December 8, 2022 - The RightLine Report
Notes From The Editor
Bouncing Along ...
Though many investors are uncomfortable with bouncy market conditions, the up-and-down price movement offers traders an abundant supply of short-term profit opportunities. A high success rate and low risk entry requirements make "Bounce" plays extremely popular in this type of climate.
However, many traders don't get the maximum benefit from these common reversal patterns. Let's take a quick look at a couple of key factors that will improve our profits when we trade bounces.
A "bounce" occurs whenever price drops to a support level - such as a moving average - then reverses and proceeds higher. Obviously the amount of price movement after the reversal should be large enough to provide a reasonable profit. So how can we know for sure that a bounce is underway, and when is the best time to enter?
There have to be two basic components in place before you enter a trade. The first is the Setup. A Setup is a specific condition or set of conditions that must be met before you will consider entering a position. The second component is the Trigger. A Trigger is the specific signal that tells you exactly when to enter.
The conditions for Setups vary, depending on the type of trade and the chosen timeframe. Here is an example of a simple Setup that might be used for a bounce play on a daily chart. Though it doesn't include all of the criteria that you should normally look for, it will give you an idea of what qualifies.
The Setup: "Price drops from previous level to within 1-percent of the 22 EMA, then reverses to close above the session low by at least 25 percent of the intraday range."
Notice that the Setup specifically defines the conditions. A careful review of successful bounce plays reveals common traits. The best way to "know" if a bounce is underway is to set reasonable conditions that define the early stages of a reversal. This doesn't guarantee that a reversal will always continue far enough in a profitable direction to make the trade worthwhile. It does increase the odds that a true bounce is about to occur.
So when do we know to get in? We use a Trigger. The purpose of a Trigger is to confirm that price is still moving in the proper direction once the conditions are met. Just as with a Setup, the criteria for an entry Trigger will vary. Here's an example of a simple Trigger for the bounce Setup: "Buy shares when price rises 0.15 above the high of the Set-up session."
While each trader may prefer to use their own set of conditions for the Setup and Trigger, it's very important that the rules for both are very precise. This allows you to track the effectiveness of your methods and make adjustments whenever needed - an important process when adapting to ever changing markets.
Here are a few guidelines that I always follow:
- A bounce setup should be specific enough to leave no doubt that a rebound is likely to occur.
- Regardless of the specifics for each Set-up and Trigger, the Trigger will always confirm the price direction that is indicated by the Set- up. This obligates price to clearly move in the intended direction before a position is entered, usually beyond a resistance level such as the high or opening price.
- Only change or revise the conditions after careful evaluation.
- Never change your rules while you are in a trade.
Bottom Line: Different traders use different Setups and Triggers. The important thing to remember is that every trade needs both!
Trade well,
Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 12/08 12/08 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
CRT 21.30 0.28 22.38 20.61 1.77/0.89 2.06
AMK 24.31 0.19 24.78 1.49/0.75 1.44
COLL 22.50 0.62 23.09 1.97/0.99 1.52
UEIC 21.97 -0.01 22.42 20.81 1.61/0.81 2.18
SPWR 22.24 0.03 23.06 21.49 1.57/0.79 2.98
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
Market Summary
Stocks were higher on Thursday with jobs data headlining the economic calendar, as unemployment claims ticked higher. News on the equities front was upbeat, with shares of Ciena Corporation rallying after the networking equipment maker beat profit forecasts, while Exxon Mobil (XOM $104) and Chevron (CVX $174) both reported that their capital expenditures in 2023 will be at the top end of their guidance. Gold and treasury yields were higher, oil prices and the USD/dollar finished lower.
Dec 7, 2022 Dec 8, 2022
-------------------- --------------------
Dow 33,597.92 1.58 33,781.48 183.56
Nasdaq 10,958.55 -56.34 11,082.00 123.45
S&P 500 3,933.92 -7.34 3,963.51 29.59
NYSE Volume 4.18B 4.01B
NYSE Advancers 1,512 1,740
NYSE Decliners 1,616 1,378
Nasdaq Volume 4.39B 4.3B
Nasdaq Advancers 1,946 2,662
Nasdaq Decliners 2,603 1,927
New Highs/Lows
12/01 12/02 12/05 12/06 12/07 12/08
--------------------------------------------
NYSE New Highs 104 89 62 37 38 49
NYSE New Lows 25 44 55 114 102 71
Nasdaq New Highs 126 98 108 68 70 111
Nasdaq New Lows 107 128 169 312 327 254
Stocks Covered Today Stock Splits
TRADER'S TIP: "Nay-Sayers and Hay-Makers"
It seems that practically every market turn comes draped in commentary and analysis from all angles of pundits and prophets. For every pullback there's the requisite reasoning for a "golden buying opportunity," which comes equally weighted with the seemingly sound logic of numerous warning signs signaling impending doom. Enough already! Once in a while try turning down the volume and simply observing the charts and figures that come across without the rhetoric. It can be so much more informative.
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 - 3963.51 December 8, 2022
52-Week High: 4818.62
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4362.33
Resistance 2: 4199.47
Resistance 1: 4135.59
Pivot: 4036.62
Support 1: 3972.73
Support 2: 3873.76
Support 3: 3710.90
NASDAQ Composite - 11082.00 December 8, 2022
52-Week High: 15901.47
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12522.34
Resistance 2: 11919.94
Resistance 1: 11690.72
Pivot: 11317.54
Support 1: 11088.32
Support 2: 10715.14
Support 3: 10112.74
Dow Industrials - 33781.48 December 8, 2022
52-Week High: 36952.65
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 36226.53
Resistance 2: 35214.79
Resistance 1: 34822.33
Pivot: 34203.05
Support 1: 33810.59
Support 2: 33191.31
Support 3: 32179.57
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, December 05, 2022: 05-Dec 9:45 am 05-Dec 10 am ISM services index 05-Dec 10 am Factory orders Tuesday, December 06, 2022: 06-Dec 8:30 am Trade deficit Wednesday, December 07, 2022: 07-Dec 8:30 am Productivity (SAAR) revision 07-Dec 8:30 am Unit labor costs (SAAR) revision 07-Dec 3 pm Consumer credit (level change) Thursday, December 08, 2022: 08-Dec 8:30 am Initial jobless claims 08-Dec 8:30 am Continuing jobless claims Friday, December 09, 2022: 09-Dec 8:30 am Producer price index final demand 09-Dec 10 am UMich consumer sentiment index (early) 09-Dec 10 am UMich 5-year inflation expectations (early) 09-Dec 10 am Wholesale inventories revision 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: "Volume and the Trend"
As a general rule, trading volume tends to increase in the direction of the primary trend. For example, during uptrends you can expect higher volume on up-days and lower volume on down days. Downtrends usually exhibit the opposite result - more volume on down days, less volume on up days. Take notice whenever volume in the primary direction begins to shrink - this is often an early sign that the primary trend is about to change.
Stocks Covered in This Issue
ENERGY SECTOR
Cross Timbers Royalty Trust (CRT: Energy/Oil & Gas E&P) - SQUEEZE PLAY. Thursday's narrow price range has created a potentially profitable setup in CRT, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 22.38 and a SELL short entry at 20.61. Let CRT's price action determine your long or short entry. Once the order is filled, place a 1.77 trailing stop, and tighten it to 0.89 upon getting a 2.06 gain. CRT closed Thursday at 21.30. Earnings Report Date: N/A. Beta: 0.74. Market-Cap: 127.8M. Not Optionable.
FINANCIAL SERVICES SECTOR
AssetMark Financial Holdings, Inc. (AMK: Financial Services/Asset Management) - BULLISH BOUNCE. AMK'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 AMK back in step with the bullish weekly trend, so our BUY entry trigger is set at 24.78. Once you hold a position, trail a stop of 1.49. Tighten it to 0.75 on a 1.44 gain. AMK closed at 24.31 on Thursday. Earnings Report Date: Feb 13, 2023. Beta: 1.05. Market-Cap: 1.795B. Optionable.
HEALTHCARE SECTOR
Collegium Pharmaceutical, Inc. (COLL: Healthcare/Drug Manufacturers-Specialty & Generic) - BULLISH BOUNCE. Positive price behavior near moving average support on Thursday qualifies COLL for a Bullish Bounce setup. After several sessions of declining prices, COLL should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if COLL moves up to our entry trigger set at 23.09. You can also enter a 1.97 trailing stop, to be replaced with a 0.99 trailing stop when you obtain a 1.52 profit. COLL closed Thursday at 22.50. Earnings Report Date: Feb 22, 2023. Beta: 0.85. Market-Cap: 755.368M. Optionable.
TECHNOLOGY SECTOR
Universal Electronics Inc. (UEIC: Technology/Consumer Electronics) - SQUEEZE PLAY. Thursday's trading action forced UEIC's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction UEIC will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 22.42 if UEIC moves higher, and place your order to SELL short at 20.81 if price declines to that level. As usual follow your entry with a trailing stop, 1.61 should be sufficient. Reduce your stop to 0.81 on a 2.18 gain. UEIC closed Thursday at 21.97. Earnings Report Date: Feb 15, 2023. Beta: 1.11. Market-Cap: 278.619M. Optionable.
SunPower Corporation (SPWR: Technology/Solar) - SQUEEZE PLAY. SPWR is caught in a dilemma. The stock's compressed price range on Thursday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. SPWR is now at 22.24. We can capture price action either way by placing a BUY trigger at 23.06 and a SELL short trigger at 21.49. Once SPWR reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.57. When you acquire a 2.98 profit, tighten the stop to 0.79. Earnings Report Date: Feb 14, 2023. Beta: 1.61. Market-Cap: 3.874B. 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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