Notes From The Editor

Tuesday's selling has prompted questions about whether there is a reliable way to tell the difference between "profit-taking," and "real selling", or shorts coming into the market. Good question! Without the luxury of a survey or some other type of hard data, the answer to whether selling at any point in time is due to profit taking or to some other factor is based on a variety of conditions.

To determine why selling occurs, we first look at when it took place. If the selling is on a Friday after several days of gains, there's a good chance intra-week traders are locking in profits before the weekend. Sometimes during an extended rally you will see this pattern repeated week after week, with the "pre-weekend" selling starting around mid session on Friday.

Sometimes the profit taking starts on Thursday, especially if recent gains have been very strong. Also, profit taking will often begin on Thursday ahead of long holiday weekends. This is because traders like to extend their time off by leaving a day early. Plus, everyone wants to begin a holiday break or vacation with a few extra bucks in their trading account.

Another condition that helps reveal the difference between profit taking and short selling is the "where" aspect of the price action. Short-sellers tend to place their trades at or near strategic resistance levels. This enables their initial entry to quickly take advantage of a price reversal - or at the least hesitation - with the lower risk factor of having a clearly defined exit point just above the resistance level. If the market moves higher instead of lower, shorts get a loud signal to bail out.

Another component to consider is the level of upward momentum leading up to the selling. As well as being savvy, short-sellers are also usually tentative. They don't like to jump in front of a fast moving train even when there is a resistance level to take advantage of. On the other hand, profit taking in the same environment is often a result of the emotional temptation to grab the money quick before it evaporates.

Bottom Line: The faster profits accumulate, the greater the temptation to quickly lock them in. Just remember that profit taking and short selling aren't necessarily exclusive of each other. They can and often do take place at the same time and location.

Trade well,

- Thomas Sutton, Editor

Quick List

    
Stock     02/13     02/13      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

MNRO      32.20     -0.99     32.92        31        1.92/0.96      2.38
SEZL      46.19     -0.81     47.74     43.68        4.06/2.03      9.18
OMCL      28.60     -0.30        29     26.68        2.32/1.16      2.36
PRAX      41.29     -3.36     43.61     40.04        3.57/1.79      8.32
AVNW      33.03     -1.13     34.01     31.59        2.42/1.21       1.8

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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Market Summary

Stocks experienced a significant decline on Tuesday, although they managed to recover from their intraday lows, following the release of the U.S. consumer price index (CPI) inflation data for January, which surpassed expectations. Year-over-year headline inflation reached 3.1%, slightly lower than the previous month's 3.4% but above the projected 2.9%. Consequently, Treasury bond yields surged, with the 10-year Treasury yield rising by 0.13% to approximately 4.31%, near its peak for the year. This spike in yields exerted downward pressure on stock indices, which plummeted by over 1% across the board. Particularly, the technology-heavy Nasdaq trailed behind the broader S&P 500, declining by about 1.8%. Meanwhile, the VIX volatility index, often regarded as Wall Street's "fear gauge," spiked by roughly 18% to around 16.5.

The U.S. inflation data surpassed forecasts both on a headline and core basis for January. Core inflation, excluding food and energy, stood at 3.9%, aligning with the previous month and surpassing forecasts of 3.7%. Despite moderation in certain areas like gas prices, energy services, and used car pricing, increases in segments such as food away from home, shelter and rent pricing, and transportation services, including vehicle insurance, offset these declines. The primary contributor to the inflationary surprise for the month was shelter and rent pricing. While real-time data indicates a softening in rent pricing, we anticipate this component of the inflation basket to gradually ease over time, albeit not in a linear fashion. This uptick in inflation coincides with a period during which the S&P 500 has surged nearly 22% since the October 2023 lows. Despite the disappointing data highlighting potential hurdles in reaching the 2.0% inflation target, the improving inflation trend is intact, a Federal Reserve pivot toward rate cuts is expected, along with an economy that slows but doesn't tip into recession in the year ahead.

Following the release of the inflation data, market expectations of Fed rate cuts also shifted significantly. According to the CME FedWatch tool, markets now project only a 34% likelihood of a Fed rate cut at its May 1 meeting, down from 52% on Monday. Additionally, markets anticipate approximately four Fed rate cuts in 2024, lower than the initial projections of five or six cuts at the beginning of the year.

The most probable outcome is three to four Fed rate cuts in 2024, likely commencing around June. Given the resilience of the US economy in the face of rising rates, we anticipate that the Fed will exercise patience in implementing rate cuts this year to ensure inflation moves toward its 2.0% target. With core CPI inflation remaining at 3.9%, the Fed will likely require several more months of favorable data before signaling the initiation of a rate-cutting path.

                        Feb 12, 2024           Feb 13, 2024   
                  --------------------   --------------------
Dow                 38,797.38   125.69     38,272.75  -524.63
Nasdaq              15,942.55   -48.12     15,655.60  -286.95
S&P 500              5,021.84    -4.77      4,953.17   -68.67

NYSE Volume                      3.81B                  4.31B
NYSE Advancers                   2,204                    235
NYSE Decliners                     633                  2,625

Nasdaq Volume                    5.48B                  5.62B
Nasdaq Advancers                 2,842                    733
Nasdaq Decliners                 1,451                  3,601

                                 New Highs/Lows

                   02/06  02/07  02/08  02/09  02/12  02/13
                 --------------------------------------------
NYSE New Highs        92    167    152    188    263     39
NYSE New Lows         41     36     26     20     12     48
Nasdaq New Highs     109    223    237    300    346     43
Nasdaq New Lows      123    144    104     84     55    122
   

TRADER'S TIP: "The Four Deadly Sins"

Greed, Fear, Pride, and False Hope - When it comes to trading the stock market, these four are the most common and destructive emotions. Greed tells traders to buy when they should be selling, fear tries to convince traders to sell when they should be buying, while Pride and False Hope will keep traders in bad trades against their better judgment.

Successful traders understand these "Four Deadly Sins" and disarm them by making conscious choices.

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):    

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: "Earnings Season - Playing the Pre-Earnings Run"

Every few months there are companies that pre-announce BETTER-than- expected upcoming earnings. Consequently their stock tends to ramp up as the announcement date approaches. Traders can take advantage of these pre-earnings runs by looking at earnings history and a company's record for beating Wall Street estimates.

Combine this with current sentiments on the specific sector as well as recent news on "sympathy stocks," and this type of information provides some insight as to where pre-earnings runs may develop. Just remember that very often a key part of playing the run is to exit prior to the actual announcement, locking in profits BEFORE the Street has a chance to react to the numbers. Oftentimes, shares turn sharply lower immediately following the announcement - regardless of the numbers - as traders rush to take profits.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Monro, Inc. (MNRO: Consumer Cyclical/Auto Parts) - 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. MNRO traders reached this state of stand-off on Tuesday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 32.92 and a SELL short trigger at 31. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.92 which can be tightened to 0.96 on a 2.38 gain. MNRO closed Tuesday at 32.20. Earnings Report Date: N/A. Beta: 1.13. Market-Cap: 962.848M. Optionable.

FINANCIAL SERVICES SECTOR

Sezzle Inc. (SEZL: Financial Services/Credit Services) - SQUEEZE PLAY. SEZL shareholders know what it feels like to be squeezed. Tuesday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. SEZL closed Tuesday at 46.19. The plan is to enter in the right direction by placing a BUY trigger at 47.74 and a SELL short trigger at 43.68. Once SEZL establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 4.06. After you've collected a 9.18 profit, tighten the stop to 2.03. Earnings Report Date: Feb 26, 2024. Beta: 16.10. Market-Cap: 263.034M. Not Optionable.

HEALTHCARE SECTOR

Omnicell, Inc. (OMCL: Healthcare/Health Information Services) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in OMCL's narrowest trading range of the past seven sessions. With neither group able to take complete control on Tuesday, 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 29 and a SELL order at 26.68. Regardless of which order is triggered, cancel the other one and follow your entry with a 2.32 trailing stop. Tighten the stop to 1.16 once you have a 2.36 gain. OMCL closed Tuesday at 28.60. Earnings Report Date: Feb 26, 2024. Beta: 0.83. Market-Cap: 1.3B. Optionable.

Praxis Precision Medicines, Inc. (PRAX: Healthcare/Biotechnology) - 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. PRAX found itself in this condition on Tuesday 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 43.61 and a SELL short trigger at 40.04. When PRAX moves outside of Tuesday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 3.57 trailing stop. After you've got a 8.32 profit, tighten the stop to 1.79. PRAX closed at 41.29 on Tuesday. Earnings Report Date: May 09, 2024. Beta: 2.88. Market-Cap: 538.306M. Optionable.

TECHNOLOGY SECTOR

Aviat Networks, Inc. (AVNW: Technology/Communication Equipment) - SQUEEZE PLAY. AVNW traders on both sides of the fence are now locked in a head-to-head shootout. Tuesday'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 34.01 and a SELL short trigger at 31.59. When one of the orders is filled, cancel the remaining order and enter a 2.42 trailing stop. When you've reached a 1.8 paper profit, tighten the stop to 1.21. AVNW closed at 33.03 on Tuesday. Earnings Report Date: May 01, 2024. Beta: 1.69. Market-Cap: 414.437M. 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.

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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