84 72
Nasdaq New Highs 71 0 103 99 89 101
Nasdaq New Lows 274 0 536 504 209 181
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TRADER'S TIP:
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TRADER'S TIP: "When Your Indicators Contradict The Trend" Due to their overly sensitive nature, some technical indicators will turn in one direction while the price trend remains in the other. A rule of thumb - whenever a price trend and indicators are in conflict, always go with price until the trend is broken. **************************
THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average. For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ S&P 500 - 3839.50 December 30, 2022 52-Week High: 4818.62 52-Week Low: 3491.58 Daily Trend: DOWN Weekly trend: DOWN Weekly Pivot Levels Resistance 3: 3980.97 Resistance 2: 3903.56 Resistance 1: 3871.53 Pivot: 3826.15 Support 1: 3794.12 Support 2: 3748.74 Support 3: 3671.33 https://www.prorightline.com/rlch/123022SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern): Sunday, January 02, 2022: 03-Jan New Year holiday. None scheduled. Monday, January 03, 2022: 04-Jan 9:45 am 04-Jan 10 am Construction spending Tuesday, January 04, 2022: 05-Jan 10 am ISM manufacturing index 05-Jan 10 am Job openings 05-Jan 10 am Quits 05-Jan 2 pm FOMC minutes 05-Jan Varies Motor vehicle sales (SAAR) Wednesday, January 05, 2022: 06-Jan 8:15 am ADP employment report 06-Jan 8:30 am Initial jobless claims 06-Jan 8:30 am Continuing jobless claims 06-Jan 8:30 am Trade deficit 06-Jan 9:45 am Thursday, January 06, 2022: 07-Jan 8:30 am Nonfarm payrolls 07-Jan 8:30 am Unemployment rate 07-Jan 8:30 am Average hourly earnings 07-Jan 8:30 am Labor force participation rate, ages 25-54 07-Jan 10 am ISM services index 07-Jan 10 am Factory orders 07-Jan 10 am Core equipment orders For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: https://prorightline.com/index.php/economic-indicator-effects/
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TRADER'S TIP:
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TRADER'S TIP: "Four Cornerstones of Successful Trading" The four primary objectives of a Trader are to: 1. Clearly define how you see the market. 2. Know under what circumstances you will enter it. 3. Determine in advance what has to happen for you to accept that your trade is or isn't working. 4. Know when to exit your position. ***********************************
STOCKS COVERED IN THIS ISSUE
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COMMUNICATION SERVICES SECTOR Bilibili Inc. (BILI: Communication Services/Electronic Gaming & Multimedia) - 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. BILI 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 24.49 and a SELL short trigger at 22.32. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 2.17 which can be tightened to 1.09 on a 4.44 gain. BILI closed Friday at 23.69. Earnings Report Date: Mar 01, 2023. Beta: 1.20. Market-Cap: 9.071B. Optionable. CONSUMER DEFENSIVE SECTOR The J. M. Smucker Company (SJM: Consumer Defensive/Packaged Foods) - NEW HIGH DIP. You know a stock is performing well when it sets a new 52-week high. Such is the case with SJM, which recently entered new-high territory before dipping lower the past few sessions. A rebound from Moving Average support on Friday indicates SJM may be ready to resume its upward climb. Now sitting at 158.46, a move to 161.36 will trigger a BUY entry. Place a 9.02 trailing stop after entering and tighten it to 4.51 once you've gained 4.68. Earnings Report Date: Feb 27, 2023. Beta: 0.24. Market-Cap: 16.898B. Optionable. HEALTHCARE SECTOR Outset Medical, Inc. (OM: Healthcare/Medical Devices) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday OM seemed intent on initiating a rebound. With moving average support nearby, OM is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 26.28. Manage risk with a 1.91 stop. Tighten your stop to 0.96 when you have a 3.12 profit. OM ended the day at 25.82. Earnings Report Date: Feb 14, 2023. Beta: 1.79. Market-Cap: 1.247B. Optionable. Veracyte, Inc. (VCYT: Healthcare/Biotechnology) - SQUEEZE PLAY. VCYT 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 24.13 and a SELL short trigger at 22.2. When one of the orders is filled, cancel the remaining order and enter a 1.93 trailing stop. When you've reached a 3.78 paper profit, tighten the stop to 0.97. VCYT closed at 23.73 on Friday. Earnings Report Date: Feb 27, 2023. Beta: 1.39. Market-Cap: 1.703B. Optionable. TECHNOLOGY SECTOR PAR Technology Corporation (PAR: Technology/Software-Application) - 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. PAR 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 26.52 and a SELL short trigger at 24.76. When PAR 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 1.76 trailing stop. After you've got a 2.78 profit, tighten the stop to 0.88. PAR closed at 26.07 on Friday. Earnings Report Date: Feb 27, 2023. Beta: 1.74. Market-Cap: 711.445M. Optionable. IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy. Link: https://prorightline.com/index.php/rightline-risk-control-system/ Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels. Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/ ***********************************
STOCK SPLIT SUMMARY
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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 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 For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ **********************************
TRADER'S CORNER
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"Profiting From Psychological Support and Resistance" Sometimes the stock market seems to take on a life of its own. Rather than perceiving price movement as a reflection of human emotions, traders often come to view the whole process as mechanistic and impersonal. Actually, this viewpoint isn't entirely without merit. After all, a healthy chunk of stock trading volume each day is based on the cold calculations of computerized programs. But someone has to tell those computers what to do - artificial intelligence hasn't evolved to the point where machines can make all of their own decisions. Ultimately, every buy and sell order that enters the market comes from somebody's expectation that a stock or market will move higher or lower. The participation of thousands of traders anticipating a certain price movement often creates a "herd mentality" where clear levels of support and resistance can be identified. "Psychological" levels are one of the most common - and intuitive - forms of support and resistance. Their existence stems from the simple fact that humans give special significance to round numbers. Specifically, stocks tend to find support/resistance at increments of 10. This tendency is even stronger at major "milestones" such as 50 and 100. Higher-valued indexes also find areas of psychological significance. The most striking example is Dow 10,000. Take a look at the price action in 2005, and you'll see that a 30-month rally started after bouncing from that level in April of the same year. When it comes to stocks, look for price action to level out on decreasing volume as the equity approaches a round number. Like most forms of support and resistance, these zones of congestion aren't set in stone - they might be pierced several times before a breakout or breakdown occurs. Increased volume and confirmation from technical indicators such as MACD and stochastics help to differentiate "head fakes" from the more meaningful moves. In addition to increments of 10 (40, 50, 60, etc), "minor" psychological support and resistance sometimes develops at the mid-point between those levels (45, 55, 65, and so on). For stocks trading in the single digits, 5.00 and 10.00 can be formidable resistance levels. See the daily chart - Best Buy (BBY): https://prorightline.com/rlr/TC0509041.jpg This chart of Best Buy should help to illustrate these tendencies. Let's break down the various points of interest: 1.) BBY developed support near 50 in late-January/early-February 2004. 2.) 55 emerged as a stubborn resistance level. 3.) BBY plummeted through the support at 50. This breakdown was accompanied by higher-than-average volume; a good sign that the move was not a head-fake. 4.) The sell-off continued until shares found support at 45. 5.) A breakout attempt was made in late-April 2004 as BBY moved through resistance at 55. However, without an uptick in volume the move had little conviction. The stock was quickly pushed back below resistance. Psychological levels are especially helpful when it comes to gauging where a stock might go once it hits the clear air space of all-time highs. An equity trading in "blue-sky territory" has no technical resistance, but does face potential obstacles at increments of 10, and to a lesser extent 5. See the daily chart - eBay Inc. (EBAY): https://prorightline.com/rlr/TC0509042.jpg Something else to keep in mind is the strong magnetic pull of the 100-dollar price level. A good rule of thumb is that once a stock hits 90, odds favor a continued move up to 100. It's a sort of self-fulfilling prophecy; potential sellers expect more upside, so they stay on the sidelines. Meanwhile, shareholders refrain from taking profits until that logical upside target is reached. Once you get the hang of it, it's easy to incorporate psychological levels into your chart analysis. Here are some things to look for: - Is the stock trading at or near all-time highs? If so, has it already shown a tendency to find resistance at 5-dollar and 10-dollar increments? - How has price action reacted as psychological levels were approached? Does the stock have a tendency to hesitate and gyrate near the round number, or does it tend to easily slice through those levels? - Note how volume accompanies price action as shares approach psychological support/resistance. Certain patterns often repeat themselves. Once recognized, they can be used to help anticipate future movement. - Check to see if other technical indicators such as stochastics, MACD, and RSI have tended to provide confirmation for moves above and below psychological levels. ======================================================================
Best of luck and have a Great Week!
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