February 22, 2020 - The RightLine Report
Notes From The Editor
One of my favorite books is "The 21 Irrefutable Truths of Trading" by John Hayden. The author explores several important aspects of trading before presenting the insightful conclusion that our deep beliefs are the primary forces that lead to success. I've included an excerpt below to help traders who are interested in improving their skills from the foundation up.
- Thomas Sutton, Editor
Faith As Your Foundation For Trading
"You must use faith to become certain that your ability as a trader and your trading methodology will ultimately enable you to arrive at your goal. Currently you may not know exactly how you will get there, but you must become certain that you will eventually succeed. It is vitally important that you understand that as you increase faith and develop certainty, your ability as a trader will continue to improve, eventually guaranteeing your triumph.
In other words, airplane pilots will retain their faith and level of certainty about arriving at their intended destination regardless of the obstacles en route. They may have to take a detour around a large storm, but they will eventually land safely. Just as the level of certainty of the airline pilot is unwavering, so your level of certainty as a trader must remain unwavering.
Faith breeds confidence, success, and certainty. Faith fights doubt and uncertainty, which lead to fear, doubt, despair, disappointment, and hesitation. Faith will overcome the four primary obstacles that all traders encounter. The first obstacle is the trader's mind. It is in the mind where our abilities reside, and where beliefs and values exist. Faith will overcome any limiting values and beliefs.
The second obstacle is fundamental analysis. Regardless of our trading abilities, there's always some fundamental aspect about the markets that we lack information about or lack understanding of. The third obstacle is technical analysis. As with fundamental analysis, regardless of the abilities of the trader there will always be a new and perhaps more efficient way to perceive the markets technically. The fourth obstacle is the markets themselves. Markets can be unpredictable and inconsistent, and they possess endless variations. The trader who possesses faith will overcome all these obstacles.
Your goal in creating faith in your trading abilities is to know that you will overcome all obstacles, and that you will eventually become a very profitable trader. It is a matter not of if you become a profitable trader, but when. It is your faith, and developing a sense of certainty about yourself and your trading ability, that will allow you to learn, research, and apply what you learn to trading. Currently you have a lot of beliefs that involve faith and certainty in your everyday life. You must add trading to this list."
- John Hayden
Stocks Covered Today ... Stock Splits ... Trader's Corner
Quick List
Stock 02/21 02/21 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
VCTR 22.96 -0.11 23.45 22.11 1.34/0.67 1.30
NVTA 23.10 -0.72 23.90 21.74 2.16/1.08 2.30
NKTR 23.53 -0.14 24.20 22.51 1.69/0.84 1.86
COLL 23.93 0.32 24.61 22.51 2.10/1.05 2.24
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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Stocks Covered Today ... Stock Splits ... Trader's Corner
Market Summary
All of the US major stock indices closed lower on Friday, as uncertainty concerning the impact of the coronavirus outbreak continued to weigh on market sentiment. Economic headlines were somewhat negative, with manufacturing output slowing and the key services sector slipping into contraction for the first time in four years. Equity news featured upbeat quarterly earnings results from Deere & Company (DE $177), while Coca-Cola Company (KO $60) warned that the coronavirus could have a negative impact on revenues and profits, yet maintained its full-year guidance. Oil prices, treasury yields and the USD/dollar declined, as gold prices moved higher.
Friday On The Week
-------------------- --------------------
Dow 28,992 -227.57 -406 -1.38%
Nasdaq 9,577 -174.37 -154.18 -1.58%
S&P 500 3,338 -35.48 -42 -1.24%
NYSE Volume 4.03B
NYSE Advancers 884
NYSE Decliners 2048
Nasdaq Volume 2.83B
Nasdaq Advancers 979
Nasdaq Decliners 2207
New Highs/Lows
02/14 02/17 02/18 02/19 02/20 02/21
--------------------------------------------
NYSE New Highs 264 0 241 252 236 176
NYSE New Lows 57 0 75 59 61 87
Nasdaq New Highs 205 0 200 279 216 129
Nasdaq New Lows 64 0 63 59 53 67
Stocks Covered Today ... Stock Splits ... Trader's Corner
TRADER'S TIP: "Husband and Wife"
It's okay to fall in love with a stock, but never marry it. Keeping an objective view of a trade is essential if you want to be able to exit without 'psychological' hang-ups. Do not become overly committed to a stock - the cost can be way too high.
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 - 3337.75 February 21, 2020
52-Week High: 3393.52
52-Week Low: 2722.27
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 1763.00
Resistance 2: 1490.90
Resistance 1: 745.44
Pivot: 1218.79
Support 1: 473.33
Support 2: 946.68
Support 3: 674.57
NASDAQ Composite - 9576.59 February 21, 2020
52-Week High: 9838.37
52-Week Low: 7292.22
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 7578.41
Resistance 2: 5889.66
Resistance 1: 5308.50
Pivot: 4200.91
Support 1: 3619.75
Support 2: 2512.16
Support 3: 823.41
Dow Industrials - 28992.41 February 21, 2020
52-Week High: 29568.57
52-Week Low: 24680.57
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9906.60
Resistance 2: 9786.50
Resistance 1: 4893.25
Pivot: 9666.40
Support 1: 4773.14
Support 2: 9546.29
Support 3: 9426.19
Stocks Covered Today ... Stock Splits ... Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, February 24, 2020: 24-Feb 8;30 am Chicago Fed national activity index Tuesday, February 25, 2020: 25-Feb 9 am Case-Shiller home price index 25-Feb 9 am FHFA home price index 25-Feb 10 am Consumer confidence index Wednesday, February 26, 2020: 26-Feb 10 am New home sales Thursday, February 27, 2020: 27-Feb 8:30 am Weekly jobless claims 27-Feb 8:30 am GDP 27-Feb 8:30 am Durable goods orders 27-Feb 8:30 am Core capital goods orders Friday, February 28, 2020: 28-Feb 8:30 am Advance trade in goods 28-Feb 8:30 am Personal income 28-Feb 8:30 am Consumer spending 28-Feb 8:30 am Core inflation 28-Feb 9:45 am Chicago PMI 28-Feb 10 am Consumer sentiment index
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: "Fire Drill"
At some time or another, every online trader will experience a "technical problem." Computers, Internet Service Providers, charting tools, data feeds, broker access - even the phone and electrical power can break down temporarily. These interruptions are inevitable, so you might as well plan for them.
Arrange a backup for every aspect of your trading process, then conduct a "fire drill" so you will know exactly what to do when the real disruptions come. You'll certainly be glad you did!
Stocks Covered in This Issue
FINANCIAL SERVICES SECTOR
Victory Capital Holdings, Inc. (VCTR: Financial Services/Asset Management) - SQUEEZE PLAY. A look at VCTR's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 23.45 and a SELL short trigger at 22.11. Once VCTR shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.34 and tighten to 0.67 on a 1.30 gain. VCTR closed Friday at 22.96. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.597B. Not Optionable.
HEALTHCARE SECTOR
Invitae Corporation (NVTA: Healthcare/Diagnostics & Research) - SQUEEZE PLAY. Friday's trading action forced NVTA's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction NVTA will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 23.90 if NVTA moves higher, and place your order to SELL short at 21.74 if price declines to that level. As usual follow your entry with a trailing stop, 2.16 should be sufficient. Reduce your stop to 1.08 on a 2.30 gain. NVTA closed Friday at 23.10. Earnings Report Date: N/A. Beta: 2.41. Market-Cap: 2.263B. Optionable.
Nektar Therapeutics (NKTR: Healthcare/Biotechnology) - SQUEEZE PLAY. NKTR is caught in a dilemma. The stock's compressed price range on Friday 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. NKTR is now at 23.53. We can capture price action either way by placing a BUY trigger at 24.20 and a SELL short trigger at 22.51. Once NKTR 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 1.69. When you acquire a 1.86 profit, tighten the stop to 0.84. Earnings Report Date: Feb 26, 2020. Beta: 2.78. Market-Cap: 4.139B. Optionable.
Collegium Pharmaceutical, Inc. (COLL: Healthcare/Drug Manufacturers-Specialty & Generic) - 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 COLL. A move to the upside will trigger our BUY entry at 24.61, while a drop to 22.51 will trigger our SELL short entry. Follow your position with a 2.10 trailing stop. Tighten the stop to 1.05 once you have a 2.24 gain. COLL closed Friday at 23.93. Earnings Report Date: Feb 26, 2020. Beta: 0.81. Market-Cap: 802.303M. 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
---------------- ------- -------- ------- ------ -------
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.
Stocks Covered Today ... Stock Splits ... Trader's Corner
Trader's Corner
"Flipping Stocks"
Flipping is a trading tactic that you can use to make sizable gains in a short amount of time. Keep in mind that there are some potential risks in flipping stocks, but if you follow a few simple guidelines the technique can work very well.
To "flip" a stock, you enter a position near the close and exit at the open of the next session - with the purpose of making a quick profit. This tactic works equally well from either the long or the short side, but in this article we'll focus primarily on the long (buy) side.
The risk is that if bad news hits the stock or the market overnight, you can incur a loss. However, if the market is working well with a large number of stocks finishing the day near their intra-day highs, the odds are in your favor that you will capture a nice profit by holding the stock until the open of the next session.
There are a couple of rules to bear in mind if you decide to use this tactic. However, before we look at the "two rules of flipping," here is a bit of background that shows why playing flip trades can be very profitable.
Studies by Moore Research Center show that when markets close in the upper 20% of their price range for the day, they tend to move higher the next session. For example, researchers looked at ten years of S&P 500 data and found that when the 20% level was met, prices rose above the previous day's high 80% of the time.
Traders and active investors can use this information as part of their planning routine when deciding whether to hold onto current positions, exit, or enter a new one for a quick flip trade. A top 20% market finish into the closing bell could merit holding a position longer than originally planned, whereas a close below that level might prompt a quick sale to lock in profits.
The studies by Moore Research also indicated that even though prices rose higher the next day 80% of the time, they only closed higher about 50% of the time - so it's a good idea to keep a tight stop on these "flippers!"
Okay, back to the rules.
The Two Rules of Flipping
1. Generally you want the market to be on the strong side. You will also want to select stocks that are finishing strong, within 20% of the session high. This is pretty easy to see, if you are watching the market near the close. Ideally you want your stocks to be in a sector that closes in the top 20% of its range with several strong stocks in the group finishing at their highs. There numerous indices for almost every sector, so be sure to monitor the index for stocks that you intend to enter.
2. Rule number two says, "If you bought a stock with the intention of flipping it, then flip it!" Lots of traders make the mistake of thinking that the stock will keep flying and they might miss the move if they sell. However, unless the stock you bought to flip has significant news overnight, most likely the stock will gap open and then sell off a bit as traders sell the gap. This play is termed as "fading the gap" - trading opposite of the move.
When flipping, you have to be disciplined in planning your trade and sticking with your plan. You can't get greedy if you want to "flip" successfully. One reason flipping a stock works so well is because the world tends to follow the US markets. When the US markets finish on the strong side, other foreign markets will normally have positive moves overnight. As a result, the next day we will often see the futures up before the open. This prompts many retail investors and amateur traders who don't want to miss the move to jump in with buy orders at the open, just as flippers are selling.
This is obviously a very short term trading tactic that is best suited for traders who have access to the markets at the close of the current session, and the open of the following session. Keep in mind that flipping has its own set of risks, but if you stick to the rules and use good trading discipline, it can be very profitable.
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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