January 12, 2023 - The RightLine Report
Notes From The Editor
How To Manage Risk In A Small Trading Account
Extensive testing indicates that the maximum amount a trader should put at risk on a single trade, including commissions, is 2% of their total account value. While this may seem way too conservative to traders with small accounts, the research indicates otherwise.
Over the past decade lower commissions have helped make trading an affordable venture for many smaller players. However, due to the minimum transaction fees imposed by most brokers, smaller accounts have a more difficult time staying within the recommended maximum risk level of 2% (which includes commission costs).
Traders with small accounts should shop for the lowest costs. Also keep in mind that while it is important to hold the cost of commissions down, good service and reliability should be among the top considerations.
It's always wise to resist the temptation to ignore the 2% risk cap. The principals underlying risk management are designed to minimize losses and give as many chances as possible for winning trades to develop. Following these guidelines will even keep a string of five or six losers from inflicting seriously damage to your trading account.
Regardless of what size account you have, it's important to acquire intelligent trading habits that insure a steady progression of profits over the long haul. Substituting high-risk short cuts for reliable risk management methods usually results in quick and expensive lessons that can easily be avoided.
Trade well!
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 01/12 01/12 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
MTR 20.12 0.01 20.77 19.1 1.67/0.84 3.8
RYTM 31.70 1.26 32.42 3.19/1.6 3.98
CIR 26.04 0.51 26.5 24.76 1.74/0.87 1.92
CFLT 20.19 -0.65 18.92 2.27/1.14 2.44
DV 23.93 0.32 24.26 22.64 1.62/0.81 1.76
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
Stocks were higher again on Thursday following a consumer prices report showing inflation declined last month, though the core rate, which removes energy and food costs, went up. In other economic news, unemployment claims suprised analyts by dropping slightly. On the equities scene, homebuilder KB Home (KBH $35) missed quarterly earnings expectations, and American Airlines (AAL $17) raised its outlook. The USD/dollar and treasury yields were lower, oil prices and gold rallied.
Jan 11, 2023 Jan 12, 2023
-------------------- --------------------
Dow 33,973.01 268.91 34,189.97 216.96
Nasdaq 10,931.67 189.04 11,001.10 69.43
S&P 500 3,969.61 50.36 3,983.17 13.56
NYSE Volume 4.32B 4.47B
NYSE Advancers 2,396 2,372
NYSE Decliners 707 746
Nasdaq Volume 5.31B 5.7B
Nasdaq Advancers 3,203 3,277
Nasdaq Decliners 1,434 1,301
New Highs/Lows
01/05 01/06 01/09 01/10 01/11 01/12
--------------------------------------------
NYSE New Highs 64 79 100 61 96 108
NYSE New Lows 37 25 9 6 7 12
Nasdaq New Highs 106 130 117 102 150 139
Nasdaq New Lows 91 101 39 39 45 26
Stocks Covered Today Stock Splits
TRADER'S TIP: "Adapting To A Changing Market"
One of the key attributes of a successful trader is the ability to adapt to changing markets. It isn't always easy, for change comes in many forms, and is caused by a wide range of economic, political, social, regulatory, and technical forces. It can occur slowly or abruptly, and sometimes affects a large number of investors, or just a small group. But no matter what the causes market change, and how fast it takes place, eventually everyone who participates in the market either learns to adapt, or pays the price. Even normal "bull to bear and back" market cycles require that we adapt to change, to recognize when the shift between up and down trends is taking place. And though many investors have been conditioned to think that the only defense against a bear market is to wait it out, strategies that take advantage of the inevitable short-term counter-trend rallies, and short stocks in the direction of the negative primary trend can turn a bear market into a bull!
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 - 3983.17 January 12, 2023
52-Week High: 4744.13
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 - 11001.10 January 12, 2023
52-Week High: 15259.71
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 - 34189.97 January 12, 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: "Extended Hours and Erroneous Fills"
You'll sometimes find offers in extended hours trading that seem to good to be true. Don't celebrate too quickly when you buy a $20 stock for $15 bucks. Just remember that the person on the other side of your trade can contest the transaction (after the fact) whenever the sale price is too far away from the closing price. Stock buys and sells outside of the market range are considered "erroneous fills" and can be broken by the brokerage or Electronic Communication Network. For example, the ECN "Island" looks at a trade 20% outside the market price as an "erroneous fill."
Stocks Covered in This Issue
ENERGY SECTOR
Mesa Royalty Trust (MTR: Energy/Oil & Gas E&P) - SQUEEZE PLAY. MTR traders on both sides of the fence are now locked in a head-to-head shootout. Thursday'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 20.77 and a SELL short trigger at 19.1. When one of the orders is filled, cancel the remaining order and enter a 1.67 trailing stop. When you've reached a 3.8 paper profit, tighten the stop to 0.84. MTR closed at 20.12 on Thursday. Earnings Report Date: N/A. Beta: 0.83. Market-Cap: 37.495M. Not Optionable.
HEALTHCARE SECTOR
Rhythm Pharmaceuticals, Inc. (RYTM: Healthcare/Biotechnology) - NEW HIGH DIP. The price momentum required to set a new high doesn't usually disappear over night. Traders can capitalize on this fact by entering positions when stocks making new highs pull back to a support level, then follow the pullback with signs of bouncing higher. RYTM meets the setup criteria, so get ready to BUY into this outstanding performer at 32.42. Enter a trailing stop of 3.19 when your order is filled, then tighten it to 1.6 on a 3.98 gain. Earnings Report Date: Feb 27, 2023. Beta: 1.90. Market-Cap: 1.786B. Optionable.
INDUSTRIALS SECTOR
CIRCOR International, Inc. (CIR: Industrials/Specialty Industrial Machinery) - SQUEEZE PLAY. CIR shareholders know what it feels like to be squeezed. Thursday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. CIR closed Thursday at 26.04. The plan is to enter in the right direction by placing a BUY trigger at 26.5 and a SELL short trigger at 24.76. Once CIR establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.74. After you've collected a 1.92 profit, tighten the stop to 0.87. Earnings Report Date: N/A. Beta: 2.18. Market-Cap: 530.263M. Optionable.
TECHNOLOGY SECTOR
Confluent, Inc. (CFLT: Technology/Software-Infrastructure) - BEARISH U-TURN. The weekly trend for CFLT is down, but recent daily price activity has lifted shares upward in what's known as a "counter-trend" bounce. As the name implies, this type of rebound is against the main trend. These bounces tend to revert back to the direction of the main trend - in this case downward - once the bounce reaches significant resistance. This is exactly the situation CFLT finds itself in, as Thursday's recoil from moving average resistance presents the beginnings of a possible return to the weekly downtrend. CFLT now sits at 20.19 after reaching an intra-day high of 20.92 during the latest session. Place a short-SELL order with your broker if price drops to the 18.92 level. Follow your entry with a trailing stop of 2.27 and tighten to 1.14 on a 2.44 profit. Earnings Report Date: Jan 30, 2023. Beta: N/A. Market-Cap: 5.782B. Optionable.
DoubleVerify Holdings, Inc. (DV: Technology/Software-Application) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. DV found itself in this condition on Thursday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 24.26 and a SELL short trigger at 22.64. When DV moves outside of Thursday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 1.62 trailing stop. After you've got a 1.76 profit, tighten the stop to 0.81. DV closed at 23.93 on Thursday. Earnings Report Date: Mar 06, 2023. Beta: N/A. Market-Cap: 3.945B. 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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