Notes From The Editor

In a recent RightLine Report editorial we featured veteran trader Brett Steenbarger's thoughts on "The Ego." Brett is a licensed psychologist and a twenty year veteran trader who writes extensively about the mental aspects of trading the markets.

Brett is convinced that one of the best ways to prevent negative trading habits is to become an observer of our own behaviors. Below you'll find a few excerpts from Brett's article, "The Three Vices of Trading." I'm sure you will enjoy reading his comments on "Overconfidence."

Trade well!

~ Thomas Sutton, Editor



Vice Number Three: OVERCONFIDENCE

It is common for traders to complain of a lack of confidence in their trading, but very often it is overconfidence that does them in. Overconfidence results from a lack of appreciation of the complexity of markets and an underestimation of the challenges of trading them successfully.

In a sense, overconfident traders lack respect for the markets. They think that reading about a few setups or buying the newest software will prepare them to make money. Overconfident traders don't want to work their way up the trading ladder: they resist the idea that screen time is the best teacher. They also chafe at the idea of growing their account. Rather than start with one contract and wait until they're profitable before trading larger size, they want big positions-and profits-right away.

Because they're so eager to make money-and so sure they can make it-overconfident traders generally trade impulsively. They won't wait for the setup to form; they'll jump the gun-and get whipsawed in the process. Instead of being patient and waiting for short-term patterns to align with longer-term patterns, they will take every trade, enriching their brokers in the process.

The hallmark of overconfident traders is that they think they are going to make something happen in the market, instead of patiently waiting to take what the market gives them. Spelling out profit goals for each day or week of trading is one manifestation of overconfidence. Humble traders know that markets expand and contract their volatility-sometimes the trade just isn't there. The overconfident trader, however, feels that he/she is bigger than the market.

Indeed, overconfident traders will often take great pains to try to catch the tops of bull swings or the bottoms of corrections. As a result, they often fight the market trend-and can get run over in the process. If the emotional signs of perfectionism are anger/frustration and the emotional signs of ego involvement are elation/depression, then the emotional signs of overconfidence are impatience/impulsivity.

Overconfident traders overtrade. They fear missing opportunities more than they fear losing money. The antidote to overconfidence is rule-based trading and the intensive rehearsal of trading rules. By making entries, exits, stops, and position sizing rule-governed and vigorously rehearsing trading rules during simulated trading (as well as in real time with small positions), traders can greatly reduce their impulsive trading. Very often this means training oneself to focus on (and rehearse) what-if scenarios of being wrong in the market, as well as forcing oneself to spell out the rationale, targets, and stops for all trades.

By making trading a more self-conscious process, traders interpose thought between impulse and action, gaining greater control of their trading. When the trading room admonishes, "No boasting, just posting", it is encouraging restraint on overconfidence.

- Brett Steenbarger

Quick List

    
Stock     02/06     02/06      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

THRY      20.95      0.50     21.27                  1.51/0.76       1.5
CABA      22.65      0.07      23.3     21.33        1.97/0.99      2.74
SYRE      25.53      0.22     26.42     24.54        1.88/0.94      4.98
FSLY      21.60     -0.11     22.33     20.65        1.68/0.84      1.88
NVEI      24.91      0.19     25.54     23.85        1.69/0.85      2.16

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 closed mostly higher on Tuesday, with a focus on corporate earnings. The S&P 500 gained approximately 0.2%, while the technology-heavy NASDAQ saw an increase of about 0.1%. Leading the way in the S&P 500 were the real estate and materials sectors, both posting gains of about 1.5%. Bond yields, which had risen over the previous two trading sessions as market expectations shifted regarding the timing of potential Fed rate cuts following the strong employment report on Friday and Fed Chair Powell's comments at the last FOMC meeting, finished lower.

Earnings are the primary focus this week, with limited macroeconomic data on the calendar. Approximately half of the S&P 500 has already reported fourth-quarter earnings, and expectations now point to fourth-quarter earnings growing by about 1% year-over-year. Strong earnings trends are evident in the information technology, communication services, and consumer discretionary sectors, each of which is anticipated to see fourth-quarter earnings grow by over 20% year-over-year.

As for 2024, consensus expectations call for roughly 11% year-over-year earnings growth in the S&P 500. This growth is expected to be driven by various sectors, including information technology, communication services, consumer discretionary, financials, and health care, all of which are projected to grow earnings by over 10%. It's worth noting that there is some skepticism regarding these optimistic earnings growth expectations, and many believe that a more realistic range may be between 5% and 10%. Nonetheless, rising corporate profits could provide tailwinds for further gains in the stock market throughout 2024.

                        Feb 5, 2024            Feb 6, 2024    
                  --------------------   --------------------
Dow                 38,380.12  -274.30     38,521.36   141.24
Nasdaq              15,597.68   -31.28     15,609.00    11.32
S&P 500              4,942.81   -15.80      4,954.23    11.42

NYSE Volume                      4.04B                  4.46B
NYSE Advancers                     511                  2,043
NYSE Decliners                   2,332                    809

Nasdaq Volume                    4.84B                  4.77B
Nasdaq Advancers                 1,166                  2,730
Nasdaq Decliners                 3,131                  1,462

                                 New Highs/Lows

                   01/30  01/31  02/01  02/02  02/05  02/06
                 --------------------------------------------
NYSE New Highs       206    179    148    172     75     92
NYSE New Lows         17     28     31     49     82     41
Nasdaq New Highs     207    131    108    159     85    109
Nasdaq New Lows       94    126    128    161    210    123
   

TRADER'S TIP: "How to Enter A Running Stock"

After a strong move higher, stocks will often digest the movement by taking small steps down into a narrow range over a three to four day period. The excitement generated by the previous up-move is likely to attract more demand for the stock by the third or fourth session. This can present a good opportunity to enter, but wait for prices to clearly breakout above the previous day's higher before buying.

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. 5					
9:45 am	S&P final U.S. services PMI	
10:00 am	Chicago Fed President Austan Goolsbee TV appearance				
10:00 am	ISM services	
2:00 pm	Atlanta Fed President Raphael Bostic gives welcoming remarks
				
TUESDAY, FEB. 6					
12:00 pm	Cleveland Fed President Loretta Mester speaks				
1:00 pm	Minneapolis Fed President Neel Kashkari speaks				
2:00 pm	Boston Fed President Susan Collins speaks				
7:00 pm	Philadelphia Fed President Patrick Harker speaks	
			
WEDNESDAY, FEB. 7					
8:30 am	U.S. trade deficit	
11:00 am	Fed Gov. Adriana Kugler speaks				
11:30 am	Boston Fed President Susan Collins speaks				
12:30 pm	Richmond Fed President Tom Barkin speaks				
2:00 pm	Fed Gov. Michelle Bowman speaks				
3:00 pm	Consumer credit	
3:00 pm	CBO briefing on budget and economic outlook
				
THURSDAY, FEB. 8					
8:30 am	Initial jobless claims	
10:00 am	Wholesale inventories	
12:05 pm	Richmond Fed President Tom Barkin speaks
				
FRIDAY, FEB. 9					
8:30 am	CPI seasonal factor revisions				
1:30 pm	Dallas Fed President Lorie Logan 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: "Trading With Uncertainty"

Successful traders learn how to be comfortable with uncertainty. It's impossible to be sure that your trade will be profitable before you enter a position. Waiting for all the right "facts" to arrive usually results in missing out on the opportunity. Accept that you can't know in advance whether or not a trade will work. Risk is a constant companion when trading. You can't eliminate it, so learn how to recognize and manage it.

New traders want all the facts before they do a trade and by the time all the facts are out the trading opportunity is gone, then they enter the trade and wonder why it didn't work. If you're about to drive to town and you need every traffic light to turn green before you leave, you'll never get out of the driveway.

Stocks Covered in This Issue

COMMUNICATION SERVICES SECTOR

Thryv Holdings, Inc. (THRY: Communication Services/Internet Content & Information) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, THRY fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 20.95, plan to buy shares at 21.27 and use a 1.51 trailing stop. Tighten the stop to 0.76 on a 1.5 gain. Earnings Report Date: Feb 22, 2024. Beta: 0.99. Market-Cap: 736.707M. Optionable.

HEALTHCARE SECTOR

Cabaletta Bio, Inc. (CABA: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as CABA's intra-day price range on Tuesday 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 23.3 and a SELL short entry at 21.33. CABA's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.97 trailing stop. Tighten it to 0.99 after you get a 2.74 gain. CABA closed Tuesday at 22.65. Earnings Report Date: Mar 14, 2024. Beta: 2.47. Market-Cap: 970.539M. Optionable.

Spyre Therapeutics, Inc. (SYRE: Healthcare/Biotechnology) - SQUEEZE PLAY. A look at SYRE'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 26.42 and a SELL short trigger at 24.54. Once SYRE shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.88 and tighten to 0.94 on a 4.98 gain. SYRE closed Tuesday at 25.53. Earnings Report Date: Mar 04, 2024. Beta: 2.85. Market-Cap: 920.538M. Optionable.

TECHNOLOGY SECTOR

Fastly, Inc. (FSLY: Technology/Software - Application) - SQUEEZE PLAY. FSLY 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 22.33 and a SELL short entry at 20.65. Once your trade is filled, enter a 1.68 trailing stop. Tighten it to 0.84 after a 1.88 gain. FSLY closed on Tuesday at 21.60. Earnings Report Date: Feb 13, 2024. Beta: 1.32. Market-Cap: 2.825B. Optionable.

Nuvei Corporation (NVEI: Technology/Software - Infrastructure) - SQUEEZE PLAY. Tuesday's narrow price range has created a potentially profitable setup in NVEI, 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 25.54 and a SELL short entry at 23.85. Let NVEI's price action determine your long or short entry. Once the order is filled, place a 1.69 trailing stop, and tighten it to 0.85 upon getting a 2.16 gain. NVEI closed Tuesday at 24.91. Earnings Report Date: Mar 06, 2024. Beta: 3.30. Market-Cap: 3.488B. 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.

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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