Notes From The Editor

Just like a snowflake, no two trading sessions are the same. Every day brings unique technical situations, news events, and other dynamics that shift the market. But along with these ever-changing factors are some common tendencies that savvy traders can profit from.

What I'm referring to here is the market's "rhythm" throughout the day.

In the past we've talked about your personal morning habits, and how they can impact your trading account. Similarly, the market has its own daily habits. This shouldn't be a surprise, considering that when it's all boiled down, the market consists of thousands of humans making decisions.

When trading commences at the opening bell, the movement is fast and furious. Pre-market trading is suddenly reflected in gaps. Stocks not trading in pre-market react to overnight events.

I've often heard market veterans refer to the first hour of trading as "amateur hour" - a time when traders are lured in by quick prices changes, then whipsawed for a loss by the increased volatility.

In practice, I've found that this first hour can offer plenty of enticing entry points. Individual stocks often over-react when the broader market is making a decisive move. Imagine, for example, an equity called XYZ that falls sharply with the major indices at the beginning of trading.

While this sympathetic reaction is understandable, buyers suddenly begin to take notice as the stock approaches support at its 50 DMA. If that moving average is touched and successfully tested, XYZ could put in a decisive bottom and begin to retrace those early losses. The bounce can be particularly strong if the broader market also turns around.

I'm not necessarily endorsing jumping head-over-heels into a trade just five minutes after trading begins; with so little time, it's hard to get a feel for where the market and stock might be headed. However, once the initial dust settles during the first 15-30 minutes, windows of opportunity can suddenly open. The key is to have a reliable entry point, such as a bounce off a trendline or moving average, then place your stop slightly below that level.

Early trading is also the time to employ our gap-open strategies for entering trade set-ups that have gapped beyond their entry points. You can visit https://prorightline.com/gap-open-stock-trading-tactic/ for more information.

Just as morning action has its own unique "vibe" and tendencies, so to does the afternoon half of the session. We'll touch on that next week and identify some specific tendencies that all traders should be aware of.

Here's to Profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     02/24     02/24      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

XPOF      25.93      0.10     26.29     24.61        1.68/0.84       2.7
AVTE      25.29      0.13     25.68                  2.63/1.32       3.8
OM        22.55     -0.94     23.66     21.86          1.8/0.9      2.66
AI        22.41     -0.46     22.95     21.02        1.93/0.97      6.28
CFLT      24.22     -0.46     24.57     22.73        1.84/0.92      3.96

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

US stocks were lower on Friday in response to the Fed Bank's favorite gauge of inflation - the PCE and Core PCE Price Indexes - coming in hotter than anticipated. In the current inflationary environment, personal income rose less than expected, and spending surged higher. In other economic news, consumer sentiment was surprisingly revised upward and new home sales rose. In equities, media and entertainment company Warner Bros Discovery (INTU $420) fell well short of forecasts, while software maker Autodesk (ADSK $193) disappointed shareholders with its outlook. Oil prices, the USD/dollar and treasury yields were higher, gold finished lower.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 32,816.92  -336.99     -1009.77    -2.99%
Nasdaq              11,394.94  -195.46      -392.33    -3.33%
S&P 500              3,970.04   -42.28      -109.05    -2.67%

NYSE Volume                       3.9B                       
NYSE Advancers                     878                       
NYSE Decliners                   2,175                       

Nasdaq Volume                    4.46B                       
Nasdaq Advancers                 1,143                       
Nasdaq Decliners                 3,381                       

                                 New Highs/Lows

                   02/17  02/20  02/21  02/22  02/23  02/24
                 --------------------------------------------
NYSE New Highs        62      0     38     32     57     44
NYSE New Lows         10      0     29     34     28     47
Nasdaq New Highs      89      0     50     46     83     60
Nasdaq New Lows       77      0    131    122    130    169
   

TRADER'S TIP: "SPY and S&P 500: Volume"

Obtaining a reliable volume reading on the broader market can be more of a challenge than you would expect. Most data providers don't report the S&P 500 total volume in real time on the daily and weekly charts. You can usually find it on intraday time frames, but having to total it all up is a real annoyance. One way to get around the problem is to look at the Spyders (symbol SPY), which does report real time figures for both daily and weekly volume.

Although SPY volume isn't the same as the S&P 500, it provides an easy way to determine if trading volume is higher or lower than average. As a rule of thumb, when SPY volume is above or below average, so is S&P 500 volume. Not only do the SPY numbers usually show up quicker on the charts, but they also represent the activities of a large group of professional traders who use Spyders to take advantage of the S&P 500 movement. Large volume in the SPY indicates something important is going on, even when it doesn't show up in the other indices.

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 - 3970.04 February 24, 2023

52-Week High: 4637.30
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4275.23
Resistance 2: 4136.73
Resistance 1: 4053.38
Pivot: 3998.23
Support 1: 3914.88
Support 2: 3859.73
Support 3: 3721.23

NASDAQ Composite - 11394.94 February 24, 2023

52-Week High: 14646.90
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12448.51
Resistance 2: 11979.70
Resistance 1: 11687.32
Pivot: 11510.89
Support 1: 11218.51
Support 2: 11042.08
Support 3: 10573.27
        
Dow Industrials - 32816.92 February 24, 2023

52-Week High: 35492.22
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35508.76
Resistance 2: 34305.56
Resistance 1: 33561.24
Pivot: 33102.36
Support 1: 32358.04
Support 2: 31899.15
Support 3: 30695.95
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, February 27, 2023:
27-Feb  8:30 am   Durable goods orders
27-Feb  8:30 am   Core orders
27-Feb  10 am   Pending home sales

Tuesday, February 28, 2023:
28-Feb  8:30 am   Advanced U.S. trade balance
28-Feb  8:30 am   Advanced retail inventories
28-Feb  8:30 am   Advanced wholesale inventories
28-Feb  9:45 am   Chicago Business Barometer
28-Feb  10 am   Consumer Confidence
28-Feb  WEDNESDAY, MARCH 1   

Wednesday, March 01, 2023:
01-Mar  10 am   ISM manufacturing
01-Mar  10 am   Construction spending
01-Mar          Auto sales
01-Mar  THURSDAY, MARCH 2   

Thursday, March 02, 2023:
02-Mar  8:30 am   Initial jobless claims
02-Mar  8:30 am   Productivity (revision)
02-Mar  FRIDAY, MARCH 3   

Friday, March 03, 2023:
03-Mar  10 am   ISM services


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

TRADER'S TIP: "Paper Trading"

Simulated trading is helpful because it allows newcomers to learn and develop a certain degree of skill without putting real money into the market. However, this type of "virtual" experience is limited because it doesn't produce genuine emotional involvement. In fact there is a huge difference between the safety of imagined risk and the raw challenge of having to put cash - your cash - at risk. In the real world, emotional challenges due to routine losses usually influence a trader's attitude and decision-making process to a larger degree than ever expected.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Xponential Fitness, Inc. (XPOF: Consumer Cyclical/Leisure) - 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. XPOF 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 26.29 and a SELL short trigger at 24.61. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.68 which can be tightened to 0.84 on a 2.7 gain. XPOF closed Friday at 25.93. Earnings Report Date: Mar 02, 2023. Beta: N/A. Market-Cap: 1.199B. Optionable.

HEALTHCARE SECTOR

Aerovate Therapeutics, Inc. (AVTE: Healthcare/Biotechnology) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with AVTE which met our setup criteria on Friday. The BUY trigger for this trade is at 25.68, and the trailing stop is sized at 2.63. Resize the stop to 1.32 upon collecting a 3.8 point gain. AVTE closed Friday at 25.29. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 622.263M. Not Optionable.

Outset Medical, Inc. (OM: Healthcare/Medical Devices) - SQUEEZE PLAY. OM traders on both sides of the fence are now locked in a head-to-head shootout. Friday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 23.66 and a SELL short trigger at 21.86. When one of the orders is filled, cancel the remaining order and enter a 1.8 trailing stop. When you've reached a 2.66 paper profit, tighten the stop to 0.9. OM closed at 22.55 on Friday. Earnings Report Date: May 02, 2023. Beta: 1.50. Market-Cap: 1.097B. Optionable.

TECHNOLOGY SECTOR

C3.ai, Inc. (AI: Technology/Software-Application) - SQUEEZE PLAY. Trader indecision has put AI 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 22.95 and a SELL short entry at 21.02. Now it's up to AI to show us which entry will be filled. Once the trade is underway place a 1.93 trailing stop, which can be tightened to 0.97 after you achieve a 6.28 profit. AI closed on Friday at 22.41. Earnings Report Date: Mar 02, 2023. Beta: 1.50. Market-Cap: 2.471B. Optionable.

Confluent, Inc. (CFLT: Technology/Software-Infrastructure) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in CFLT'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 24.57 and a SELL order at 22.73. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.84 trailing stop. Tighten the stop to 0.92 once you have a 3.96 gain. CFLT closed Friday at 24.22. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 6.937B. 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

Lower-Risk, Higher-Return Trades

There are many ways to reduce the risk of a trade, but it all comes down to when you decide to enter and when you exit. Using trend lines to help enter and exit trades is one of the valuable ways to reduce risk. Today we'll talk about using trend lines and give some tips on other ways to find low risk trades.

Tips on Reading Trend Lines

Most charting programs allow traders to draw in their own trend lines. For those who aren't familiar with trend lines, they are straight lines drawn across the highs or lows in order to clearly see the general direction, or trend, of the stock's movement. A support trend line is drawn across two or more low points on a chart and a resistance trend line is drawn across two or more high points.

In the chart below, we see a "channel" formation, which is characterized by two parallel trend lines. Channels can either rise or fall, depending on the price action. Traders can also take advantage of directionless (flat) channels, which are formed when a stock repeatedly bounces back and forth between support and resistance - just like a ping-pong ball.



A stock's trend line over the past year can look very different than its trend line over the past month. The longer that a stock holds its trend and the more times it bounces on its trend line, the stronger the support becomes and the harder it is for the stock to fallout from the trend.

Watch for indications that a stock will continue to trend. It is less risky to buy a stock when it bounces off support than when there is no clear support. The same is true for short positions entered on a bounce down from resistance.

In the popular book "Trading for a Living," Dr. Alex Elder points out some important tips on drawing and reading trend lines:

"First, note that the long tails on intra-day lows are important, but not for drawing trend lines. These long tails usually don't show the point where the majority of traders intend to sell; rather the long tails indicate panic selling. When drawing trend lines, the best approach is usually to simply connect the closing prices. Trends formed by the tails often come into play when that "primary" trend fails. One more caveat: Many charting programs have "regression channel" formations that use automatic best-fit methods to connect highs and lows. These use mathematically determined "best-fit" formulas to form the trends, rather than simply connecting prices."

Secondly Dr. Elder points out that the angle of a trend line (up or down) shows the "emotional intensity of the dominant market crowd." When you see the angle of the trend line beginning to move more vertically off of the stocks previous trend line, it is normally a sign that the trend line is unsustainable and that shorter-term traders should be trailing their stops a little tighter.

Third, Volume is key. Increasing volume at different points can indicate different things. Watch for the volume to confirm a move or to warn of upcoming change. If price is moving in the direction of the trend line, it confirms the trend line. If volume decreases as the stock approaches the trend line that also confirms the trend line. However, "if volume expands when prices return to a trend line, it warns of a potential break; if volume shrinks when prices pull away from a trend line; it warns that the trend line is in danger."

Fourth, don't try to jump the gun in anticipating that a stock will move through support or resistance. The difference between actually breaking out and coming within pennies of breaking out is like the difference between night and day.

Searching for Lower Risk Trades

Studying charts can help us recognize and take advantage of lower risk trades, avoid higher-risk trades, and help us to find higher-than- normal potential returns. We are always on the lookout for reduced risk trades, especially during a choppy trading environment. Here are some ideas to consider.

Double Tops and Double Bottoms

Many times the strongest support or resistance doesn't come from a trend line, but from a specific price level. One common trading strategy used by traders trying to decrease risk and increase returns is to look for double bottoms or double tops. Let's start by looking at double tops. The basis for a double top is that if stock found significant resistance at a specific level once, then chances are that the strong resistance will hold again the next time the stock rises to that level.

Here's how it works. When we see a chart that has a "sharp" intra-day decline, we look to see what the high point was just prior to the collapse. That high point will become a resistance level in the future. Over the following days or weeks, the stock will often hit a short-term bottom and then turn higher as the stock climbs back toward that previous resistance level. We'll watch closely for the "double top" and consider going short if the stock starts bouncing down from resistance.

On the other hand, consider going long after a stock begins to bounce up from a strong support level. The key to playing double tops or bottoms is to WAIT until you actually see the bounce begin before taking a position. The larger the initial reaction from hitting support or resistance, the better the chance that it will happen again the next time around. Set your stops fairly tight to avoid big losses if the stock doesn't follow through with the bounce the way you expected.



There are times when a stock will have a short-term support trend line created by higher lows, while at the same time the highs are holding steady. Eventually the two trend lines start to converge and it can present a nice trading opportunity because the stock will break out one way or the other. If the stock breaks above the resistance, it often will surge higher; but if it the support fails, it can quickly fall sharply lower. This pattern is often referred to as a "wedge."

When trading using "trend lines," "double bottoms," "double tops," or "ascending support with horizontal resistance," it's a good idea to use tight stops. We know the support and resistance levels, so if we are long, for example, any failure to hold the support level is grounds for exiting the position.

Doji Formation

A doji price bar is formed when a stock opens the day at a certain price and then dips or climbs before closing back near the opening price. It is a sign that bulls and bears are undecided about which way to go, and often indicates that the current short-term direction of the stock is about to reverse. When you are in a trade and a doji appears, tighten stops on existing positions, and be ready to take profits.

Summary

Again, no single indicator should be used in isolation, but when used in conjunction with other tools and strategies, the ideas mentioned above can help to reduce risk and increase returns. There are many other chart formations that can help provide lower-risk, higher-return trades.

Chart reading can be challenging at times because we all have a tendency to see what we want to see. Before making a trade, look for reasons why the chart is indicating a move higher, lower or sideways. Don't be overly biased when viewing a chart, and remember to set your stop immediately after entering the position.

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.

Disclaimer

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