Notes From The Editor

No matter how much we want to be perfect, there's no getting around the facts. If you're human, you have a few traits you'd like to improve on, or perhaps even replace. In some cases even "minor" negative qualities can have a huge impact on a trader's performance.

Brett N. Steenbarger is licensed psychologist who has traded actively for the past 20 years. He's come up with several "vices" that traders can focus on as mental preparation prior to entering the markets. Brett believes that one of the best ways to avoid getting trapped in negative trading patterns is to become an observer of our own behaviors.

In the paragraphs below you'll find excerpts from Brett's article, "The Three Vices of Trading." I certainly find his writing helpful in sorting through my "stuff." I'm sure you will too.

Enjoy the weekend!

~ Thomas Sutton, Editor


Vice One: Perfectionism

"Perfectionism is often the chief culprit when the pain of losing exceeds the pleasure of winning. Desperately trying to feel good about themselves, perfectionists set unrealistically high ideals."

The emotional theme of the perfectionist is "not good enough". Perfectionists are driven to do more and more because they never feel competent, worthy, and loved as they are. Thus, even when there's a profit on a trade, perfectionists will look for the portion of the move that they did not participate in.

If they caught most of the move, they will reprove themselves for not trading a larger position. And when trades don't go well, perfectionists review all the reasons that shouldn't have made the trade, should have known better, etc.

By focusing on the portion of their performance that doesn't match their ideals, perfectionists transform successes into defeats, losses into failures. They rationalize their perfectionism as a drive for achievement, but all they are accomplishing is an undercutting of their confidence.

Perfectionism shows up as negative self-talk and self-blaming. Emotionally, we recognize perfectionism from frustrated, angry feelings when trades don't work out as planned. "Beating myself up" is how many perfectionists describe their self-talk.

The way to beat perfectionism is to make a concerted effort to talk to yourself the way you would talk to a good friend in a situation where things went wrong. Most people know how to treat others with respect, love, and dignity. They just haven't learned to do the same for themselves.

If you would be more nurturing, understanding, and supportive of a friend than you are of yourself in the identical situation, then you know that you're not being your own best friend."

~ Brett N. Steenbarger, Ph.D

Note: Brett is a former Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and the author of "The Psychology of Trading."

Quick List

    
Stock     02/23     02/23      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

DNTH      24.44      0.44     25.26                  2.32/1.16      4.48
CABA      22.39      0.19     23.01     21.15        1.86/0.93       3.1
NLOP      26.37      0.21     26.84                  1.68/0.84      1.84
AAOI      14.15     -6.20     14.87                   3.1/1.55      3.06
CEVA      22.20     -0.13     22.88     21.47        1.41/0.71      1.72

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.

Market Summary

Equity markets extended their recent upward trajectory on Friday following the previous day's stellar performance, marking the best day in over a year, as the Nasdaq experienced a minor setback, recording a slight decline. Economic data remained uneventful, and market sentiment stayed broadly positive, buoyed by robust corporate earnings and excitement surrounding advancements in AI/Artificial Intelligence. Notable movers included Block, whose shares surged more than 15%, and Carvana, which saw a 30% increase, both exceeding expectations. In Europe, markets also trended higher, with the Stoxx 600 and Japan's Nikkei reaching new highs. Treasury yields dipped, and oil prices retreated to close at $76.50.

Solid corporate profits continue to support the stock market. With approximately 90% of S&P 500 companies having reported their earnings, the quarter's earnings growth stands at a commendable 7.5%, showing an uptick from the previous quarter. Notably, NVIDIA's ascent to the third-largest company in the S&P 500 by market capitalization underscores the influence of growth-style investments in driving stocks to fresh highs. While sectors like communication services, consumer discretionary, and technology lead the earnings growth, overall market results are promising, indicating companies' efforts to safeguard profitability amid slowing revenue growth.

Unlike last year's market surge driven by valuation expansion, this year's momentum is likely to be fueled by earnings growth, with projections suggesting a reacceleration in earnings growth for 2024, albeit possibly accompanied by heightened volatility. Attention now returns to inflation and the upcoming Fed meeting in March. As earnings season winds down, focus will likely shift back to inflation dynamics and the Federal Reserve's March meeting, which will feature updated economic and interest-rate projections.

Recent remarks from Fed officials signal a cautious approach to rate cuts, considering the robust economy and uncertainties surrounding disinflation. Consequently, market expectations for the timing of the first rate cut have shifted to June from March. The forthcoming release of the core PCE, the Fed's preferred inflation gauge, will be closely monitored following last week's hotter-than-expected CPI reading. Despite the non-linear path to reaching the Fed's 2% target, expectations are for inflation to moderate, supported by slowing housing costs, cooling wage growth, and improved productivity and supply chains. These factors are anticipated to pave the way for rate cuts in the latter part of the year.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 39,155.52    86.41      +527.53     1.37%
Nasdaq              15,996.82   -44.80      +221.17      1.4%
S&P 500              5,088.80     1.77       +83.23     1.66%

NYSE Volume                      3.68B                       
NYSE Advancers                   1,750                       
NYSE Decliners                   1,069                       

Nasdaq Volume                     5.1B                       
Nasdaq Advancers                 2,318                       
Nasdaq Decliners                 1,917                       

                                 New Highs/Lows

                   02/16  02/19  02/20  02/21  02/22  02/23
                 --------------------------------------------
NYSE New Highs       198      0    119     96    227    272
NYSE New Lows         15      0     25     32     41     37
Nasdaq New Highs     225      0    112     59    247    263
Nasdaq New Lows       64      0     96    115    112    137
   

TRADER'S TIP: "That Extra Something . . ."

The ability to relax emotionally and mentally when trading is usually associated with bull markets. And while we all love bullish market conditions, it's best to connect our positive emotions about trading to something more reliable than just upward market movement. Knowing that we can engage the stock market profitably in any environment provides that "something."

Belief, confidence, or whatever you want call it, the conviction that comes from experience and preparation is far more powerful than any bull. Why? Because bull markets don't last forever. What they give, the bear usually takes back - both in dollars and peace of mind. However, bears can't take away your money OR your confidence when it is based on sound trading principles and a realistic belief in your ability to be successful. This is true regardless of the current market trend.

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):    

MONDAY, FEB. 26					
10:00 am	New home sales	

TUESDAY, FEB. 27					
8:30 am	Durable-goods orders	
8:30 am	Durable-goods minus transportation	
9:00 am	S&P Case-Shiller home price index 
10:00 am	Consumer confidence
	
WEDNESDAY, FEB. 28					
8:30 am	GDP (first revision)	Q4
8:30 am	Advanced U.S. trade balance in goods	
8:30 am	Advanced retail inventories	
8:30 am	Advanced wholesale inventories	
12:00 pm	Atlanta Fed President Raphael Bostic speaks
				
THURSDAY, FEB. 29					
8:30 am	Initial jobless claims	
8:30 am	Personal income 	
8:30 am	Personal spending 
8:30 am	PCE index			
8:30 am	Core PCE index			
8:30 am	PCE (year-over-year)			
8:30 am	Core PCE (year-over-year)			
9:45 am	Chicago Business Barometer (PMI)
10:00 am	Pending home sales	
10:50 am	Atlanta Fed President Raphael Bostic speech				
11:00 am	Chicago Fed President Austan Goolsbee speaks				
1:15 pm	Cleveland Fed President Loretta Mester speaks				
7:40 pm	Kansas City Fed President Jeff Schmid speaks
				
FRIDAY, MAR 1					
9:45 am	S&P U.S. manufacturing PMI 
10:00 am	ISM manufacturing	
10:00 am	Construction spending	
10:00 am	Consumer sentiment 
10:15 am	Dallas Fed President Lorie Logan speaks				
10:15 am	Fed Governor Chris Waller speaks				
12:15 pm	Atlanta Fed President Raphael Bostic speaks				
1:30 pm	San Francisco Fed President Mary Daly speaks

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

TRADER'S TIP: "Planning Entries"

Typically when our analysts determine entry points, they evaluate it from both a longer-term and shorter-term perspective. We look at a longer-term chart when determining the underlying trend. Then use shorter-term analysis to figure out where in that longer-term trend the stock currently is. For example, if a stock sits mired in a downtrend, but is nearing the lower edge of the trading range, we'll be looking to plan for a long bounce entry but might use a slightly tighter stop since the prevailing winds are pressuring prices downward. It's a matter of integrating BOTH perspectives when formulating a plan.

Stocks Covered in This Issue

HEALTHCARE SECTOR

Dianthus Therapeutics, Inc. (DNTH: Healthcare/Biotechnology) - BULLISH BOUNCE. Positive price behavior near moving average support on Friday qualifies DNTH for a Bullish Bounce setup. After several sessions of declining prices, DNTH should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if DNTH moves up to our entry trigger set at 25.26. You can also enter a 2.32 trailing stop, to be replaced with a 1.16 trailing stop when you obtain a 4.48 profit. DNTH closed Friday at 24.44. Earnings Report Date: Mar 21, 2024. Beta: N/A. Market-Cap: 716.537M. Not Optionable.

Cabaletta Bio, Inc. (CABA: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as CABA's intra-day price range on Friday 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 23.01 and a SELL short entry at 21.15. CABA's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.86 trailing stop. Tighten it to 0.93 after you get a 3.1 gain. CABA closed Friday at 22.39. Earnings Report Date: Mar 14, 2024. Beta: 2.47. Market-Cap: 959.398M. Optionable.

REAL ESTATE SECTOR

Net Lease Office Properties (NLOP: Real Estate/REIT - Office) - BULLISH BOUNCE. The charts for NLOP show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Friday, 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 26.84, and follow your entry with a trailing stop of 1.68. Tighten it to 0.84 when a 1.84 profit is reached. NLOP ended the latest session at 26.37. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 385.582M. Not Optionable.

TECHNOLOGY SECTOR

Applied Optoelectronics, Inc. (AAOI: Technology/Communication Equipment) - BULLISH BOUNCE. AAOI's positive weekly uptrend is still intact despite recent selling that has driven share prices lower. Price action on Friday shows that traders are aware of the moving average support zone now in play, and they are ready to consider buying again. A shift up from this point will attract even more buyers. The new buying should move AAOI back in step with the bullish weekly trend, so our BUY entry trigger is set at 14.87. Once you hold a position, trail a stop of 3.1. Tighten it to 1.55 on a 3.06 gain. AAOI closed at 14.15 on Friday. Earnings Report Date: May 02, 2024. Beta: 2.05. Market-Cap: 536.03M. Optionable.

CEVA, Inc. (CEVA: Technology/Semiconductors) - SQUEEZE PLAY. CEVA is stuck in a Bull/Bear deadlock. Fortunately for traders this impasse should be resolved soon, with one side or the other taking control. We want to be positioned for a potential quick move up or down, so get ready to catch this train with a BUY entry at 22.88 and a SELL short entry at 21.47. Once your trade is filled, enter a 1.41 trailing stop. Tighten it to 0.71 after a 1.72 gain. CEVA closed on Friday at 22.20. Earnings Report Date: May 08, 2024. Beta: 1.10. Market-Cap: 523.056M. 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.

Trader's Corner

Breakout Trading

Significant declines evolve into long bottoms characterized by failed rallies and retesting of prior lows. As new accumulation slowly shakes out the last crowd of losers, a stock's character changes. Prices push toward the top of key resistance. Short-term relative strength improves and charts print a series of bullish price bars with closing ticks near their highs. Finally the issue begins a steady march through the wall marked by previous failures.

Stocks must overcome gravity to enter new uptrends. Value players build bases but can't supply the critical force needed to fuel rallies. Fortunately, the momentum crowd will arrive just in time to fill this chore. As a stock slowly rises above resistance, greed rings a loud bell and these growth players jump in all at the same time.

The appearance of a sharp breakout gap has tremendous buy power. But the skilled trader should remain cautious unless the move is accompanied by heavy volume. Bursts of enthusiastic buying should draw wide attention, which ignites further price expansion. When volume fails to show, the gap may quickly fill and trap the emotional longs.

Non-gapping, high volume surges provide a comfortable price floor similar to gaps. But support may be more difficult to measure. And momentum can take longer to develop, forcing a stock to swing into a new range rather than rise quickly. Fortunately this scenario also sets up pullback trades as support forces profitable bounces.

The uptrend terrain faces predictable obstacles marked by Clear Air pockets and congestion from prior downtrends. These barriers force frequent dips that mark good buying opportunities. The trader must identify these profitable zones in advance but also recognize that dips will disappear during the strongest rallies. Here price blasts through prior resistance as enthusiasm explodes.

During uptrends, one goal is to locate runaway expansion moves. As trend builds momentum, both gapping and non-gapping surges will register on technical indicators, such as MACD or ADX. Short pullbacks should not violate the math of this developing strength. As volatility absorbs each surge, more powerful rallies should erupt. During these events, price range and volume will expand bar to bar, often culminating in a second (continuation) gap and a final exhaustion spike.

Break and Run

Gap breakouts are more likely to rise toward higher prices immediately than simple volume breakouts. Waiting for a dip may be futile. Extreme crowd enthusiasm ignites continued buying at higher levels and market makers don't need pullbacks to generate volume. If entry is desired, use a trend-following strategy and manage risk with absolute price or percentage loss stops.

See Chart - https://prorightline.com/rlr/TC082004.gif

****************************************************

This instructive 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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