Notes From The Editor

When it comes to shopping, everybody wants a good deal. It's no surprise that the same thing is true with stocks. Even the common investment advice to "buy low and sell high" is frequently interpreted as "buy cheap." Many investors seem to forget that usual there is a reason why a cheap stock is so cheap!

Some folks are so inclined to buy cheap stocks they ignore signs that the stock could easily get even cheaper. Obvious downtrends repeatedly point to underlying reasons for a stock's demise, yet many individuals decide to buy anyway because the stock is "down" from a higher price.

Think about it for a second. People will say a stock is a bargain at $20 simply because it has dropped from a high of $60. The concept seems simple enough. The stock used to cost three times the current price, so it MUST be a good deal. Unfortunately the problem with this type of relative reasoning doesn't become clear until the stock drops to $5.

The desire for a bargain often causes normally intelligent people to make bad investment decisions. They forget that cheap stocks in downtrends usually continue to make lower highs and lower lows for much longer than expected. As investors lose money in a declining stock they will eventually leave it in search of a more attractive opportunity.

Many cheap stocks are former high-fliers that have split so many times they now have a huge number of shares in the float. This inflated condition requires massive trading volume for even minor price increases, and keeps the stock from making any significant moves. These stocks trade in a lower price range because professional traders lost interest years ago. They are too sluggish and don't move quickly enough to qualify as good trading candidates.

Bottom Line: When you're thinking about buying a stock, you want it to show positive signs that it will go up. Look for recent bullish activity in the context of a longer period of positive momentum. The same way that declining stocks tend to continue going lower, stocks moving higher in price tend to continue moving higher.

Whenever you come across a "bargain" stock, make sure you have other good reasons to buy it than just the fact that it's cheap!

Trade well,

Thomas Sutton

Quick List

    
Stock     02/20     02/20      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

TTGT      27.69      0.15     28.25     26.46        1.79/0.90      1.38
PFGC      53.04      0.04     54.04                  3.29/1.65      2.10
PFNX      12.84      0.46     13.16                  1.38/0.69      1.48
STSA      28.62     -0.42     29.78     27.50        2.28/1.14      4.48

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 access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

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 closed lower on Thursday as concern over the global economic and health impact of the spreading coronavirus offset upbeat US economic data. Included in the positive news, regional manufacturing output leaped to a three-year high and leading indicators bounced much higher than predicted. In equities headlines, Morgan Stanley (MS $54) has agreed to acquire E-Trade Financial (ETFC $55) in a $13-billion deal, while Domino's Pizza (DPZ $373) and Zillow (ZG $64) rallied following the release of their earnings reports. Shares of Viacom-CBS (VIAC $29) dropped more than 17% after the company announced their first quarterly earnings results since the merger of the two companies. The USD/dollar, oil prices and gold all increased in valued, treasury yields declined.

                        Feb 19, 2020           Feb 20, 2020   
                  --------------------   --------------------
Dow                    29,348  +115.84        29,220  -128.05
Nasdaq               9,817.18   +84.44      9,750.97   -66.22
S&P 500                 3,386   +15.86         3,373   -12.92

NYSE Volume                      3.70B                  4.05B
NYSE Advancers                    1545                   1798
NYSE Decliners                    1372                   1127

Nasdaq Volume                    2.51B                  2.76B
Nasdaq Advancers                  1948                   1729
Nasdaq Decliners                  1264                   1479

                                 New Highs/Lows

                   02/13  02/14  02/17  02/18  02/19  02/20
                 --------------------------------------------
NYSE New Highs       220    264      0    241    252    236
NYSE New Lows         46     57      0     75     59     61
Nasdaq New Highs     222    205      0    200    279    216
Nasdaq New Lows       49     64      0     63     59     53
   

TRADER'S TIP: "Closing Positions Before Earnings And Getting Back In"

Because price action immediately after earnings announcements often ends up surprising traders, we suggest closing positions before the company releases their earnings report. However, if a stock is moving in a solid trend - long or short - and earnings support that trend, you may want to jump back into the trade after the company reports earnings. This can be profitable at times, but don't chase the stock. If it has jumped more than 5% beyond your exit point, let it go.

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 3373.23 February 20, 2020

52-Week High: 3393.52
52-Week Low: 2722.27
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3495.64
Resistance 2: 3428.32
Resistance 1: 3404.24
Pivot: 3361.00
Support 1: 3336.92
Support 2: 3293.68
Support 3: 3226.36


NASDAQ Composite - 9750.96 February 20, 2020

52-Week High: 9838.37
52-Week Low: 7292.22
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 10167.09
Resistance 2: 9912.40
Resistance 1: 9821.78
Pivot: 9657.70
Support 1: 9567.09
Support 2: 9403.01
Support 3: 9148.32
        
Dow Industrials - 29219.98 February 20, 2020

52-Week High: 29568.57
52-Week Low: 24680.57
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 30466.59
Resistance 2: 29893.68
Resistance 1: 29645.88
Pivot: 29320.77
Support 1: 29072.97
Support 2: 28747.86
Support 3: 28174.95
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, February 17, 2020:
17-Feb          None scheduled Presidents Day holiday

Tuesday, February 18, 2020:
18-Feb  8:30 am   Empire state manufacturing index
18-Feb  10 am   NAHB home builders' index

Wednesday, February 19, 2020:
19-Feb  8:30 am   Producer price index
19-Feb  8:30 am   Housing starts
19-Feb  8:30 am   Building permits
19-Feb   2 pm   FOMC minutes

Thursday, February 20, 2020:
20-Feb  8:30 am   Weekly jobless claims
20-Feb  8:30 am   Philly Fed manufacturing index
20-Feb  10 am   Leading economic indicators

Friday, February 21, 2020:
21-Feb  9:45 am   Markit manufacturing PMI (flash)
21-Feb  9:45 am   Markit services PMI (flash)
21-Feb  10 am   Existing home sales



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

TRADER'S TIP: "Reversals"

When it comes to reversals on daily charts, the closing price is the key price. Also, it's a good idea to give any reversal from support or resistance at least one day to confirm itself.

Stocks Covered in This Issue

COMMUNICATION SERVICES SECTOR

TechTarget, Inc. (TTGT: Communication Services/Internet Content & Information) - SQUEEZE PLAY. Traders are feeling the pressure as TTGT's intra-day price range on Thursday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 28.25 and a SELL short entry at 26.46. TTGT's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.79 trailing stop. Tighten it to 0.90 after you get a 1.38 gain. TTGT closed Thursday at 27.69. Earnings Report Date: May 05, 2020. Beta: 0.72. Market-Cap: 779.266M. Optionable.

CONSUMER DEFENSIVE SECTOR

Performance Food Group Company (PFGC: Consumer Defensive/Food Distribution) - BULLISH BOUNCE. The charts for PFGC show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Thursday, resulting in the early stages of a rebound that started near moving average support. The resulting Bullish Bounce set-up offers a potential entry point for a long play. Set your trigger to BUY shares at 54.04, and follow your entry with a trailing stop of 3.29. Tighten it to 1.65 when a 2.10 profit is reached. PFGC ended the latest session at 53.04. Earnings Report Date: May 05, 2020. Beta: 0.66. Market-Cap: 6.215B. Optionable.

HEALTHCARE SECTOR

Pfenex Inc. (PFNX: Healthcare/Biotechnology) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Thursday PFNX seemed intent on initiating a rebound. With moving average support nearby, PFNX is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 13.16. Manage risk with a 1.38 stop. Tighten your stop to 0.69 when you have a 1.48 profit. PFNX ended the day at 12.84. Earnings Report Date: Mar 08, 2020. Beta: 1.59. Market-Cap: 406.719M. Optionable.

Satsuma Pharmaceuticals, Inc. (STSA: Healthcare/Biotechnology) - SQUEEZE PLAY. Thursday's narrow price range has created a potentially profitable setup in STSA, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 29.78 and a SELL short entry at 27.50. Let STSA's price action determine your long or short entry. Once the order is filled, place a 2.28 trailing stop, and tighten it to 1.14 upon getting a 4.48 gain. STSA closed Thursday at 28.62. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 486.803M. 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  
---------------- -------     --------    -------     ------  -------   

Currently there are no upcoming stock splits on the major US exchanges.
    

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 to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

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