February 19, 2022 - The RightLine Report
Notes From The Editor
Win/Loss vs. Profit/Loss
Most people don't realize that the Win/Loss Ratio is not a good way to judge trading results. This is because the Win/Loss Ratio only compares how many trades you win to how many trades you lose. It doesn't consider the most important aspect of trading ... the money.
The primary reason for trading stocks is to make a profit. Though it may seem like "making a profit" and "winning a high percentage of trades" are the same thing, they definitely are not. To evaluate and compare trading performance you need a ratio that takes actual profits and losses into account, along with the number of trades you won or lost.
This is where a simple Profit/Loss Ratio comes in. While the Win/Loss Ratio compares how many trades you win to how many trades you lose, the Profit/Loss Ratio compares how much money you make to how much money you lose. Including a Profit/Loss Ratio gives a much more accurate look at how well a trading method works as compared to the Win/Loss Ratio alone.
For example, a trading method may historically have a Win/Loss Ratio of 9/1 and a Profit/Loss Ratio of 1/10. That means out of every ten trades they won nine and lost 1. However, the Profit/Loss Ratio shows that for every dollar they make they lose ten. The Profit/Loss Ratio reveals that their "90% Winning Trades" is a big loser.
A study of different trading systems by Keener Capital Management discovered that higher winning percentages are characteristic of the worst performing strategies. By contrast, strategies with lower winning percentages were the most profitable.
Bottom Line: People are usually surprised to find that trading systems with high Win/Loss Ratios are among the worst performers. While they want to believe that a trading method with a very high percentage of winners is always "better," research proves just the opposite is usually true. Though human nature may compel us to pursue a high percentage of winners, it's best to use profit-based equations as well to measure performance.
Trade well!
Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 02/18 02/18 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
PACK 26.15 0.21 26.79 24.89 1.9/0.95 3.98
BSIG 24.32 0.19 24.82 1.6/0.8 1.88
IRMD 47.30 1.09 48.47 4.66/2.33 5.72
SNPO 20.04 -0.07 20.65 19.2 1.45/0.73 2.18
IIIV 25.36 -0.41 26.3 24.57 1.73/0.87 3.08
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 Trader's Corner
Market Summary
The major US stock indices closed lower on Friday as geopolitical and Fed tightening concerns remain the main negative influences on the market. The economic calendar included mixed reports, with existing home sales surprisingly surging higher, while leading indicators snapped a long positive streak. In equities, Deere & Company (DE $369) delivered strong results and guidance, while the share price of DraftKings (DKNG $17) and Roku (ROKU $112) dropped following the release of their numbers. Treasuries, the USD/dollar and oil prices advanced upward, gold ended the session lower.
Friday On The Week
-------------------- --------------------
Dow 34,079.18 -232.85 -658.88 -1.9%
Nasdaq 13,548.07 -168.65 -243.08 -1.76%
S&P 500 4,348.87 -31.39 -69.77 -1.58%
NYSE Volume 4.75B
NYSE Advancers 1,257
NYSE Decliners 2,046
Nasdaq Volume 4.52B
Nasdaq Advancers 1,472
Nasdaq Decliners 3,136
New Highs/Lows
02/11 02/14 02/15 02/16 02/17 02/18
--------------------------------------------
NYSE New Highs 67 24 34 63 21 23
NYSE New Lows 375 486 181 157 156 178
Nasdaq New Highs 54 38 52 48 36 30
Nasdaq New Lows 360 401 193 243 334 454
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "EMAs, SMAs, or DMAs?"
Did you know that EMAs - Exponential Moving Averages - are calculated based on "yesterday's" EMA? That's where the "exponential" part comes in. This means that if you're looking at a 200 Daily EMA based on 500 days of data vs. 2000 days of data, the results will be different. This explains why various charts programs display differing EMAs for the same stock.
Though this calculation also affects the shorter moving averages like the 22 and 50 DMA (Daily Moving Average), it is not as dramatic as with the 200 EMA. For daily charts the most widely used 200 MA is the 200 SMA (Simple Moving Average). However, in recent years some traders have begun using 200 EMAs because of the default settings in the charting packages. It pays to know which you are viewing.
For the record, at RightLine we use EMAs for all moving averages except the 200 DMA, for which we use the SMA. One powerful feature found in RightLine and some other charting programs is the ability to change the time frame referenced on the chart. While this is a very helpful feature, be aware that changing this setting will affect any displayed EMAs (Exponential Moving Average) lines.
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 - 4348.87 February 18, 2022
52-Week High: 4818.62
52-Week Low: 3723.34
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4713.20
Resistance 2: 4550.87
Resistance 1: 4449.87
Pivot: 4388.54
Support 1: 4287.54
Support 2: 4226.21
Support 3: 4063.88
NASDAQ Composite - 13548.07 February 18, 2022
52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 15122.12
Resistance 2: 14423.95
Resistance 1: 13986.01
Pivot: 13725.78
Support 1: 13287.84
Support 2: 13027.61
Support 3: 12329.44
Dow Industrials - 34079.18 February 18, 2022
52-Week High: 36952.65
52-Week Low: 30547.53
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 36510.93
Resistance 2: 35439.32
Resistance 1: 34759.25
Pivot: 34367.71
Support 1: 33687.64
Support 2: 33296.10
Support 3: 32224.49
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, February 21, 2022: 21-Feb STOCK MARKET CLOSED Presidents Day holiday - None scheduled Tuesday, February 22, 2022: 22-Feb 9 am 22-Feb 9 am FHFA home price index (year-over-year change) 22-Feb 9:45 am Markit manufacturing PMI (flash) 22-Feb 9:45 am Markit services PMI (flash) 22-Feb 10 am Consumer confidence index Wednesday, February 23, 2022: 23-Feb None scheduled Thursday, February 24, 2022: 24-Feb 8:30 am Initial jobless claims 24-Feb 8:30 am Continuing jobless claims 24-Feb 8:30 am Gross domestic product revision (SAAR) 24-Feb 8:30 am Gross domestic income (SAAR) 24-Feb 10 am New home sales Friday, February 25, 2022: 25-Feb 8:30 am Nominal personal income 25-Feb 8:30 am Nominal consumer spending 25-Feb 8:30 am PCE inflation (monthly) 25-Feb 8:30 am Core inflation (monthly) 25-Feb 8:30 am PCE inflation (year-over-year) 25-Feb 8:30 am Real disposable income 25-Feb 8:30 am Real consumer spending 25-Feb 10 am UMich consumer sentiment (final) 25-Feb 10 am 5-year inflation expectations (final) 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 Corner
TRADER'S TIP: "The Trader Says . . ."
"Being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly."
- Bernard Baruch
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Ranpak Holdings Corp. (PACK: Consumer Cyclical/Packaging & Containers) - 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. PACK 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 26.79 and a SELL short trigger at 24.89. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.9 which can be tightened to 0.95 on a 3.98 gain. PACK closed Friday at 26.15. Earnings Report Date: Feb 25, 2022. Beta: 1.25. Market-Cap: 2.129B. Optionable.
FINANCIAL SERVICES SECTOR
BrightSphere Investment Group Inc. (BSIG: Financial Services/Asset Management) - BULLISH BOUNCE. Up-trending stocks like BSIG have a tendency to bounce their way skyward rather than travel higher in a straight line. After touching down to a moving average support level on Friday, BSIG is poised to lift off again. To take advantage of this setup, prepare to BUY shares at 24.82 if positive price action occurs. As always, follow your entry with a trailing stop. A 1.6 trailer should work well with BSIG. Tighten it to 0.8 on a 1.88 gainer. Earnings Report Date: Apr 27, 2022. Beta: 1.79. Market-Cap: 1.084B. Optionable.
HEALTHCARE SECTOR
IRadimed Corporation (IRMD: Healthcare/Medical Devices) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, IRMD fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 47.30, plan to buy shares at 48.47 and use a 4.66 trailing stop. Tighten the stop to 2.33 on a 5.72 gain. Earnings Report Date: Apr 28, 2022. Beta: 0.91. Market-Cap: 583.767M. Not Optionable.
TECHNOLOGY SECTOR
Snap One Holdings Corp. (SNPO: Technology/Electronics & Computer Distribution) - SQUEEZE PLAY. Trader indecision has put SNPO 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 20.65 and a SELL short entry at 19.2. Now it's up to SNPO to show us which entry will be filled. Once the trade is underway place a 1.45 trailing stop, which can be tightened to 0.73 after you achieve a 2.18 profit. SNPO closed on Friday at 20.04. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.521B. Optionable.
i3 Verticals, Inc. (IIIV: Technology/Software-Infrastructure) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in IIIV'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 26.3 and a SELL order at 24.57. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.73 trailing stop. Tighten the stop to 0.87 once you have a 3.08 gain. IIIV closed Friday at 25.36. Earnings Report Date: May 09, 2022. Beta: 1.56. Market-Cap: 818.801M. 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 Trader's Corner
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
---------------- ------- -------- ------- ------ -------
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
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Recognizing False Breakouts And Whipsaws
Swing traders encounter false breakouts and whipsaws throughout their careers. That shouldn't be surprising, though, because all we're doing is playing an odds game.
Even a perfect setup can fall apart for no reason and with little warning. This reminds us that risk management is mandatory if we want to trade successfully.
Breakouts occur in zones of conflict. Both sides of the market are very passionate at these turning points, but no one knows how much force is required to carry price into a sustainable trend. So any position you take near a breakout level carries considerable risk, no matter how perfect a pattern looks.
Price can respond in different ways to breakouts. First, it may carry through successfully to higher levels. Second, it may generate whipsaws that force losses on both sides of the market. Third, it may trap buyers in a false move and start a trend in the opposite direction. Each of these outcomes requires careful trade management.
A successful breakout occurs in three phases. It begins when price breaks through resistance on increased volume. We'll call this the action phase. Price expands a few points or ticks, and then reverses as soon as buying interest fades.
This starts the reaction phase. The market sells off and spawns the first pullback, where fresh buyers see a chance to get in close to the breakout price. If all systems are go, a second rally kicks in and carries price above the initial breakout high. This marks the resolution phase.
The three phases of a successful breakout depend on certain volume characteristics. Demand must exceed supply during the initial breakout. Volume should "dry up" when it pulls back in the reaction phase. And new buyers need to jump in to ensure a successful resolution phase. Whipsaws and false breakouts result when these supply-demand dynamics fall out of balance.
What exactly are whipsaws? Simply stated, they're choppy price swings back and forth through common support or resistance levels. Natural tug and pull generates most whipsaws.
But hidden hands also manipulate price through common stop levels in order to generate volume, and intentionally wash out one side of the market. Whatever the source, whipsaws are responsible for many of the losses in a swing trader's portfolio.
Whipsaws emerge when a breakout can't generate an efficient reaction phase. This failure may or may not trigger a major reversal. The pullback shakes out weak hands and forces price back into resistance.
But there's usually a healthy supply of buyers throughout the choppy movement. These bulls step in repeatedly to support the market. A successful breakout can begin quickly after a whipsaw fades out. The loss of volatility actually triggers a buying signal on many trading screens. This starts a bounce that generates the momentum needed to carry price up and beyond the last high.
Major reversals occur when price action traps one side of the market. Many traders wait to enter positions at key breakout levels. Once these folks execute their trades, they're at the mercy of the market.
In other words, their profits depend on others seeing the breakout and jumping in behind them. False breakouts occur when this second crowd fails to appear.
An overbought, one-sided market can drop quickly below a breakout level. This throws all the traders who bought the breakout into losing positions. Without the support of fresh buyers, a stock can fall from its own weight. Each incremental low triggers more stops and increases fear within the trapped crowd. Momentum builds to the downside, breaks key support and invites fresh short-sale signals from a whole new batch of traders.
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This special guest article was written by Alan Farley, author of "The Master Swing Trader."
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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