February 17, 2022 - The RightLine Report 

 
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                      NOTES FROM THE EDITOR
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In a recent RightLine Report editorial we featured veteran trader Brett Steenbarger's thoughts on "The Ego." Brett is a licensed psychologist and a twenty year veteran trader who writes extensively about the mental aspects of trading the markets.

Brett is convinced that one of the best ways to prevent negative trading habits is to become an observer of our own behaviors. Below you'll find a few excerpts from Brett's article, "The Three Vices of Trading." I'm sure you will enjoy reading his comments on "Overconfidence."

Trade well!

~ Thomas Sutton, Editor



Vice Number Three: OVERCONFIDENCE

It is common for traders to complain of a lack of confidence in their trading, but very often it is overconfidence that does them in. Overconfidence results from a lack of appreciation of the complexity of markets and an underestimation of the challenges of trading them successfully.

In a sense, overconfident traders lack respect for the markets. They think that reading about a few setups or buying the newest software will prepare them to make money. Overconfident traders don't want to work their way up the trading ladder: they resist the idea that screen time is the best teacher. They also chafe at the idea of growing their account. Rather than start with one contract and wait until they're profitable before trading larger size, they want big positions-and profits-right away.

Because they're so eager to make money-and so sure they can make it-overconfident traders generally trade impulsively. They won't wait for the setup to form; they'll jump the gun-and get whipsawed in the process. Instead of being patient and waiting for short-term patterns to align with longer-term patterns, they will take every trade, enriching their brokers in the process.

The hallmark of overconfident traders is that they think they are going to make something happen in the market, instead of patiently waiting to take what the market gives them. Spelling out profit goals for each day or week of trading is one manifestation of overconfidence. Humble traders know that markets expand and contract their volatility-sometimes the trade just isn't there. The overconfident trader, however, feels that he/she is bigger than the market.

Indeed, overconfident traders will often take great pains to try to catch the tops of bull swings or the bottoms of corrections. As a result, they often fight the market trend-and can get run over in the process. If the emotional signs of perfectionism are anger/frustration and the emotional signs of ego involvement are elation/depression, then the emotional signs of overconfidence are impatience/impulsivity.

Overconfident traders overtrade. They fear missing opportunities more than they fear losing money. The antidote to overconfidence is rule-based trading and the intensive rehearsal of trading rules. By making entries, exits, stops, and position sizing rule-governed and vigorously rehearsing trading rules during simulated trading (as well as in real time with small positions), traders can greatly reduce their impulsive trading. Very often this means training oneself to focus on (and rehearse) what-if scenarios of being wrong in the market, as well as forcing oneself to spell out the rationale, targets, and stops for all trades.

By making trading a more self-conscious process, traders interpose thought between impulse and action, gaining greater control of their trading. When the trading room admonishes, "No boasting, just posting", it is encouraging restraint on overconfidence.

- Brett Steenbarger 

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                           "QUICK LIST"
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Stock     02/17     02/17      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

LCID      28.11     -0.89               27.08        3.44/1.72      6.04
VRDN      20.20     -0.05     20.52                  1.94/0.97      3.16
RLAY      21.01      0.06     21.66     19.95        1.71/0.86       3.7
TVTX      28.20     -0.30     28.96     26.93        2.03/1.02      3.46
APTS      25.70     -0.10     26.14     24.48        1.66/0.83      1.38


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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/.

To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/

For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/

Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/ 
 
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                           MARKET SUMMARY
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US stocks were lower on Thursday as the market continued to grapple with rising likelihood of tighter Fed monetary policies. To summarize a heavy economic calendar, initial jobless claims accelerated unexpectedly but employment also increased, while housing starts unexpectedly dropped yet new building permits surprisingly rose, plus manufacturing in the Philadelphia region improved. Earnings headlines featured excellent reports from NVIDIA (NVDA $245), Cisco Systems (CSCO $56) and Walmart (WMT $139), as DoorDash (DASH $105) announced a bigger loss than predicted but delivered a record number of orders and gross order volume. Gold, the USD/dollar and treasuries were higher, oil prices declined.


                       Feb 16, 2022           Feb 17, 2022   
                  --------------------   --------------------
Dow                 34,934.27   -54.57     34,312.03  -622.24
Nasdaq              14,124.09   -15.66     13,716.72  -407.38
S&P 500              4,475.01     3.94      4,380.26   -94.75

NYSE Volume                      4.24B                  4.56B
NYSE Advancers                   2,107                    886
NYSE Decliners                   1,243                  2,492

Nasdaq Volume                    4.18B                  4.31B
Nasdaq Advancers                 2,428                  1,005
Nasdaq Decliners                 2,266                  3,705

                                 New Highs/Lows

                   02/10  02/11  02/14  02/15  02/16  02/17
                 --------------------------------------------
NYSE New Highs        86     67     24     34     63     21
NYSE New Lows        349    375    486    181    157    156
Nasdaq New Highs      61     54     38     52     48     36
Nasdaq New Lows      268    360    401    193    243    334

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                              TRADER'S TIP:  
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TRADER'S TIP: "Finding the Daily Trend"

Though it sounds simple, the trend can be an elusive rascal that is subject to many definitions. One thing is for certain - determining "the trend" requires an associated reference point, such as time frame or number of bars. To locate short-term trends on a daily chart, consider using the 10-EMA (Exponential Moving Average). If the slope is up, you can safely assume that the daily trend is too. If it's down, a downtrend is likely underway. 
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                         THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average.

For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ 
S&P 500 - 4380.26 February 17, 2022

52-Week High: 4818.62
52-Week Low: 3723.34
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4847.26
Resistance 2: 4658.64
Resistance 1: 4538.64
Pivot: 4470.02
Support 1: 4350.02
Support 2: 4281.40
Support 3: 4092.78
https://www.prorightline.com/rlch/021722SPX.jpg

NASDAQ Composite - 13716.72 February 17, 2022

52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 15564.09
Resistance 2: 14787.69
Resistance 1: 14289.42
Pivot: 14011.29
Support 1: 13513.02
Support 2: 13234.89
Support 3: 12458.49


Dow Industrials - 34312.03 February 17, 2022

52-Week High: 36952.65
52-Week Low: 30547.53
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 37468.47
Resistance 2: 36264.71
Resistance 1: 35501.38
Pivot: 35060.95
Support 1: 34297.62
Support 2: 33857.19
Support 3: 32653.43


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                             MARKET CALENDAR
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--ECONOMIC REPORTS AND EVENTS (all times are Eastern): 
Thursday, February 17, 2022:
17-Feb  8:30 am   Initial jobless claims
17-Feb  8:30 am   Continuing jobless claims
17-Feb  8:30 am   Building permits (SAAR)
17-Feb  8:30 am   Housing starts (SAAR)
17-Feb  8:30 am   Philadelphia Fed manufacturing index

Friday, February 18, 2022:
18-Feb  10 am   Existing home sales (SAAR)
18-Feb  10 am   Leading economic indicators

For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: https://prorightline.com/index.php/economic-indicator-effects/ 
 
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                              TRADER'S TIP: 
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TRADER'S TIP: "Sweet Emotion"

Studies show that most investors buy and sell on emotion instead of logic. For example most people will sell their winning positions to make up for losers, then hold the losers way too long in hopes they will recover. This is the opposite of what should be done, for the winners tend to keep on winning, while losers usually keep losing. The most common management strategy used by successful traders is pretty simple. Get rid of losers quickly, and keep winners profitable with a stop order based exit strategy. 

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                      STOCKS COVERED IN THIS ISSUE    
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CONSUMER CYCLICAL SECTOR

Lucid Group, Inc. (LCID: Consumer Cyclical/Auto Manufacturers) - BEARISH U-TURN. The weekly trend for LCID 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 LCID finds itself in, as Thursday's recoil from moving average resistance presents the beginnings of a possible return to the weekly downtrend. LCID now sits at 28.11 after reaching an intra-day high of 30.12 during the latest session. Place a short-SELL order with your broker if price drops to the 27.08 level. Follow your entry with a trailing stop of 3.44 and tighten to 1.72 on a 6.04 profit. Earnings Report Date: Feb 28, 2022. Beta: N/A. Market-Cap: 46.279B. Optionable.

HEALTHCARE SECTOR

Viridian Therapeutics, Inc. (VRDN: Healthcare/Biotechnology) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Thursday's session to close at 20.20. Anticipate the rebound to continue, and be ready to buy VRDN at 20.52. Follow your entry with a trailing stop of 1.94 which can be tightened to 0.97 on a 3.16 profit. Earnings Report Date: Mar 23, 2022. Beta: 1.04. Market-Cap: 438.79M. Optionable.

Relay Therapeutics, Inc. (RLAY: Healthcare/Biotechnology) - SQUEEZE PLAY. RLAY 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. RLAY is now at 21.01. We can capture price action either way by placing a BUY trigger at 21.66 and a SELL short trigger at 19.95. Once RLAY 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 1.71. When you acquire a 3.7 profit, tighten the stop to 0.86. Earnings Report Date: Mar 23, 2022. Beta: N/A. Market-Cap: 2.27B. Optionable.

Travere Therapeutics, Inc. (TVTX: 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 TVTX's case we will enter a BUY should it reach the 28.96 level, or a SELL short trade if it drops to 26.93. As usual a trailing stop is essential, 2.03 which should be tightened to 1.02 on a 3.46 gain. TVTX closed Thursday at 28.20. Earnings Report Date: Feb 24, 2022. Beta: 0.79. Market-Cap: 1.727B. Optionable.

REAL ESTATE SECTOR

Preferred Apartment Communities, Inc. (APTS: Real Estate/REIT-Diversified) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into APTS. A move to the upside will trigger our BUY entry at 26.14, while a drop to 24.48 will trigger our SELL short entry. Follow your position with a 1.66 trailing stop. Tighten the stop to 0.83 once you have a 1.38 gain. APTS closed Thursday at 25.70. Earnings Report Date: Feb 28, 2022. Beta: 1.25. Market-Cap: 1.375B. Optionable.


IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy.
Link: https://prorightline.com/index.php/rightline-risk-control-system/

Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels.
Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/ 

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                           STOCK SPLIT SUMMARY
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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 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  
---------------- -------     --------    -------     ------  -------   
ePlus             PLUS      11/9/2021   12/14/2021  2-for-1   Yes
NAPCO Security    NSSC      12/8/2021   1/5/2022    2-for-1   Yes
AeroCentury Corp  ACY       12/17/2021  1/10/2022   5-for-1   No 
Merchants Bancorp MBIN      11/17/2021  1/18/2022   2-for-1   No
SMART Global Hold SGH        1/4/2022   2/2/2022    2-for-1   Yes

For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ 
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