January 14, 2023 - The RightLine Report
Notes From The Editor
The Trader's Mind: Falling In Love With A Stock
Several years ago a friend in his early forties dropped in to tell me that he had a new girlfriend. Within minutes of arriving he said he was "falling in love" with her despite the fact they had only known each other for about a week. I listened quietly as he shared a few details about his new "love."
Daytime Drama ...
She is blonde, beautiful, and makes him feel like a million bucks. She is barely out of her teens, young enough to be his daughter, and recently ended a three- year relationship with her 22-year old boyfriend. Unfortunately the young couple parted ways because he found out she was having an affair with a fellow who is almost fifty. However, her new covert partnership ended abruptly when she moved in with the man and then discovered a complete set of large dentures on the nightstand beside their bed. Yes, they were his ...
My friend also told that he had already spent the night at her new apartment twice, that they had gone horseback riding together, and that he was going to play Frisbee golf with her after leaving my house. I would say they have surely been busy.
"But He's Such A Smart Guy ..."
Understand that my friend has a very high IQ and is typically quite reasonable. He's been married and divorced twice, yet I could see by the look in his eyes that he was completely willing to set aside his good judgment just for the sheer pleasure of what he believes is true "love."
News Flash: "Scientists Discover That A High IQ Can't Compete With Biology and Emotions"
Okay, admittedly we all know how it feels to be in the clutches of that crazy little thing called love. But what most of us DON'T know is that the "love" we're feeling isn't really love at all. More times than not, it's actually what some psychologists and researchers are calling "limerance."
Many humans crave it, yet deep inside everyone knows that kind of highly euphoric state can't last forever. This is because what is often felt as "love" is an involuntary mental and emotional state that translates into an intense romantic desire for another person.
Without getting into the specific chemistry of limerance, you can safely say that it's like taking a powerful mind altering drug - a drug that has the ability to drastically influence our judgment.
Trading ... So What's Love Got To Do With It?
So what's all this talk of love got to do with trading stocks? Think back to when you made a good trade, then could hardly wait to get back in the same stock because it made you feel so good to trade that stock. We've all felt how easy it is to "fall in love" with a stock when it treats you right.
And while it's certainly a good idea to become familiar with some of the more subtle characteristics of a stock's behavior, making any stock the object of limerance related affection is just asking for trouble. Becoming too attached to a stock destroys the objectivity that we all need to be successful. And worse still, romancing a stock often leads to the worst thing a trader can do with stock ... marry it!
Enjoy the weekend,
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 01/14 01/14 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
STVN 19.49 0.00 19.99 1.57/0.79 1.48
THC 51.73 0.57 52.6 4/2 3.08
BLFS 23.54 0.07 24.6 22.42 2.18/1.09 2.46
BE 23.17 -0.46 24.15 22.29 1.86/0.93 2.24
CIEN 51.09 0.17 51.95 3.28/1.64 2.66
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 Trader's Corner
Market Summary
The top US stock indices were higher on Friday, ending a bullish week with a round of positive earnings announcements from the banking sector. Included in the lineup were Bank of America (BAC $35), JPMorgan Chase (JPM $143) and Wells Fargo (WFC $44), all of which beat analysts' predictions, though each reported significant increases in loan losses. There was mixed news on the economic front, with import prices surprisingly higher, while consumer sentiment increased much more than expected. Gold, oil prices and treasury yields all moved higher, the USD/dollar declined.
Friday On The Week
-------------------- --------------------
Dow 34,302.61 112.64 +672 2%
Nasdaq 11,079.16 78.05 +509.87 4.82%
S&P 500 3,999.09 15.92 +104.01 2.67%
NYSE Volume 3.95B
NYSE Advancers 1,925
NYSE Decliners 1,167
Nasdaq Volume 5.1B
Nasdaq Advancers 2,920
Nasdaq Decliners 1,649
New Highs/Lows
01/06 01/09 01/10 01/11 01/12 01/13
--------------------------------------------
NYSE New Highs 79 100 61 96 108 104
NYSE New Lows 25 9 6 7 12 6
Nasdaq New Highs 130 117 102 150 139 122
Nasdaq New Lows 101 39 39 45 26 20
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Sizzlin' Outside? Stay Cool!"
Has the stock market and the summer heat got your emotions running hot? Chill out, and remember that though we have no control over what the market does, we do have complete control over how we respond to it. Getting angry when the market doesn't co-operate with our wishes doesn't change price action, yet the emotional stress from anger has the potential to cloud our judgment and cause us to make unwise decisions.
To avoid this sort of reaction, we can accept the fact that the market is not trying to hurt us, and for that matter is not even aware that we exist. Our reaction won't change the market, but it WILL determine whether we ultimately win or lose money in the business of trading. Stay cool, and when things get too warm, relax by the pool!
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 - 3999.09 January 13, 2023
52-Week High: 4665.16
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4213.43
Resistance 2: 4086.77
Resistance 1: 4042.93
Pivot: 3960.11
Support 1: 3916.27
Support 2: 3833.45
Support 3: 3706.79
NASDAQ Composite - 11079.16 January 13, 2023
52-Week High: 14897.68
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 11906.42
Resistance 2: 11412.00
Resistance 1: 11245.58
Pivot: 10917.58
Support 1: 10751.16
Support 2: 10423.16
Support 3: 9928.74
Dow Industrials - 34302.61 January 13, 2023
52-Week High: 36513.88
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35863.28
Resistance 2: 34942.76
Resistance 1: 34622.68
Pivot: 34022.24
Support 1: 33702.16
Support 2: 33101.72
Support 3: 32181.20
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, January 16, 2023: 16-Jan None scheduled. Martin Luther King Jr. Day Tuesday, January 17, 2023: 17-Jan 8:30 am Empire state manufacturing index Wednesday, January 18, 2023: 18-Jan 8:30 am Retail sales 18-Jan 8:30 am Retail sales ex motor vehicles 18-Jan 8:30 am Producer price index, final demand 18-Jan 9:15 am Industrial production 18-Jan 9:15 am Capacity utilization 18-Jan 10 am NAHB home builders' index 18-Jan 10 am Business inventories (revision) 18-Jan 2 pm Beige Book Thursday, January 19, 2023: 19-Jan 8:30 am Initial jobless claims 19-Jan 8:30 am Continuing jobless claims 19-Jan 8:30 am Building permits (SAAR) 19-Jan 8:30 am Housing starts (SAAR) 19-Jan 8:30 am Philadelphia Fed manufacturing index Friday, January 20, 2023: 20-Jan 10 am Existing home sales (SAAR) 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 Corner
TRADER'S TIP: "Using The Gap Open Tactic When Selling Short"
The Gap Open Tactic works as well when we sell short as it does when we buy a stock. If the stock gaps down at the open, wait for it to take out its low of the first half-hour then enter 0.25 below that point.
For more on the Gap Open Tactic go to: http://www.rightline.net/education/gapopen.html.
Stocks Covered in This Issue
HEALTHCARE SECTOR
Stevanato Group S.p.A. (STVN: Healthcare/Medical Instruments & Supplies) - 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. STVN's behavior on Friday could very well be a sign that a new bounce is underway. Place a BUY trigger at 19.99. In the event your trigger is met, also place a 1.57 trailing stop which can be trimmed down to 0.79 when you have a 1.48 profit. STVN closed Friday at 19.49. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 5.159B. Optionable.
Tenet Healthcare Corporation (THC: Healthcare/Medical Care Facilities) - BULLISH BOUNCE. Another bullish bouncer, THC appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Friday's positive price action near Moving Average support says it's time to BUY shares if THC reaches our entry trigger set at 52.6. Also place a 4 trailing stop which can be narrowed to 2 when you reach a 3.08 profit. THC closed Friday at 51.73. Earnings Report Date: Feb 06, 2023. Beta: 2.13. Market-Cap: 5.593B. Optionable.
BioLife Solutions, Inc. (BLFS: Healthcare/Medical Instruments & Supplies) - SQUEEZE PLAY. BLFS 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 24.6 and a SELL short entry at 22.42. Once your trade is filled, enter a 2.18 trailing stop. Tighten it to 1.09 after a 2.46 gain. BLFS closed on Friday at 23.54. Earnings Report Date: Feb 27, 2023. Beta: 1.81. Market-Cap: 1.007B. Optionable.
INDUSTRIALS SECTOR
Bloom Energy Corporation (BE: Industrials/Electrical Equipment & Parts) - SQUEEZE PLAY. Friday's trading session left BE 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 24.15 and your SELL short trigger at 22.29. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.86 trailing stop. Once you have a 2.24 profit, reduce the stop to 0.93. Earnings Report Date: Feb 08, 2023. Beta: 2.84. Market-Cap: 4.522B. Optionable.
TECHNOLOGY SECTOR
Ciena Corporation (CIEN: Technology/Communication Equipment) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with CIEN which met our setup criteria on Friday. The BUY trigger for this trade is at 51.95, and the trailing stop is sized at 3.28. Resize the stop to 1.64 upon collecting a 2.66 point gain. CIEN closed Friday at 51.09. Earnings Report Date: N/A. Beta: 0.94. Market-Cap: 7.583B. 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 Trader's Corner
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Buying The Pullback
Buying the pullback makes good sense after a strong rally, but it's a great way to lose money if you jump in too early or too late.
How can you find perfect timing when it comes to this classic play? The key lies in reading the clues of the charting landscape. It's natural for markets to correct after big rallies. This countertrend move lowers the emotional fires and sets up the ideal conditions for a swing back to higher prices.
But any pullback can turn into a reversal and trap your position in a downward spiral. So let's look at the types of pullbacks we want to buy and those that should be avoided at all costs.
Volume presents important evidence about a stock's intentions when it starts to pull back. Look for selling to contract when bars test lower prices. The most bullish volume shows a steady downslope in the histograms under the price bars. This suggests shareholders are hanging tough because they believe in higher prices. Alternatively, big red volume spikes show fear and may signal important tops.
Don't trade a pullback against a gap. There are two types of gaps you need to worry about. The first shows up on a high-volume move near the end of the rally. This corresponds with an exhaustion gap that warns traders a reversal is near. It also marks resistance after a stock finds support on the pullback and starts to rally again.
Second, don't buy into a gap down when the stock is pulling back unless it gets filled the same day. This is a tough one because falling stocks often find support right after the longs give up and sell into a gap down opening. The problem comes when the gap doesn't fill by day's end. This prints a bearish reversal on the price chart and attracts more selling.
The simplest entry comes from a pullback into a strong support level. Trend lines, old highs and Bollinger Bands ease selling pressure, and allow buyers to carry the market back in the other direction. The biggest problem with these falling-knife entries is usually psychological. The trader loses confidence while watching the intensity of the selloff and fails to act when it's time to pull the trigger.
A trip down to the 50-day moving average offers an excellent opportunity for dip buyers who want to hold positions for a few days or a few weeks. This price zone usually marks strong support after a rally. A market pulling back here also suggests early dip buyers got beat up on the ride down.
Pullbacks tend to feed on traders who buy too early. In other words, they buy and the market drops, stopping them out and forcing prices even lower. This downward spiral continues until prices reach a large pool of buying interest. This fresh demand often sits right at the 50- day moving average.
Many traders use Fibonacci retracements to uncover hidden support on a pullback. But this is a lot harder than it looks. Stocks commonly drop to three different retracement levels, and you can lose a lot of money when you pick the wrong one. Fortunately there are ways to focus in and locate the most likely support level. Put the odds squarely in your favor by standing aside until price reaches a deep retracement that corresponds with other types of support. This means the safest strategy is to focus on the 62% retracement and look for intermediate averages or old highs at the same prices. This process is called cross-verification. It works because it's self- fulfilling. Different traders look for different types of support in various pullback scenarios. Finding convergence of multiple support types at narrow price levels taps into this broad set of buying signals.
The intraday chart holds the key to pullback profits. Often, it's hard to make sense of a market pulling back on a daily chart. Fortunately trends evolve in all time frames, and traders can use the intraday chart to uncover hidden support and resistance levels.Focus on the 60-minute chart because this gives you many days of intraday price bars to work with. Pull one up when you see a correction in progress, and start searching for common patterns, such as bull flags or double bottoms. These inflection points reveal low- risk entry prices for positions taken in much longer time frames.
This special guest article was written by Alan Farley, author of "The Master Swing Trader."
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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