Notes From The Editor

Everyone agrees that we should base our trading and investment decisions on rational thinking. However, studies show that the human need to be "right" is usually stronger than the ability to be objective. This common trait is one of the top reasons most folks fail to make money in stocks.

Here's an example: A guy buys a stock with great expectations ... "this baby is going out the roof!" A few days later his "rocket" is dropping like a rock. Fortunately the trading plan includes an exit stop to protect against any real damage.

Unfortunately he fails to exit as planned when that bail-out point is reached. The losses pile up. A short term trade becomes a long-term "investment."

He couldn't pull the trigger to get out as planned. Why? Because of the need to be right.

The need to be right causes most folks to rationalize that as long as they don't sell the loser, there is still a chance that the stock will go back up. Then they will end up being right. You can easily see how this type of thinking will eventually burn up a lot of cash. So how does a trader overcome this compulsion to be right?

The solution is a two step process. First, make the plan. Second, follow the plan no matter what happens. Period.

Here's another example of how the "need to be right" can take control of a trader. Everyone who buys stocks wants to enter each position at the perfect "right" time. Yet when it comes down to the moment of truth, traders often have doubts about whether they should pull the trigger. This uncertainty can be so strong that many will stay on the sidelines and watch the action from a "safe" vantage point.

Fortunately there's an easy way to deal with this problem. Instead of worrying so much about whether the time is "right," spend a few minutes planning what you will do if it DOES turn out to be the right time. Then spend the next few minutes planning what to do if it DOESN'T.

Simply ask yourself, "What will I do if the trade moves in my favor? What will I do if price moves in the wrong direction?" You can easily answer these two questions by drilling deeper. Do you plan to use an initial stop? Where will you set it? If the trade moves to your advantage, at what point will you move the stop up? If the trade moves against your position, are you willing to exit without hesitation at the pre-planned level?

If after going through this routine you find that it's still hard to enter or exit a trade as planned, then do yourself a favor. Automate the process. Place buy orders with your broker so they will be triggered by price action. This allows you to remain objective despite the human "need" to be right.

Do the same thing with all of your exit stops. This way your trading plan is followed automatically. It makes everything much easier, every time, and you don't even have to be there.

Trade well,

- Thomas Sutton, Editor

Quick List

    
Stock     02/10     02/10      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

ANVS      20.04      0.63      20.3     18.57        1.73/0.87      1.84
FDMT      20.24     -0.07     20.63     19.05        1.58/0.79      2.94
WNC       27.49      0.03        28                  1.76/0.88      1.84
NSSC      31.65      0.03     32.67                  2.12/1.06      2.48
CYRX      20.51     -0.23     21.33     19.51        1.82/0.91      2.58

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

The top US stock indexes were mixed on Friday, with the Dow & S&P 500 advancing higher for the session, while the Nasdaq finished the day lower. Earnings announcements were mixed as well, as Lyft and Expedia Group (EXPE $108) were well below analysts' expectations, with Lyft (LYFT $10) also disappointing with its first quarter outlook, while PayPal (PYPL $81) topped estimates and offered positive quidance. In light economic news, the single report showed an increase in February consumer sentiment. Oil and the USD/dollar were higher, treasury yields were mixed, gold was lower.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 33,869.27   169.39       -56.74    -0.17%
Nasdaq              11,718.12   -71.46      -288.83    -2.41%
S&P 500              4,090.46     8.96       -46.02    -1.11%

NYSE Volume                      3.89B                       
NYSE Advancers                   1,611                       
NYSE Decliners                   1,460                       

Nasdaq Volume                    4.89B                       
Nasdaq Advancers                 1,925                       
Nasdaq Decliners                 2,578                       

                                 New Highs/Lows

                   02/03  02/06  02/07  02/08  02/09  02/10
                 --------------------------------------------
NYSE New Highs       121     61     85     66     87     42
NYSE New Lows          4     12      8      6     10     15
Nasdaq New Highs     142     92    103    100     93     61
Nasdaq New Lows       24     32     43     47     67     82
   

TRADER'S TIP: "Measuring Opinion"

The largely unpredictable nature of the market is due to the ever-changing consensus of opinion among investors and traders. Every trader should have some specific means of determining when it is likely that the consensus of opinion has changed within their chosen time frame. Technical Analysis can be very helpful in this area.

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 - 4090.46 February 10, 2023

52-Week High: 4637.30
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4340.76
Resistance 2: 4225.01
Resistance 1: 4157.73
Pivot: 4109.26
Support 1: 4041.98
Support 2: 3993.51
Support 3: 3877.76

NASDAQ Composite - 11718.12 February 10, 2023

52-Week High: 14646.90
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12872.31
Resistance 2: 12352.64
Resistance 1: 12035.38
Pivot: 11832.96
Support 1: 11515.70
Support 2: 11313.28
Support 3: 10793.60
        
Dow Industrials - 33869.27 February 10, 2023

52-Week High: 35824.28
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35225.76
Resistance 2: 34565.18
Resistance 1: 34217.22
Pivot: 33904.60
Support 1: 33556.64
Support 2: 33244.02
Support 3: 32583.44
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, February 13, 2023:
13-Feb  11 am   NY Fed 1-year inflation expectations
13-Feb  11 am   NY Fed 5-year inflation expectations

Tuesday, February 14, 2023:
14-Feb   6 am   NFIB small-business index
14-Feb  8:30 am   Consumer price index
14-Feb  8:30 am   Core CPI
14-Feb  8:30 am   CPI (year-over-year)
14-Feb  8:30 am   Core CPI (year-over-year)

Wednesday, February 15, 2023:
15-Feb  8:30 am   Retail sales
15-Feb  8:30 am   Retail sales excluding motor vehicles
15-Feb  8:30 am   Empire state manufacturing index
15-Feb  9:15 am   Industrial production index
15-Feb  9:15 am   Capacity utilization rate
15-Feb  10 am   NAHB home builders' index
15-Feb  10 am   Business inventories

Thursday, February 16, 2023:
16-Feb  8:30 am   Initial jobless claims
16-Feb  8:30 am   Continuing jobless claims
16-Feb  8:30 am   Producer price index final demand
16-Feb  8:30 am   Building permits
16-Feb  8:30 am   Housing starts
16-Feb  8:30 am   Philadelphia Fed manufacturing survey
16-Feb  11 am   Real household debt (SAAR)

Friday, February 17, 2023:
17-Feb  8:30 am   Import price index
17-Feb  10 am   Index of leading economic indicators


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

TRADER'S TIP: "Trends & Countertrends"

Individual stocks and the larger market rarely move in a straight line. Even in the strongest trends there will always be countertrends resulting in a "two steps forward and one step back" scenario. Some traders become over anxious during the countertrends, and abandon good positions prematurely. Keep in mind that every favorable price surge deserves a planning session to determine how much profit you're willing to risk when the inevitable countertrends challenge your staying power.

Stocks Covered in This Issue

HEALTHCARE SECTOR

Annovis Bio, Inc. (ANVS: Healthcare/Biotechnology) - SQUEEZE PLAY. Trader indecision has put ANVS 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 20.3 and a SELL short entry at 18.57. Now it's up to ANVS to show us which entry will be filled. Once the trade is underway place a 1.73 trailing stop, which can be tightened to 0.87 after you achieve a 1.84 profit. ANVS closed on Friday at 20.04. Earnings Report Date: N/A. Beta: 1.25. Market-Cap: 163.605M. Not Optionable.

4D Molecular Therapeutics, Inc. (FDMT: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in FDMT's narrowest trading range of the past seven sessions. With neither group able to take complete control on Friday, 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 20.63 and a SELL order at 19.05. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.58 trailing stop. Tighten the stop to 0.79 once you have a 2.94 gain. FDMT closed Friday at 20.24. Earnings Report Date: Mar 27, 2023. Beta: 2.56. Market-Cap: 655.622M. Optionable.

INDUSTRIALS SECTOR

Wabash National Corporation (WNC: Industrials/Farm & Heavy Construction Machinery) - NEW HIGH DIP. After setting a recent new 52-week high, WNC shares have since fallen from that peak as traders put some profits in the bank. Friday's intra-day bounce may very signal that the recent decline is over. Prepare for a continuation of this turnaround and "buy-the-dip" if WNC reaches our BUY trigger set at 28. Follow your entry with a trailing stop of 1.76, and tighten to 0.88 on a 1.84 gain. WNC closed Friday at 27.49. Earnings Report Date: Apr 25, 2023. Beta: 1.67. Market-Cap: 1.311B. Optionable.

Napco Security Technologies, Inc. (NSSC: Industrials/Security & Protection Services) - NEW HIGH DIP. It's no secret that strong stocks tend to get even stronger. NSSC's recent 52-week high is a clear indication that the ongoing uptrend is still healthy, though traders have taken some profits off the table during the past few sessions. Friday's bounce from support confirms the stock's intention to move even higher. This New High Dip setup takes advantage of the tendency for strong stocks to bounce skyward after pulling back from new highs. Prepare to BUY shares in NSSC should price reach the 32.67 level. Enter a trailing stop of 2.12 as soon as your order is filled, then tighten the stop to 1.06 on a 2.48 gain. Earnings Report Date: May 08, 2023. Beta: 1.10. Market-Cap: 1.163B. Optionable.

Cryoport, Inc. (CYRX: Industrials/Integrated Freight & Logistics) - 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. CYRX 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 21.33 and a SELL short trigger at 19.51. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.82 which can be tightened to 0.91 on a 2.58 gain. CYRX closed Friday at 20.51. Earnings Report Date: Feb 22, 2023. Beta: 1.31. Market-Cap: 1.005B. 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

WISHFUL THINKING: Thoughts from Dr. Alex Elder"

If you toss a frog into a pan of warm water and heat it very slowly you can boil it alive. When pain increases bit by bit, our natural tendency to do nothing and wait for an improvement. A sleepwalking trader keeps giving a losing trade more time, while it is slowly boiling him alive.

A sleepwalker hopes and dreams. He says, I know, my stock is going to come back, it always did before. Winners accept occasional losses, take them quickly and move on. Losers postpone taking losses, and some are foolish enough to look for a silver lining in a disaster. A broker calls his client and says, "I've got good news and bad news. What's the bad news? That stock you bought at 80 - it is down to 20. And what's the good news? The decline was on low volume."

An amateur enters a trade as if buying a lottery ticket. He waits for the wheel of fortune to decide whether he wins or loses. Professionals, on the other hand, have ironclad plans for getting out, either with a profit or a small loss. A key difference between professionals and amateurs is their planning for exits. Beginners dream of profits but are always ready to give a trade "more time to work out."

A sleepwalking trader buys a stock at 35 and puts in a stop at 32. The stock begins to sink, he says, 'I will give the market a little more room to breathe,' and moves his stop down to 30. This is a fatal mistake - he has breached his discipline, violated his own plan.

You may move your stops only one way - in the direction of the trade. Stops are like a ratchet on a sailboat, designed to take the slack out of your sails. If you start giving your trade "more room to breathe," that extra slack will swing and hurt you. Even if the market rewards you for breaking the rules on one trade, it will lay an even bigger trap for you on the next trade.

The best time to make decisions is before you enter a trade. Your money is not at risk, and you can weigh benefits and risks. Once you put on a trade, you begin to form an emotional attachment to it. The market will do its best to hypnotize you and lure you into making emotional decisions. Write down an exit plan and follow it!

Turning a losing trade into an "investment" is a disease of small private traders, but some institutional traders can catch it also. Disasters at banks and major financial firms have occurred when poorly supervised traders lost money in short-term trades and stuck them into long-term accounts, hoping that time will bail them out. If you are losing in the beginning, you'll lose in the end. Do not put off the hour of reckoning. The first loss is the best loss - this is the rule of those who trade with their eyes open.

A neighbor of mine had struggled with the markets for eight years before he grew into an internationally famous successful trader. Today many of our friends in New York like to reminisce about the days he clerked on one of the smaller exchanges in the city and struggled to make ends meet. An old trader said to me, 'I knew him then, and I thought he would succeed. He had the right combination of being very careful and having this optimism you need to get up in the morning and believe you're going to make money trading the markets.'

In order to succeed in trading you need both self-confidence and humility (also known as caution). If you have one but not the other, you're in a dangerous position. If you have self-confidence but no caution, you'll be arrogant, which is deadly for traders. If you have caution but no confidence, you won't be able to pull the trigger on your trades.

You need confidence to say - the market is going up, I believe it will continue to rally, I am going to get long and ride this trend. On the other hand, you need humility to accept the uncertainty of the markets - and to run fast when a trade goes against you.

It is a hallmark of emotional maturity to be aware of two conflicting feelings at the same time. When you feel a surge of confidence in your trading idea, it is hard to have the humility to think of the downside risk - but if you cannot think of the risk, you cannot handle it. When the market goes against you and hits your predetermined exit level, you have to humbly give a sell order, no matter how confident you feel about your analysis.

Being a trader is a journey of self-discovery. Trade long enough, and you will face all your feelings, including anxiety, greed, fear, and anger. But self-discovery is the byproduct, not the primary goal of trading. The main goal is to minimize losses and accumulate equity. Keep asking yourself - "What is my profit target in this trade" and "What will I do to protect my capital in this trade?"

A good trader accepts total responsibility for the outcome of every trade - even though he knows that others are trying to take his money. If other traders or even brokers take your money, you are still responsible. You have to keep improving your trading plans. You need to cultivate both self-confidence and humility.

EXITING TRADES

Whenever you plan a trade, three factors must be crystal-clear in your mind - where to get in, where to take profits, and where to bail out in case of an emergency. Daydreaming about profits will not make you rich. You must know at what point you will collect your winnings or else cut and run if the market turns against you.

Professional traders spend a lot of time and energy planning their exits from trades. Where to take profits, when to cut losses, how to maintain a good ratio between them in order to maximize gains and minimize losses - these and related questions are paramount in the pros' minds.

When people approach the markets, they go through a natural progression. Their first baby steps are stumbling but overconfident, while a pro is cautious but firm. Beginners keep looking for what to buy (they almost never sell short), like puppies that eat anything they find on the ground, including some very unhealthy stuff. The pros sniff and choose the best morsels. In trading, newbies are eagerly looking for markets to enter, without much thought about the exits. The pros are quite matter-of-factly about entries but very particular about exits. They have discovered the essential truth - you do not get paid for entering trades, you get paid for exiting them.

Planning for an exit must begin before you enter a trade. One of the first things we must do when looking at a new stock or a future, is measure the width of its channel. Let us see whether it is wide enough to be worth trading. We know that an "A" trader takes 30% or more out of a channel, while a "C" trader takes 10%. If we begin by accepting the possibility that we may have a C trade, then let us decide whether 10% of that channel is a worthwhile target. If a channel is 20 points wide, even a 10% gain will give us some money, but if the channel is only 5 points wide, then 10% will bring us peanuts, not worth the risk.

Exiting trades is more complex than entering them. It is simple to get in using a limit order to minimize slippage; either we are in or we aren't. Exits are much more challenging. We need to have a profit target, which will keep shifting as the trade goes on. We need to have a protective stop with a sensible formula for moving it as the trade moves in our favor. Sophisticated traders who swing large positions have strategies for canceling profit targets when they recognize especially powerful trends or taking only partial profits and carrying the rest of their position with a new exit strategy for runaway trends.

Exits sound complex because they are. As one multimillionaire said about trading, 'If this was easy, mermaids would be doing it.' Entering a trade can be as easy as buying a lottery ticket, but then the music starts and exits separate winners from losers.

**************

Dr. Elder is the author of several books including the classic "Trading For A Living." He also authored "Come Into My Trading Room: A Complete Guide To Trading" and his newest work "Sell and Sell Short."

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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