Notes From The Editor

One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm not talking about some pseudo-philosophical mumbo jumbo here, but real life lessons and skills that come in handy every day.

Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:

* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.

* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.

* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.

* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.

I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     02/25     02/25      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

AR        22.65      0.11     22.96     21.25        1.71/0.86      2.40
FLNG      23.59      0.86     23.96     22.08        1.88/0.94      2.14
BCML      22.25      0.32     22.54                  1.59/0.80      1.40
RYI       24.01      1.40     24.49                  2.19/1.10      2.64
ESMT      21.41      0.28     21.84     19.69        2.15/1.08      3.34

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

Stocks were higher on Friday despite uncertainty surrounding global effects of Russia's invasion of Ukraine. The geopolitical turbulence obscured the release of economic news that showed durable goods orders, consumer sentiment, personal income and spending all exceeded analysts' forecasts, while pending home sales surprisingly declined. In equities headlines, the share price of Dell Technologies (DELL $51) and Foot Locker (FL $29) dropped after the companies released earnings reports that included disappointing guidance. Gold, oil prices and the USD/dollar closed lower, treasuries were mixed.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 34,058.75   834.92       -20.43    -0.06%
Nasdaq              13,694.62   221.04      +146.55     1.08%
S&P 500              4,384.65    95.95       +35.78     0.82%

NYSE Volume                      5.22B                       
NYSE Advancers                   2,760                       
NYSE Decliners                     590                       

Nasdaq Volume                    4.64B                       
Nasdaq Advancers                 3,409                       
Nasdaq Decliners                 1,293                       

                                 New Highs/Lows

                   02/18  02/21  02/22  02/23  02/24  02/25
                 --------------------------------------------
NYSE New Highs        23      0     30     23     22     44
NYSE New Lows        178      0    337    394    792     73
Nasdaq New Highs      30      0     32     28     29     47
Nasdaq New Lows      454      0    661    728  1,344    135
   

TRADER'S TIP: "Nay-Sayers and Hay-Makers"

It seems that practically every market turn comes draped in commentary and analysis from all angles of pundits and prophets. For every pullback there's the requisite reasoning for a "golden buying opportunity," which comes equally weighted with the seemingly sound logic of numerous warning signs signaling impending doom. Enough already! Once in a while try turning down the volume and simply observing the charts and figures that come across without the rhetoric. It can be so much more informative.

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 - 4384.65 February 25, 2022

52-Week High: 4818.62
52-Week Low: 3723.34
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4858.00
Resistance 2: 4577.99
Resistance 1: 4481.32
Pivot: 4297.98
Support 1: 4201.31
Support 2: 4017.97
Support 3: 3737.96

NASDAQ Composite - 13694.62 February 25, 2022

52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: DOWN
Weekly trend: DOWN
        
Dow Industrials - 34058.75 February 25, 2022

52-Week High: 36952.65
52-Week Low: 30547.53
Daily Trend: DOWN
Weekly trend: DOWN

 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, February 28, 2022:
28-Feb  8:30 am   Trade in goods, advance report
28-Feb  9:45 am   Chicago PMI

Tuesday, March 01, 2022:
01-Mar  9:45 am   Markit manufacturing PMI (final)
01-Mar  10 am   ISM manufacturing index
01-Mar  10 am   Construction spending

Wednesday, March 02, 2022:
02-Mar  8:15 am   ADP employment report
02-Mar   2 pm   Beige Book

Thursday, March 03, 2022:
03-Mar  8:30 am   Initial jobless claims
03-Mar  8:30 am   Continuing jobless claims
03-Mar  8:30 am   Productivity revision (SAAR)
03-Mar  8:30 am   Unit labor costs revision (SAAR)
03-Mar  9:45 am   Markit services PMI (final)
03-Mar  10 am   ISM services index
03-Mar  10 am   Factory orders
03-Mar  10 am   Core capital equipment orders (revision)

Friday, March 04, 2022:
04-Mar  8:30 am   Nonfarm payrolls
04-Mar  8:30 am   Unemployment rate
04-Mar  8:30 am   Average hourly earnings
04-Mar  8:30 am   Labor force participation rate, prime working age


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

TRADER'S TIP: "A Trader's Mind: Beliefs"

"You experience what you believe, unless you believe you won't, in which case you don't, which means you did."

- Harry Palmer

Stocks Covered in This Issue

ENERGY SECTOR

Antero Resources Corporation (AR: Energy/Oil & Gas E&P) - SQUEEZE PLAY. Traders are feeling the pressure as AR'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 22.96 and a SELL short entry at 21.25. AR's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.71 trailing stop. Tighten it to 0.86 after you get a 2.4 gain. AR closed Friday at 22.65. Earnings Report Date: Apr 26, 2022. Beta: 4.17. Market-Cap: 7.128B. Optionable.

FLEX LNG Ltd. (FLNG: Energy/Oil & Gas Midstream) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in FLNG, 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 23.96 and a SELL short entry at 22.08. Let FLNG's price action determine your long or short entry. Once the order is filled, place a 1.88 trailing stop, and tighten it to 0.94 upon getting a 2.14 gain. FLNG closed Friday at 23.59. Earnings Report Date: N/A. Beta: 0.42. Market-Cap: 1.253B. Optionable.

FINANCIAL SERVICES SECTOR

BayCom Corp (BCML: Financial Services/Banks-Regional) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. BCML's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 22.54. Use a 1.59 trailing stop, which should work well with BCML's typical daily range. Tighten it to 0.8 on a 1.4 profit. BCML closed at 22.25 on Friday. Earnings Report Date: Apr 20, 2022. Beta: N/A. Market-Cap: 305.114M. Not Optionable.

INDUSTRIALS SECTOR

Ryerson Holding Corporation (RYI: Industrials/Metal Fabrication) - BULLISH BOUNCE. Entering a position in the early stages of a bounce is great way to get on board an up-trending stock. The "Bullish Bounce" setup identifies probable candidates by evaluating the trading action that takes place near support levels. RYI's behavior on Friday could very well be a sign that a new bounce is underway. Place a BUY trigger at 24.49. In the event your trigger is met, also place a 2.19 trailing stop which can be trimmed down to 1.1 when you have a 2.64 profit. RYI closed Friday at 24.01. Earnings Report Date: May 03, 2022. Beta: N/A. Market-Cap: 921.845M. Optionable.

TECHNOLOGY SECTOR

EngageSmart, LLC (ESMT: Technology/Software-Application) - SQUEEZE PLAY. ESMT 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 21.84 and a SELL short entry at 19.69. Once your trade is filled, enter a 2.15 trailing stop. Tighten it to 1.08 after a 3.34 gain. ESMT closed on Friday at 21.41. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 3.465B. 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  
---------------- -------     --------    -------     ------  -------   
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.

Trader's Corner

"Rockin' With The Rythym Of The Market"

The stock market is in constant motion, continuously cycling back and forth between buying and selling. Literally millions of traders and investors enter and exit positions at different times of the day, week, or month. As a result, the market ebbs and flows in cycles - some are very short, lasting only an hour or so, while others will continue for several days, or even weeks.

Each of these up and down cycles has two reversal points - one at the bottom of the cycle and one at the top. The price movement between these reversals creates momentum, and it's within this momentum that short-term traders find excellent opportunity for profit.

Trading with the rhythm of the market simply means aligning what WE do with what THE MARKET is doing. Trading very short time frames is all about awareness, flexibility and responding to market action as it occurs.

One of the most important skills that a trader or investor can acquire is the ability to recognize reversal signals that are generated by price movement. Becoming familiar with a few simple chart patterns can have a huge positive impact on our trading, for they enable us to stay in sync with the market's ever changing moods.

There are several momentum patterns that consistently reveal themselves on price charts. One of the most reliable is the bullish "V Bottom" - a very simple yet powerful pattern that is printed when a significant intraday reversal takes place.

A good example is when the S&P 500 has seriously declined for most of the session, and then turned around to make a dramatic comeback to close either near the previous session close or, better yet, to close higher for the day. Late session reversals are usually the most important, and can be traded without hesitation - IF the S&P has been in a downtrend for a few days. "V Bottoms" that follow an uptrend aren't near as meaningful.

A pattern closely related to the "V Bottom" is the "Late Session Spike." Studies have shown that the market tends to operate on a different clock than the opening and closing bell would indicate. In fact, price action tends to follow a mid-session to mid-session cycle instead of an open to close cycle.

As traders, we can take advantage of this tendency by watching for late day price movement to signal a reversal that is likely to carry over into the following session. These late-session price spikes usually take place during the last two hours of trading during choppy or trend-less days. The odds are strong that whatever happens at the close will continue into the following day.

Obviously, Bulls like to see a strong move higher to end the session, while Bears prefer prices to slide into the final bell. Either way, it's always a good idea to check price action into the close. To qualify, a "Late Session Spike" should lift the S&P 500 or Dow to close at least 1/2 percent (0.5%) above the previous day's close. And just like a "V Bottom," the "Late Session Spike" is the most reliable when it follows a downtrend.

Another reliable way to locate turnarounds is the "1% Reversal Day." In this case we simply take note when any trend underway has lasted for at least 4 or 5 days, and preferably 7 to 10. We then watch for a "1 % Reversal Day" - a day when all of the major averages (S&P 500, Dow, Nasdaq, Russell 2000) close in the opposite direction of the trend by 1% or more.

These reversal days usually indicate a severe breakdown in the previous trend - a signal that considerable price movement in the direction of the reversal is just ahead. Keep in mind that the 1% isn't set in stone. If three out of the four indices have reversed by more than 1%, but the other one has only reversed 0.85% percent, this would still qualify as a "1 % Reversal Day." However, if any one of the indices reverses LESS than 0.75%, it disqualifies the reversal.

The three patterns we've just discussed are not highly sophisticated, but they are very effective and easy to trade. Always remember that price action is the stock market's way of telling us what it intends to do. Staying in harmony with the larger market direction is extremely important when trading individual stocks.

The appearance of a reversal pattern in the major indices indicates high odds of a turnaround, and gives traders enough time to safely enter low risk positions in their favorite stocks. However, the larger market or specific stocks don't always follow through on reversals, so it's important to have a disciplined risk control strategy in place.


Note: For details of the RightLine Risk Control System, click on the following link: https://prorightline.com/education/riskcontrol.html