January 10, 2023 - The RightLine Report
Notes From The Editor
Heads or Tails?
The simple act of flipping a coin lets us experience firsthand the rather quirky traits of probability and random processes. As the coin somersaults through the air, it's impossible to know for sure whether it will come up heads or tails. However, if you repeat the process a few hundred times you can easily predict the outcome to be a near equal number of each.
A few years ago a friend asked me to explain how the RightLine Risk Control Calculator works. I pulled it up on the website and entered a recent trade from the RightLine Report. It only took a couple of minutes for her understand how to use the calculator, yet I could tell that the concepts and formulas behind it still weren't that clear.
To help her see how the Risk Calculator protects a trader from critical damage if a string of losers occur, I took a quarter from my pocket and asked, "What are the odds of getting a heads or tails when you flip a coin?" She immediately replied "fifty-fifty!" I nodded in agreement and said, "Now I'd like for you to flip the quarter a few times and I'll write down the results."
She proceeded to flip the coin ten times, and was very surprised to see that eight of the ten tosses turned up heads. I explained that although the odds of turning up a heads were fifty-fifty, she had "defied" the odds with an eighty-twenty result that included four heads in a row. I told her this four in a row was part of the random process that I call a "probability run" - a series of unexpected outcomes that frequently occur in the short term.
I went on to explain that given enough flips, the laws of probability would eventually win out, and she would end up with a fifty-fifty result. On the other hand, the more flips she made, the longer the probability runs would get. If she flipped the coin enough, she would see even longer strings of consecutive heads and consecutive tails.
Oddly enough, this statement was proven true much faster than I ever imagined. The next ten flips of the coin resulted in eight tails and two heads, with a probability run of five tails in a row! It was quite a surprise to her that the final outcome of twenty tosses was fifty- fifty, although the first ten and second ten tosses were both eighty- twenty.
Bottom Line: Just like in flipping coins, "probability runs" or "streaks" happen in trading. Strings of winners and losers occur all the time - even when the odds are in your favor. We use the Risk Calculator to protect us against this mathematical fact. It reduces our risk for each trade and allows us to continue trading confidently - even when we run into a series of losers that would knock most traders off their feet.
Knowing about odds and probabilities protects us from financial and emotional damage. If my first few trades as a beginner had been big losers, I might have given up. In those days I knew little about "probability runs" or the rules that govern "odds." Though it didn't take long for me to run head-first into the reality of a losing streak, I was lucky enough long enough to begin my trading education before getting hurt.
In fact, one of my first steps as a student of trading was to become a RightLine subscriber. Thinking back, I was really lucky to find RightLine at that critical time in my development. And while I still like the idea of luck, I'm certainly glad that education and awareness have a way of winning out in time.
Trade well!
- Thomas Sutton, Editor
Note: You can access the RightLine Risk Control Calculator at https://prorightline.com/index.php/risk-calculator/.
Stocks Covered Today Stock Splits
Quick List
Stock 01/10 01/10 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
COCO 13.71 0.06 14.01 0.89/0.45 1.36
VRNA 23.76 -0.24 24.5 22.69 1.81/0.91 3.22
KALA 26.34 0.34 29.33 25.02 4.31/2.16 0.56
BAND 22.16 0.10 22.88 21.11 1.77/0.89 3.3
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.
Stocks Covered Today Stock Splits
Market Summary
US stocks finished higher on Tuesday following a relatively calm economic docket showing small business optimism declined versus the previous month, as wholesale inventories were up in line with analysts' predictions. On the equities front, earnings season is getting underway with news that Coinbase (COIN $42) intends to layoff near 20% of its employees, while Bed Bath and Beyond (BBBY $2) reported a fourth quarter loss that was bigger than expected. Treasury yields, the USD/dollar, gold and oil prices all moved higher.
Jan 9, 2023 Jan 10, 2023
-------------------- --------------------
Dow 33,517.65 -112.96 33,704.10 186.45
Nasdaq 10,635.65 66.36 10,742.63 106.98
S&P 500 3,892.09 -2.99 3,919.25 27.16
NYSE Volume 4.32B 3.88B
NYSE Advancers 1,907 2,219
NYSE Decliners 1,194 877
Nasdaq Volume 5.16B 4.75B
Nasdaq Advancers 2,740 3,253
Nasdaq Decliners 1,863 1,319
New Highs/Lows
01/03 01/04 01/05 01/06 01/09 01/10
--------------------------------------------
NYSE New Highs 71 65 64 79 100 61
NYSE New Lows 36 19 37 25 9 6
Nasdaq New Highs 107 102 106 130 117 102
Nasdaq New Lows 94 57 91 101 39 39
Stocks Covered Today Stock Splits
TRADER'S TIP: "Learning From The Past"
One thing is for certain; the stock market can move up and down faster than most investors ever imagine. The cost of being unprepared for a trip in the wrong direction can be extremely expensive, both financially AND emotionally. Many traders and investors think risk control is boring, and had much rather spend their time chasing some ultra-hot stock tip. Just remember that the main reason most traders and investors lose money is because they don't have a planned risk control strategy to protect them from excessive losses.
It hurts to lose. That's why so many of our friends and relatives stop talking about their investments when things go bad. With no plan to limit losses, their stocks can look like the energizer bunny in reverse - they keep going and going, lower and lower. Even folks who recover some of their losses can be helplessly frozen, not knowing what to do. They still have no plan to prevent it from happening again.
Help stop the madness. If you know someone in this situation, tell them about RightLine, and we'll show them how to control risk. You can be sure they'll sleep better at night!
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 - 3919.25 January 10, 2023
52-Week High: 4748.83
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4088.92
Resistance 2: 3977.06
Resistance 1: 3936.07
Pivot: 3865.20
Support 1: 3824.21
Support 2: 3753.34
Support 3: 3641.48
NASDAQ Composite - 10742.63 January 10, 2023
52-Week High: 15319.03
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 11178.50
Resistance 2: 10830.48
Resistance 1: 10699.88
Pivot: 10482.46
Support 1: 10351.86
Support 2: 10134.44
Support 3: 9786.42
Dow Industrials - 33704.10 January 10, 2023
52-Week High: 36513.88
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35181.19
Resistance 2: 34282.86
Resistance 1: 33956.73
Pivot: 33384.53
Support 1: 33058.40
Support 2: 32486.20
Support 3: 31587.87
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, January 09, 2023: 09-Jan 11 am NY Fed 1-year inflation expectations 09-Jan 11 am NY Fed 5-year inflation expectations 09-Jan 12:30 pm Atlanta Fed President Raphael Bostic speaks 09-Jan 3 pm Consumer credit Tuesday, January 10, 2023: 10-Jan 6 am NFIB small-business index 10-Jan 10 am Wholesale inventories (revision) Wednesday, January 11, 2023: 11-Jan None scheduled Thursday, January 12, 2023: 12-Jan 8:30 am Consumer price index 12-Jan 8:30 am Core CPI 12-Jan 8:30 am CPI (year-over-year) 12-Jan 8:30 am Core CPI (year-over-year) 12-Jan 8:30 am CPI excluding shelter (3-month SAAR) 12-Jan 8:30 am Initial jobless claims 12-Jan 8:30 am Continuing jobless claims 12-Jan 2 pm Federal budget Friday, January 13, 2023: 13-Jan 8:30 am Import price index 13-Jan 10 am UMich consumer sentiment index (early) 13-Jan 10 am UMich 1-year consumer inflation expections 13-Jan 10 am UMich 5-year consumer inflation expections 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 TIP: "Playing The Game To Win"
Knowledge is power in the stock market - a game unlike any other. You are allowed to switch sides at will, and even step inside the opponent's huddle before making the change. Professional investors, market makers, and floor specialists do it all the time - it's a part of their regular routine. Remember that trends can and often do change direction. To take advantage of "the trend" requires that we know how to trade with the trend, no matter which way it goes.
Stocks Covered in This Issue
CONSUMER DEFENSIVE SECTOR
The Vita Coco Company, Inc. (COCO: Consumer Defensive/Beverages-Non-Alcoholic) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 13.71, COCO is on our radar for a BUY entry at 14.01. If you purchase shares of COCO, be sure to also place a trailing stop of 0.89. Snug it up to 0.45 on a 1.36 gain. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 766.722M. Optionable.
HEALTHCARE SECTOR
Verona Pharma plc (VRNA: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in VRNA's narrowest trading range of the past seven sessions. With neither group able to take complete control on Tuesday, 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 24.5 and a SELL order at 22.69. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.81 trailing stop. Tighten the stop to 0.91 once you have a 3.22 gain. VRNA closed Tuesday at 23.76. Earnings Report Date: N/A. Beta: 0.14. Market-Cap: 1.797B. Optionable.
Kala Pharmaceuticals, Inc. (KALA: Healthcare/Drug Manufacturers-Specialty & Generic) - 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. KALA traders reached this state of stand-off on Tuesday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 29.33 and a SELL short trigger at 25.02. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 4.31 which can be tightened to 2.16 on a 0.56 gain. KALA closed Tuesday at 26.34. Earnings Report Date: Mar 27, 2023. Beta: -1.53. Market-Cap: 42.019M. Optionable.
TECHNOLOGY SECTOR
Bandwidth Inc. (BAND: Technology/Software-Infrastructure) - SQUEEZE PLAY. Trader indecision has put BAND 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 22.88 and a SELL short entry at 21.11. Now it's up to BAND to show us which entry will be filled. Once the trade is underway place a 1.77 trailing stop, which can be tightened to 0.89 after you achieve a 3.3 profit. BAND closed on Tuesday at 22.16. Earnings Report Date: Feb 21, 2023. Beta: 1.13. Market-Cap: 561.189M. 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
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
---------------- ------- -------- ------- ------ -------
Copart CPRT 11/4/2022 11/4/2022 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.
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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