Notes From The Editor

I'm sometimes amazed at how dramatically our unconscious thoughts influence and often limit our ability to make money in the markets. For example, some traders think they need an ultra-complicated trading system in order to be successful, when in fact nothing could be further from the truth. Though usually misunderstood and misapplied, the old adage of "KISS" - keep it simple stupid - is still effective in many areas of life - and especially so in the stock market.

Let me assure that I'm not immune from over complicating things. I grew up in a typical American neighborhood with typical opinions about money. Our beliefs were grounded in the good old-fashioned work ethic. My parents and neighbors made it very clear to us kids that the harder we worked, the better things would get. In several ways they were right ... the hard work did pay off for many of us. Yet there were plenty of folks in our community who worked very hard, yet were never able to reach a comfortable level of success.

As time went by I began to realize that hard work wasn't the only important factor in financial achievement. At the same time I became aware that some of my beliefs about money and the markets weren't necessarily helping me along the economic pathway.

I was convinced that the capital game was like an elaborate maze, a sort of complex high- stress puzzle that could only be solved using sophisticated means. In my early trading days I sometimes fell into the trap of thinking that technology was the solution.

There's no question that technology helps us trade more effectively, but only if our methodology is reliable. "Reliable" doesn't necessarily mean complex. Most reliable short-term trading methods are fairly simple, and include some type of technical analysis that uses support and resistance to time entries and exits, along with a risk management component to prevent account damage.

Complex doesn't always equal better, yet over simplification can have the same negative effects as over complication. When trimming back unneeded elements in your trading approach, be sure to avoid increasing risk.

All successful traders maintain a balance, with most leaning toward the KISS side of the equation. The most important aspect of any trading plan is Risk Control, so lets make sure we understand what we do and why we do it in this vital department before moving on to anything else.

Enjoy the weekend!

~ Thomas Sutton, Editor

Quick List

    
Stock     01/12     01/12      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

ANTX      20.88     -0.05     22.42                  3.09/1.55      2.66
IMVT      42.36     -0.51      44.5                  4.56/2.28      4.32
STVN      27.62     -0.33               26.66        2.07/1.04       2.7
LBPH      23.45      0.73     23.82     21.86        1.96/0.98      0.92
PHR       24.15      0.22     24.94     23.23        1.71/0.86      2.28

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

Equities concluded the week on a positive note, marked by a subdued finish on Friday. The S&P 500 gained 0.1%, while the Dow experienced a 118-point decline, primarily influenced by weakness in UnitedHealth shares. The week's focus spanned corporate earnings releases, producer price inflation data, and the escalation of air strikes in Yemen in response to attacks on shipping vessels in the Red Sea. Bond yields showed a decrease, with the 10-year benchmark rate remaining below 4%, and shorter-term rates exhibiting more decline, reflecting the monetary-policy implications of Friday's inflation data surpassing expectations. Global equities saw widespread gains, with robust increases in Europe and an ongoing rally in Japanese stocks propelling the Nikkei index to its highest point in 34 years. In the commodities markets, gold and oil prices experienced upward movement in response to heightened geopolitical tensions. Overall, the markets, while adopting a slightly more cautious stance at the start of 2024 after a sharp rally in the final months of the previous year, displayed resilience, with the outlook for Fed policy and economic growth continuing as primary driving forces.

A positive sign for inflation emerged as producer prices eased, taking center stage in the week's inflation data. The producer price index (PPI) reported on Friday came in lower than consensus expectations, marking the third consecutive monthly decline in headline producer prices. Core PPI, excluding food and energy, displayed a moderate rise of 1.8% compared to the year-ago period, the lowest reading in three years. This moderation in wholesale prices is encouraging for overall inflation and should alleviate concerns raised by slightly higher-than-expected consumer price index (CPI) data earlier in the week. The expectation persists that inflation will gradually trend lower throughout 2024, with potential hiccups along the way, such as shipping costs affected by the Red Sea turmoil or lingering pressures on shelter prices. Clear signs of moderating inflation are likely to provide the Fed with the confidence to initiate rate cuts, a move anticipated to commence in the middle of the year.

Earnings season commenced with a focus on the banks, and corporate profit growth is anticipated to be a pivotal factor shaping market trends in the coming year. The spotlight was on fourth-quarter earnings announcements, with major banks leading the way on Friday. Despite headline earnings being impacted by company-specific and one-time factors, a closer look at underlying trends revealed resilient revenue growth in core banking segments. While provisions for loan losses are on the rise, indicating a solid economy, there's an expectation of softer growth ahead, driven by a moderation in consumer spending. Looking ahead, fourth-quarter earnings are poised to set the stage for the profit landscape in 2024. A robust increase in corporate profits would be viewed favorably, serving as a necessary tailwind for equity-market performance.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 37,592.98  -118.04      +126.87     0.34%
Nasdaq              14,972.76     2.57      +448.69     3.09%
S&P 500              4,783.83     3.59       +86.59     1.84%

NYSE Volume                       3.5B                       
NYSE Advancers                   1,543                       
NYSE Decliners                   1,262                       

Nasdaq Volume                    4.97B                       
Nasdaq Advancers                 1,998                       
Nasdaq Decliners                 2,195                       

                                 New Highs/Lows

                   01/05  01/08  01/09  01/10  01/11  01/12
                 --------------------------------------------
NYSE New Highs        55     61     44     69     71    107
NYSE New Lows         17     25     24     39     35     23
Nasdaq New Highs      56    108     74    106    106    134
Nasdaq New Lows       95     94     72     96    134     86
   

TRADER'S TIP: "Small Stocks & Big Moves"

Studies show that most stocks which increase in price by ten times or more are "small-cap" or "micro-cap." This is due to the relatively low number of shares available. As demand for the stock increases, the price rises dramatically. If you want big explosive moves, think small- cap.

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 - 4783.83 January 12, 2024

52-Week High: 4802.40
52-Week Low: 3808.86
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4967.17
Resistance 2: 4864.59
Resistance 1: 4824.21
Pivot: 4762.01
Support 1: 4721.63
Support 2: 4659.43
Support 3: 4556.85

NASDAQ Composite - 14972.76 January 12, 2024

52-Week High: 15150.07
52-Week Low: 10762.73
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15872.34
Resistance 2: 15368.93
Resistance 1: 15170.84
Pivot: 14865.52
Support 1: 14667.43
Support 2: 14362.11
Support 3: 13858.70
        
Dow Industrials - 37592.98 January 12, 2024

52-Week High: 37825.27
52-Week Low: 31429.82
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 38707.88
Resistance 2: 38131.85
Resistance 1: 37862.41
Pivot: 37555.82
Support 1: 37286.38
Support 2: 36979.79
Support 3: 36403.76
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, JAN. 15						
Martin Luther King Jr. holiday, none scheduled
					
TUESDAY, JAN. 16						
8:30 am	Empire State manufacturing survey	
11:00 am	Fed Gov. Christopher Waller speaks
					
WEDNESDAY, JAN. 17						
8:30 am	Import price index	%	
8:30 am	Import price index minus fuel	
8:30 am	U.S. retail sales		
8:30 am	Retail sales minus autos	
9:00 am	Fed Vice Chair for Supervision Michael Barr speaks					
9:00 am	Fed Gov. Michelle Bowman speaks					
9:15 am	Industrial production	
9:15 am	Capacity utilization
9:15 am	Business inventories	
2:00 pm	Fed Beige Book					
3:00 pm	New York Fed President John Williams delivers opening remarks
					
THURSDAY, JAN. 18						
7:30 am	Atlanta Fed President Raphael Bostic speaks					
8:30 am	Initial jobless claims	J	
8:30 am	Philadelphia Fed manufacturing survey		
8:30 am	Housing starts		
8:30 am	Building permits	
12:05 pm	Atlanta Fed President Raphael Bostic speaks
					
FRIDAY, JAN. 19						
10:00 am	Consumer sentiment (prelim)		
10:00 am	Existing home sales	
1:00 pm	Fed Vice Chair for Supervision Michael Barr speaks					
4:15 pm	San Francisco Fed President Mary Daly 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: "Low Open, High Close? Often a Signal for the Next Day"

A stock that opens low and closes high indicates a shift from weakness to strength. This indicates that professionals who control the close are more bullish than amateurs who control the open. It also increases the likelihood that prices will continue to move higher the following session.

Stocks Covered in This Issue

HEALTHCARE SECTOR

AN2 Therapeutics, Inc. (ANTX: Healthcare/Biotechnology) - NEW HIGH DIP. It's no secret that strong stocks tend to get even stronger. ANTX's recent 52-week high is a clear indication that the ongoing uptrend is still healthy, though traders have taken some profits off the table during the past few sessions. Friday's bounce from support confirms the stock's intention to move even higher. This New High Dip setup takes advantage of the tendency for strong stocks to bounce skyward after pulling back from new highs. Prepare to BUY shares in ANTX should price reach the 22.42 level. Enter a trailing stop of 3.09 as soon as your order is filled, then tighten the stop to 1.55 on a 2.66 gain. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 621M. Not Optionable.

Immunovant, Inc. (IMVT: Healthcare/Biotechnology) - NEW HIGH DIP. IMVT's recent new 52-week high proves just how well this stock is performing. Sellers have pushed prices down the past few sessions, but Friday's rebound near support has given us an excellent BUY setup. A continuation of this latest bounce has the potential to push above the recent 52-week high and set a new one. Be ready to get on board if IMVT moves up to the 44.5 level, and set a 4.56 trailing stop to control risk. Tighten the stop to 2.28 when you have banked a 4.32-point gain. Earnings Report Date: Feb 01, 2024. Beta: 0.75. Market-Cap: 6.128B. Optionable.

Stevanato Group S.p.A. (STVN: Healthcare/Medical Instruments & Supplies) - BEARISH U-TURN. Stocks stuck in a downtrend like STVN tend to bounce downhill rather than slide lower in a straight line. After interacting with a moving average resistance level on Friday, STVN is poised to drop again. To take advantage of this setup, prepare to SELL shares short at 26.66. As usual, follow your entry with a trailing stop. A 2.07 stop will fit STVN's current price range. Tighten it to 1.04 on a 2.7 gainer. Earnings Report Date: Mar 22, 2024. Beta: 0.71. Market-Cap: 7.332B. Optionable.

Longboard Pharmaceuticals, Inc. (LBPH: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's trading session left LBPH in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 23.82 and your SELL short trigger at 21.86. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.96 trailing stop. Once you have a 0.92 profit, reduce the stop to 0.98. Earnings Report Date: Feb 29, 2024. Beta: 1.08. Market-Cap: 829.126M. Not Optionable.

Phreesia, Inc. (PHR: Healthcare/Health Information Services) - SQUEEZE PLAY. PHR 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 24.94 and a SELL short entry at 23.23. Once your trade is filled, enter a 1.71 trailing stop. Tighten it to 0.86 after a 2.28 gain. PHR closed on Friday at 24.15. Earnings Report Date: Mar 20, 2024. Beta: 0.95. Market-Cap: 1.344B. 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

"How Important Is A High Percentage of Winners?"

I sometimes see advertisements for trading services that proudly proclaim an ultra-high percentage of winners. These ads remind me of my early trading days. Like most rookies, I thought that a high percentage of wins was necessary to be successful. A lot of water has flowed under the trading bridge since then. I've learned that things aren't always as they seem - especially in the stock market!

Here's an example of what I mean - pretend for a minute that we're at the local county fair. As we walk down the fairway there are two games of chance side by side. The guy at the first booth leans over the counter and says, "Give it a try - a dollar a play, four out of 10 winners every time!"

At the next booth the fellow behind the counter shouts, "Step right up - a buck a play, six out of 10 winners guaranteed." Assuming that we're there to have fun (and make a little money if we get lucky), which game should we play?

At first glance it looks simple. Both games cost the same per play, but one has a higher percentage of winners. Of course we would take the six-out-of-ten game over the four-out-of-ten-game. But what if we took a step closer and found that the lower odds game paid out $4 for each winner, but the second game paid only $2. How would that affect our choice?

Now lets do the math. The first game costs $10 for ten plays, with four winners at $4 each. That's 4 times $4, or $16 in winnings. Subtract the $10 to play and we're left with $6 profit. The second game costs the same to play, but we end up with six winners. That's 6 times the $2 payoff for each winner, or $12 total minus the $10 to play leaves us with $2.

It's clear in this case that the lower percentage game pays off the most because each winner is twice the amount as in game two. In other words, the same amount invested in a lower percentage game produced three times the profits because the payoff per winner is higher.

It's obvious in this example that the higher reward to risk ratio in the first game was a very important component in the profitability of the game. That exact same aspect is true in trading stocks. While our intuition may tell us that a trading method with a very high percentage of winners is always "better," logic indicates otherwise. Not only should we consider the percentage of winners when deciding which strategy to use, but we should also consider the reward to risk ratio.

All things being equal, a high percentage approach will produce higher profits. However, there is a severe penalty for pushing too hard toward a high percentage of wins. The unpredictable and relatively efficient nature of the stock market insures that traders who follow this approach will be forced into two very damaging situations - smaller profits and larger losses.

To maintain the high number of winners, traders are forced to limit the reward for each trade and take quick profits. Strategies that depend on small profits are capable of high winning percentages, yet to achieve this high win-to-loss ratio they also have to take on more risk per trade.

If they limit the amount of risk or loss per trade, the percentage of winners drops too. A study of different trading systems by Keener Capital Management show that higher winning percentages are characteristic of the worst performing strategies. By contrast, strategies with lower winning percentages were the most profitable.

In summary, a high percentage of wins don't necessarily mean more profit. Robust trading strategies require risk control tactics that include reasonable stop placement.

Instead of trying to maintain a very high win-to-loss ratio, traders will benefit more by focusing on trade management to arrive at a profitable balance between risk and reward. A simple yet extremely effective guideline is to:

- Limit losses to reasonable amounts

- Use trailing stops to lock in accumulating profits

- Let the winners grow!

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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