January 14, 2020 - The RightLine Report
Notes From The Editor
Momentum can be a trader's best friend. Once a stock has established a reliable trend, price action seems to develop a life of its own. Jumping on that trend at the right point - when there are no immediate support/resistance levels to get in to the way - is a great way to take advantage of the sustained movement.
But what about those cases when a stock is almost going vertical? In strong Bull markets this is a common occurrence. A stock generates so much momentum that it rises nearly every day. It's human nature to see a rocketing equity and think "hey, I've got to get in on that!" The problem with this approach is that the unbridled momentum can suddenly shift without warning, leaving you with a loss and the dubious distinction of having bought at the top.
There are some good rules of thumb to avoid this. The first is to simply step away if the stock has shown some huge recent gains. For instance, a 20% rally over the past week or so sharply increases the likelihood of a profit-taking pullback. Traders who follow the daily stochastic indicator can quantify this; if the stochastics are pushed to the overbought extreme, with no more room to move, the short-term upside potential may be maxed out.
Also avoid rallying equities that are approaching areas of historical resistance or congestion. While levels dating back several years may seem irrelevant, they're often used as profit-targets for traders who have already been in the stock for awhile. Bears also use these as logical areas to regroup and mount a counter-offensive.
The best approach to trade a rocketing stock is to wait for a pullback to a key support level or moving average. Positive momentum increases the likelyhood of a rebound at these junctions, and profitable realignment with the upward trend. Scan through charts of rallying stocks to find examples of this breakout/pullback/reversal pattern. Accompanied by a solid risk management strategy, this can be a powerful tool in your arsenal of trade set-ups.
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today...Stock Splits...
Quick List
Stock 01/14 01/14 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
PTCT 50.06 1.67 50.95 4.53/2.27 2.54
XOMA 24.60 0.93 25.26 2.16/1.08 2.50
PING 27.50 0.63 27.97 25.89 2.08/1.04 2.38
PLT 32.32 0.42 32.99 30.93 2.06/1.03 1.86
CNXN 52.50 -0.65 53.65 50.48 3.17/1.58 2.56
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 access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.
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
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Stocks Covered Today...Stock Splits...
Market Summary
The three major averages closed mixed on Tuesday after setting new intra-day record highs on the news that the USA and China are scheduled to sign a "phase one" trade deal" on Wednesday. The Dow finished slightly higher, while the S&P 500 and Nasdaq both closed slightly lower following good earnings announcements from Citigroup (C $83) and JPMorgan Chase & Co (JPM $140). Shares of Wells Fargo & Company (WFC $50) came under pressure due to disappointing profit and revenue numbers. Consumer price inflation met expectations and small business optimism declined a bit. Oil prices, treasury yields and the USD/dollar were all higher, gold finished lower.
Jan 13, 2020 Jan 14, 2020
-------------------- --------------------
Dow 28,907 +83.28 28,940 +32.62
Nasdaq 9,274 +95.07 9,251.33 -22.60
S&P 500 3,288 +22.78 3,283 -4.98
NYSE Volume 3.54B 3.78B
NYSE Advancers 2053 1678
NYSE Decliners 864 1251
Nasdaq Volume 2.58B 2.61B
Nasdaq Advancers 2054 1678
Nasdaq Decliners 1189 1542
New Highs/Lows
01/07 01/08 01/09 01/10 01/13 01/14
--------------------------------------------
NYSE New Highs 131 213 241 218 243 230
NYSE New Lows 11 11 13 20 23 8
Nasdaq New Highs 144 212 259 216 279 295
Nasdaq New Lows 20 19 17 29 34 27
Stocks Covered Today...Stock Splits...
TRADER'S TIP: "Behavioral Economics"
Dr. Daniel Kahneman - a professor at Princeton University - won the Nobel Prize for Economics in 2002. His studies in the field of behavioral economics reveal that investors are generally irrational, but predictably so. This is due to the fact they usually make the same mistakes again and again. One of the most repeated quirks is a common inability to take a loss. In fact, Dr. Kahneman's work shows that taking a loss is so painful to most people that they simply avoid it.
Rule One: Take losses while they're small, it's much easier that way.
The Technical Analyst
For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".
S&P 500 - 3283.15 January 14, 2020
52-Week High: 3294.25
52-Week Low: 2606.36
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3391.02
Resistance 2: 3322.67
Resistance 1: 3294.01
Pivot: 3254.32
Support 1: 3225.66
Support 2: 3185.97
Support 3: 3117.62
NASDAQ Composite - 9251.33 January 14, 2020
52-Week High: 9298.33
52-Week Low: 6928.12
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9702.58
Resistance 2: 9410.88
Resistance 1: 9294.87
Pivot: 9119.18
Support 1: 9003.17
Support 2: 8827.48
Support 3: 8535.78
Dow Industrials - 28939.67 January 14, 2020
52-Week High: 29054.16
52-Week Low: 23887.93
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 29931.37
Resistance 2: 29340.93
Resistance 1: 29082.35
Pivot: 28750.49
Support 1: 28491.91
Support 2: 28160.05
Support 3: 27569.61
Stocks Covered Today...Stock Splits...
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, January 13, 2020: 13-Jan 10 am Eric Rosengren speaks 13-Jan 12:40pm Raphael Bostic speaks 13-Jan 2 pm Federal budget Tuesday, January 14, 2020: 14-Jan 6 am NFIB small business index 14-Jan 8:30 am Consumer price index 14-Jan 8:30 am Core CPI 14-Jan 9 am John Williams speaks 14-Jan 1 pm Esther George speaks Wednesday, January 15, 2020: 15-Jan 8:30 am Producer price index 15-Jan 8:30 am Empire state index 15-Jan 11 am Patrick Harker speaks 15-Jan 12 noon Rob Kaplan speaks 15-Jan 2 pm Beige Book Thursday, January 16, 2020: 16-Jan 8:30 am Weekly jobless claims 16-Jan 8:30 am Retail sales 16-Jan 8:30 am Retail sales ex-autos 16-Jan 8:30 am Philly Fed 16-Jan 8:30 am Import price index 16-Jan 10 am Business inventories 16-Jan 10 am NAHB home builders' index Friday, January 17, 2020: 17-Jan 8:30 am Housing starts 17-Jan 8:30 am Building permits 17-Jan 9 am Patrick Harker speaks 17-Jan 9:15 am Industrial production 17-Jan 9:15 am Capacity utilization 17-Jan 10 am Consumer sentiment index 17-Jan 10 am Job openings 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: "What's Important to Top Traders?"
When discussing the keys to success in the stock market, top traders generally don't talk much about what most folks might expect them to; namely, methods for locating high-probability trade setups. Instead, the conversation often centers around techniques for limiting drawdowns, deciding how many shares to include in a position and the importance of staying with their trading plan.
Stocks Covered in This Issue
HEALTHCARE SECTOR
PTC Therapeutics, Inc. (PTCT: Healthcare/Biotechnology) - NEW HIGH DIP. PTCT is still showing the bullish strength that gave this stock a new 12-month high just a few days ago. Tuesday's intra-day price action near moving average support tells us that another run to the high-mark may be in the works. Get ready to BUY shares if PTCT reaches our trigger price of 50.95, and enter a 4.53 trailing stop. The stop can be resized to 2.27 once you have a 2.54 profit. PTCT closed Tuesday at 50.06. Earnings Report Date: Feb 25, 2020. Beta: 1.92. Market-Cap: 3.085B. Optionable.
XOMA Corporation (XOMA: Healthcare/Biotechnology) - BULLISH BOUNCE. Another bullish bouncer, XOMA appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Tuesday's positive price action near Moving Average support says it's time to BUY shares if XOMA reaches our entry trigger set at 25.26. Also place a 2.16 trailing stop which can be narrowed to 1.08 when you reach a 2.50 profit. XOMA closed Tuesday at 24.60. Earnings Report Date: N/A. Beta: 1.22. Market-Cap: 215.435M. Not Optionable.
TECHNOLOGY SECTOR
Ping Identity Holding Corp. (PING: Technology/Software-Infrastructure) - SQUEEZE PLAY. PING 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 27.97 and a SELL short entry at 25.89. Once your trade is filled, enter a 2.08 trailing stop. Tighten it to 1.04 after a 2.38 gain. PING closed on Tuesday at 27.50. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.19B. Not Optionable.
Plantronics, Inc. (PLT: Technology/Communication Equipment) - SQUEEZE PLAY. Traders are feeling the pressure as PLT'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 32.99 and a SELL short entry at 30.93. PLT's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.06 trailing stop. Tighten it to 1.03 after you get a 1.86 gain. PLT closed Tuesday at 32.32. Earnings Report Date: Feb 02, 2020. Beta: 1.40. Market-Cap: 1.29B. Optionable.
PC Connection, Inc. (CNXN: Technology/Electronics & Computer Distribution) - SQUEEZE PLAY. Tuesday's narrow price range has created a potentially profitable setup in CNXN, 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 53.65 and a SELL short entry at 50.48. Let CNXN's price action determine your long or short entry. Once the order is filled, place a 3.17 trailing stop, and tighten it to 1.58 upon getting a 2.56 gain. CNXN closed Tuesday at 52.50. Earnings Report Date: Feb 04, 2020. Beta: 1.15. Market-Cap: 1.382B. 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
---------------- ------- -------- ------- ------ -------
Penns Woods Banc PWOD 09/03/2019 10/01/2019 3-for-2 No
Equity Lifestyle ELS 09/20/2019 10/16/2019 2-for-1 Yes
Middlefield Banc MBCN 10/07/2019 11/12/2019 2-for-1 No
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 to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.
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