December 9, 2021 - The RightLine Report
Notes From The Editor
When you send your gift requests to Santa, be sure that Dr. Alex Elder's book "Sell & Sell Short" is on the list. Alex is the same author that wrote the "official" trader's manual many years ago ... "Trading For A Living." Below are a few brief excerpts from chapters three and seven. When you read them you'll get a taste of the book's value, plus a valuable glimpse into a veteran trader's mind.
Enjoy!
- Thomas Sutton, Editor
"On Keeping Records" - from Chapter Three
Whenever you put on a trade, you must have two goals. The first, of course, is to make money. The second is to become a better trader.
You can reach the first goal in some trades, but not in every trade. There is a fair bit of randomness in the markets, and even the best planned trades can go awry. Even a top trader cannot win in every trade -- this is a fact of life.
On the other hand, becoming a better trader is an essential and very reachable goal for every trade. Whether you win or lose, you must become a better trader at the conclusion of each trade. If you haven't, the trade has been wasted. All the energy and time you put into analysis, all the risks you took with your money -- wasted. You must keep learning from your experience, otherwise you are just playing at being a trader and not being serious. The absence of records exposes a wannabe trader as a dreamer and an imposter.
The best way to learn from your experience is to keep good records. Keeping good records allow you to transform fleeting experiences into solid memories. Your market analysis and your decisions to buy or sell become deposits in your data bank. You can draw on those memories, re- examine them, and use them to grow into a better trader. Writing your notes makes you focus and use your "extracranial memory." A human mind has a limited amount of memory that is instantly available (what the computer people call RAM).
The rules of money management we have just discussed will help you survive the inevitable rocky times. The record-keeping methods I am about to share with you will put your learning into a solid uptrend, and your performance will follow. Money management and record-keeping, taken together, create a rock-solid foundation for your survival and success.
"Shorting Stocks" - from Chapter Seven
Stocks do not move in straight lines. They rise and fall as naturally as humans inhale and exhale. Some of their rises and declines are minuscule, but others are quite large, presenting attractive trading opportunities.
There is one common prejudice from which you must free yourself order to sell short. Most people feel comfortable buying but feel uneasy profiting from declines. I think they acquire this prejudice as young adults. When I taught a class on trading at a local high school, the kids took to shorting like fish to water. They were responsible for bringing in trading ideas, and we would discuss them in class and trade them in the account I had opened for that class. On any given day the kids would make as many suggestions to sell short as to buy. Often the same kid would bring up both a long and a short.
The kids got it. They understood that trading means betting on moving objects. It matters little whether you bet on a rise or a decline. You only need to get the direction right and determine the most promising entry point, profit target, and where to place a protective stop. The kids came to the market without prejudices and had no inhibitions against shorting. The class bagged some profits on the way up and on the way down. It also took some losses in both directions, but we made sure they were smaller than our wins. We played the game in both directions.
Stocks Covered Today Stock Splits
Quick List
Stock 12/09 12/09 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
GPI 201.97 -0.11 206.52 12.6/6.3 13.88
NOG 20.42 -0.32 20.93 19.41 1.52/0.76 2.6
FLNG 21.36 -0.13 21.96 20.36 1.6/0.8 1.68
AUPH 20.97 0.13 22.44 20.21 2.23/1.12 4.58
EDRY 21.02 -0.78 20.22 1.74/0.87 5.06
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
The major stock averages were mixed on Thursday, with the Dow Jones Industrial Average nearly unchanged, while the S&P 500 Index and the Nasdaq Composite were both modestly lower. Economic headlines featured unemployment claims hitting a 50-year low, while wholesale inventories were revised higher. In equities, GameStop (GME $156) announced mixed results, coming in below earnings expectations and reporting a bigger loss than expected. Hormel Foods (HRL $45) beat earnings and revenue expectations with record sales and profits for the quarter. Oil prices and gold were lower, the USD/dollar was higher, treasuries were mixed.
Dec 8, 2021 Dec 9, 2021
-------------------- --------------------
Dow 35,754.75 35.32 35,754.69 -0.06
Nasdaq 15,786.99 100.07 15,517.37 -269.62
S&P 500 4,701.21 14.46 4,667.45 -33.76
NYSE Volume 4.37B 3.85B
NYSE Advancers 2,069 848
NYSE Decliners 1,290 2,485
Nasdaq Volume 4.64B 4.48B
Nasdaq Advancers 3,074 1,148
Nasdaq Decliners 1,592 3,547
New Highs/Lows
12/02 12/03 12/06 12/07 12/08 12/09
--------------------------------------------
NYSE New Highs 17 28 53 90 82 49
NYSE New Lows 188 208 137 23 19 53
Nasdaq New Highs 31 27 42 72 50 59
Nasdaq New Lows 619 732 657 66 67 89
Stocks Covered Today Stock Splits
TRADER'S TIP: "Paper Trading"
"The purpose of rehearsal is to create the habit of the objective."
~ William H. Macy, actor
Paper trading is helpful because it allows newcomers to learn and develop a certain degree of skill without putting real money into the market. However, this type of "virtual" experience is limited because it doesn't produce genuine emotional involvement.
In fact there is a huge difference between the safety of imagined risk and the raw challenge of having to put cash - your cash - at risk. In the real world, emotional challenges due to routine losses usually influence a trader's attitude and decision-making process to a larger degree than ever expected.
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 - 4667.45 December 9, 2021
52-Week High: 4743.83
52-Week Low: 3633.40
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4924.49
Resistance 2: 4746.66
Resistance 1: 4642.54
Pivot: 4568.83
Support 1: 4464.71
Support 2: 4391.00
Support 3: 4213.17
NASDAQ Composite - 15517.37 December 9, 2021
52-Week High: 16212.23
52-Week Low: 12214.74
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 17087.31
Resistance 2: 16185.26
Resistance 1: 15635.36
Pivot: 15283.21
Support 1: 14733.31
Support 2: 14381.16
Support 3: 13479.11
Dow Industrials - 35754.69 December 9, 2021
52-Week High: 36565.73
52-Week Low: 29755.53
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 37186.85
Resistance 2: 35905.92
Resistance 1: 35243.00
Pivot: 34624.99
Support 1: 33962.07
Support 2: 33344.06
Support 3: 32063.13
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Friday, December 10, 2021: 10-Dec 8:30 am Consumer price index 10-Dec 8:30 am Core inflation 10-Dec 8:30 am CPI (year-over-year change) 10-Dec 10 am UMich consumer sentiment index (preliminary) 10-Dec 10 am Expected inflation, five-years (preliminary) 10-Dec 2 pm Federal budget 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: "How Do You Get To Carnegie Hall?"
We've all heard the answer to this old joke . . . "practice, practice, practice!" While it is certainly obvious that trading successfully requires plenty of it, many investors have yet to apply this ancient bit of oriental wisdom: "Practice is the best of all instructors."
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Group 1 Automotive, Inc. (GPI: Consumer Cyclical/Auto & Truck Dealerships) - NEW HIGH DIP. Confident in its ability to continue trending skyward, GPI's pullback from a new 52-week high sets the stage for a return to that peak. Price activity on Thursday provided a setup, with the BUY trigger ready at 206.52 should GPI reach that level. Follow up your entry with a 12.6 trailing stop. Tighten it to 6.3 when you have a 13.88-point gain. GPI closed Thursday at 201.97. Earnings Report Date: Feb 02, 2022. Beta: 1.72. Market-Cap: 3.656B. Optionable.
ENERGY SECTOR
Northern Oil and Gas, Inc. (NOG: Energy/Oil & Gas E&P) - 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 NOG's case we will enter a BUY should it reach the 20.93 level, or a SELL short trade if it drops to 19.41. As usual a trailing stop is essential, 1.52 which should be tightened to 0.76 on a 2.6 gain. NOG closed Thursday at 20.42. Earnings Report Date: N/A. Beta: 2.43. Market-Cap: 1.576B. Optionable.
FLEX LNG Ltd. (FLNG: Energy/Oil & Gas Midstream) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in FLNG'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 21.96 and a SELL order at 20.36. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.6 trailing stop. Tighten the stop to 0.8 once you have a 1.68 gain. FLNG closed Thursday at 21.36. Earnings Report Date: N/A. Beta: 0.42. Market-Cap: 1.135B. Not Optionable.
HEALTHCARE SECTOR
Aurinia Pharmaceuticals Inc. (AUPH: Healthcare/Biotechnology) - SQUEEZE PLAY. Trader indecision has put AUPH 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 22.44 and a SELL short entry at 20.21. Now it's up to AUPH to show us which entry will be filled. Once the trade is underway place a 2.23 trailing stop, which can be tightened to 1.12 after you achieve a 4.58 profit. AUPH closed on Thursday at 20.97. Earnings Report Date: Feb 22, 2022. Beta: 0.66. Market-Cap: 2.719B. Optionable.
INDUSTRIALS SECTOR
EuroDry Ltd. (EDRY: Industrials/Marine Shipping) - BEARISH U-TURN. The weekly trend for EDRY is down, but recent daily price activity has lifted shares upward in what's known as a "counter-trend" bounce. As the name implies, this type of rebound is against the main trend. These bounces tend to revert back to the direction of the main trend - in this case downward - once the bounce reaches significant resistance. This is exactly the situation EDRY finds itself in, as Thursday's recoil from moving average resistance presents the beginnings of a possible return to the weekly downtrend. EDRY now sits at 21.02 after reaching an intra-day high of 21.68 during the latest session. Place a short-SELL order with your broker if price drops to the 20.22 level. Follow your entry with a trailing stop of 1.74 and tighten to 0.87 on a 5.06 profit. Earnings Report Date: Feb 16, 2022. Beta: 0.30. Market-Cap: 59.787M. Not 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
---------------- ------- -------- ------- ------ -------
Arista Networks ANET 11/1/2021 11/18/2021 4-for-1 Yes
ePlus PLUS 11/9/2021 12/14/2021 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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