Notes From The Editor

The Market, The Mighty Market

The market goes up and it goes down. As obvious as that may seem, we sometimes forget that our job is to align with the winning side - within our time frame. While traders often focus on the short-term, the larger market is made up of participants in all time frames. This huge crowd tends to behave in predictable ways as they respond to a wide variety of events. When given an adequate stimulus - such as an important economic report or a significant moving average - the market always reacts.

Notice that the market "reacts" instead of acts. Crowd psychology is highly emotional. Reactions quickly turn into over-reactions as word spreads. Since greed and fear are the two basic motives behind emotional decisions, chain reactions often lead to temporary euphoria when Bulls are in charge, or to panic when Bears take over.

It's wise to be aware of what drives the market to buy or sell. Price movement is a direct result of the market's reaction. Price charts are the transcripts of the market. In any time frame, charts allow us to locate the optimum price zones where the crowd is likely to over-react, or where the crowd's over reaction has finally reached its limit. In technical terms, these zones are known as Support and Resistance.

These pivotal intersections are where trades can be entered with high potential for profit and low risk for loss. This is an important component in the RightLine approach to trading, which when used with our Risk Control System virtually eliminates the need to predict market direction. However, some of us just can't resist the temptation to try a little market "forecasting" from time to time.

If you find yourself in this group - as I sometimes do - just remember this - the market can only go up, down, or sideways. It's always better to anticipate and prepare for all three as opposed to trying to predict which one of the three will occur.

Bottom Line: Our ability to anticipate and prepare for short term price direction is directly related to our understanding of how markets tend to react at important Support or Resistance levels.

Enjoy the weekend!

~ Thomas Sutton, Editor

Quick List

    
Stock     02/09     02/09      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

LKNCY     22.86      0.75     23.27     21.36        1.91/0.96      2.76
CRBP      22.15      0.52     23.03                  2.49/1.25      4.92
NAMS      20.45      0.88     21.01     19.37        1.64/0.82       4.7
UNP      249.45      0.62    252.83                 13.81/6.91      7.16
DAVE      20.67      0.55     21.06                  3.12/1.56      3.46

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.

Market Summary

Stocks surged into record territory on Friday, with the major US indexes mostly higher except for a slight dip for the Dow. The markets were propelled by encouraging revisions to inflation data. The S&P 500 broke through the 5,000 mark, reaching all-time highs. While the 5,000 milestone holds more psychological than fundamental significance, it underscores a 5% gain in equities so far in 2024. Small-caps, alongside the consumer discretionary and technology sectors, led the charge, indicating a positive cyclical tilt to the underlying market leadership.

Global equities and oil prices also trended higher. The 10-year Treasury yield edged up slightly, contributing to the notable increase in interest rates since the middle of last week, as fixed-income markets adjusted expectations for Fed rate cuts. Despite this, the broader investment narrative saw no dramatic shift, with corporate earnings remaining in focus for the week.

Absent discouraging economic data or Fed commentary, markets appear content to continue their upward trajectory. This aligns with our broader outlook for the year, although investors should brace for occasional bouts of volatility given the rapid gains in recent months.

If government numbers are to be cautiously believed, inflation outlook remains somewaht favorable. Annual revisions to underlying factors in the calculation of the consumer price index (CPI) produced no major surprises. While 2023's revisions showed an uptick in core inflation, this year's revisions were largely stable, affirming expectations for Fed rate cuts later in the year. While potential hiccups in upcoming CPI readings could cause market anxiety, the broader downtrend in inflation appears intact, supporting expectations for the Fed to ease back on restrictive policy.

Reflecting on the recent rally, US stocks have enjoyed gains in 14 of the last 15 weeks, with the S&P 500 surging 22% in just over three months. This rally, fueled by anticipation of a Fed pivot towards rate cuts, is underpinned by expectations of looser monetary policy aiding both the economy and financial markets throughout the year. While we don't entirely align with the consensus for a spring rate cut and prefer an outlook for a summer timeline, the prospect of easier monetary settings is promising. However, we anticipate some bumps along the way. Valuations have climbed to full levels, though not yet signaling a bubble. Corporate profit growth remains crucial to sustain rising valuations, with expectations for an 11% rise in profits in 2024. If achieved, this will provide a sturdy foundation for further equity-market gains in the year ahead.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 38,671.69   -54.64       +17.27     0.04%
Nasdaq              15,990.66   196.95      +361.71     2.31%
S&P 500              5,026.61    28.70          +68     1.37%

NYSE Volume                      3.92B                       
NYSE Advancers                   1,877                       
NYSE Decliners                     924                       

Nasdaq Volume                     5.8B                       
Nasdaq Advancers                 2,938                       
Nasdaq Decliners                 1,287                       

                                 New Highs/Lows

                   02/02  02/05  02/06  02/07  02/08  02/09
                 --------------------------------------------
NYSE New Highs       172     75     92    167    152    188
NYSE New Lows         49     82     41     36     26     20
Nasdaq New Highs     159     85    109    223    237    300
Nasdaq New Lows      161    210    123    144    104     84
   

TRADER'S TIP: "Moving Averages and the Law of Attraction"

All significant Daily Moving Averages - like the 50, 100 and 200 - act as magnets. Watch out when price begins to gain momentum toward a well known DMA. Once the action moves within a Moving Average's "gravitational field," just leave it up to the laws of physics - contact is almost inevitable.

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".

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, FEB. 12					
2:00 pm	Monthly U.S. federal budget	

TUESDAY, FEB. 13					
8:30 am	Consumer price index	
8:30 am	Core CPI	
8:30 am	CPI year over year		
8:30 am	Core CPI year over year		

WEDNESDAY, FEB. 14					
None scheduled
				
THURSDAY, FEB. 15					
8:30 am	Initial jobless claims	
8:30 am	Empire State manufacturing survey	
8:30 am	Philadelphia Fed manufacturing survey	
8:30 am	Import price index	
8:30 am	Import price index minus fuel	
8:30 am	U.S. retail sales	
8:30 am	Retail sales minus autos	
9:15 am	Industrial production	
9:15 am	Capacity utilization	
10:00 am	Home builder confidence index	

FRIDAY, FEB. 16					
8:30 am	Housing starts	
8:30 am	Building permits	
8:30 am	Producer price index	
8:30 am	Core PPI	
8:30 am	PPI year over year		
8:30 am	Core PPI year over year			
10:00 am	Consumer sentiment (prelim)

For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Beware of the New York Lunch Hour"

Many traders at the stock exchanges in New York break for lunch at 12:00 noon ET. This mass departure in search of nutrition dramatically lessens the number of shares being traded. The slower pace gives market makers and specialists the perfect opportunity to grab quick profits by implementing low-volume trading strategies.

As a rule of thumb it pays to be skeptical of anything that goes on during the lunch hour. If a strong trend is already in place, watch for a new surge to begin during this break. On days when the trend is weak, reversals are more likely to occur at lunchtime.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Luckin Coffee Inc. (LKNCY: Consumer Cyclical/Restaurants) - SQUEEZE PLAY. Trader indecision has put LKNCY 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 23.27 and a SELL short entry at 21.36. Now it's up to LKNCY to show us which entry will be filled. Once the trade is underway place a 1.91 trailing stop, which can be tightened to 0.96 after you achieve a 2.76 profit. LKNCY closed on Friday at 22.86. Earnings Report Date: Feb 29, 2024. Beta: -0.59. Market-Cap: 6.308B. Not Optionable.

HEALTHCARE SECTOR

Corbus Pharmaceuticals Holdings, Inc. (CRBP: Healthcare/Biotechnology) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with CRBP which met our setup criteria on Friday. The BUY trigger for this trade is at 23.03, and the trailing stop is sized at 2.49. Resize the stop to 1.25 upon collecting a 4.92 point gain. CRBP closed Friday at 22.15. Earnings Report Date: Mar 05, 2024. Beta: 2.41. Market-Cap: 228.96M. Not Optionable.

NewAmsterdam Pharma Company N.V. (NAMS: Healthcare/Biotechnology) - 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 NAMS's case we will enter a BUY should it reach the 21.01 level, or a SELL short trade if it drops to 19.37. As usual a trailing stop is essential, 1.64 which should be tightened to 0.82 on a 4.7 gain. NAMS closed Friday at 20.45. Earnings Report Date: N/A. Beta: -0.02. Market-Cap: 1.684B. Not Optionable.

INDUSTRIALS SECTOR

Union Pacific Corporation (UNP: Industrials/Railroads) - NEW HIGH DIP. As a rule of thumb, outstanding stocks like UNP 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. UNP's price behavior on Friday points to another move higher, so prepare to BUY shares at the trigger price of 252.83. Once in, follow the purchase with a 13.81 trailing stop. Change the stop to 6.91 upon gaining 7.16 points. UNP closed Friday at 249.45. Earnings Report Date: Apr 18, 2024. Beta: 1.08. Market-Cap: 152.064B. Optionable.

TECHNOLOGY SECTOR

Dave Inc. (DAVE: Technology/Software - Application) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. DAVE's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 21.06. Use a 3.12 trailing stop, which should work well with DAVE's typical daily range. Tighten it to 1.56 on a 3.46 profit. DAVE closed at 20.67 on Friday. Earnings Report Date: Mar 07, 2024. Beta: 2.87. Market-Cap: 249.111M. 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.

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.

Trader's Corner

"Rockin' With The Rythym Of The Market"

The stock market is in constant motion, continuously cycling back and forth between buying and selling. Literally millions of traders and investors enter and exit positions at different times of the day, week, or month. As a result, the market ebbs and flows in cycles - some are very short, lasting only an hour or so, while others will continue for several days, or even weeks.

Each of these up and down cycles has two reversal points - one at the bottom of the cycle and one at the top. The price movement between these reversals creates momentum, and it's within this momentum that short-term traders find excellent opportunity for profit.

Trading with the rhythm of the market simply means aligning what WE do with what THE MARKET is doing. Trading very short time frames is all about awareness, flexibility and responding to market action as it occurs.

One of the most important skills that a trader or investor can acquire is the ability to recognize reversal signals that are generated by price movement. Becoming familiar with a few simple chart patterns can have a huge positive impact on our trading, for they enable us to stay in sync with the market's ever changing moods.

There are several momentum patterns that consistently reveal themselves on price charts. One of the most reliable is the bullish "V Bottom" - a very simple yet powerful pattern that is printed when a significant intraday reversal takes place.

A good example is when the S&P 500 has seriously declined for most of the session, and then turned around to make a dramatic comeback to close either near the previous session close or, better yet, to close higher for the day. Late session reversals are usually the most important, and can be traded without hesitation - IF the S&P has been in a downtrend for a few days. "V Bottoms" that follow an uptrend aren't near as meaningful.

A pattern closely related to the "V Bottom" is the "Late Session Spike." Studies have shown that the market tends to operate on a different clock than the opening and closing bell would indicate. In fact, price action tends to follow a mid-session to mid-session cycle instead of an open to close cycle.

As traders, we can take advantage of this tendency by watching for late day price movement to signal a reversal that is likely to carry over into the following session. These late-session price spikes usually take place during the last two hours of trading during choppy or trend-less days. The odds are strong that whatever happens at the close will continue into the following day.

Obviously, Bulls like to see a strong move higher to end the session, while Bears prefer prices to slide into the final bell. Either way, it's always a good idea to check price action into the close. To qualify, a "Late Session Spike" should lift the S&P 500 or Dow to close at least 1/2 percent (0.5%) above the previous day's close. And just like a "V Bottom," the "Late Session Spike" is the most reliable when it follows a downtrend.

Another reliable way to locate turnarounds is the "1% Reversal Day." In this case we simply take note when any trend underway has lasted for at least 4 or 5 days, and preferably 7 to 10. We then watch for a "1 % Reversal Day" - a day when all of the major averages (S&P 500, Dow, Nasdaq, Russell 2000) close in the opposite direction of the trend by 1% or more.

These reversal days usually indicate a severe breakdown in the previous trend - a signal that considerable price movement in the direction of the reversal is just ahead. Keep in mind that the 1% isn't set in stone. If three out of the four indices have reversed by more than 1%, but the other one has only reversed 0.85% percent, this would still qualify as a "1 % Reversal Day." However, if any one of the indices reverses LESS than 0.75%, it disqualifies the reversal.

The three patterns we've just discussed are not highly sophisticated, but they are very effective and easy to trade. Always remember that price action is the stock market's way of telling us what it intends to do. Staying in harmony with the larger market direction is extremely important when trading individual stocks.

The appearance of a reversal pattern in the major indices indicates high odds of a turnaround, and gives traders enough time to safely enter low risk positions in their favorite stocks. However, the larger market or specific stocks don't always follow through on reversals, so it's important to have a disciplined risk control strategy in place.


Note: For details of the RightLine Risk Control System, click on the following link: https://prorightline.com/education/riskcontrol.html