January 22, 2022 - The RightLine Report 

 
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                      NOTES FROM THE EDITOR
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Unexpected volatility is a fact of life in the stock market. For traders holding at least a few days, it's important to keep stop losses wide enough to ride out the daily gyrations - while at the same time, keeping risk to a manageable minimum. It's a balancing act that's easier said than done.

The simple act of using a stop-loss puts you head and shoulders above many traders/investors. Placing a limit on how much you stand to lose on any given trade prevents a manageable loss from turning into a big hit.

Stop placement, however, isn't an automatic and thoughtless procedure. Good stops take into account both a trader's intended timeframe and the stock's expected volatility.

Traders who intend to remain in a trade for more than a day will need to be prepared to ride out more price movement. Similarly, more movement should be expected of a stock with heightened volatility.

Imagine buying a stock that's sitting at 35.00. A trader might choose to place a stop at 34.50, with the thought that it's a great way to limit downside risk. This might very well be the case - but only if the equity tends to be a slow mover. Banking, utility, and raw materials stocks often fall into this category.

On the other hand, you'd run the risk of being stopped out in a matter of hours if you're dealing with a more volatile mover - something like a tech stock that covers a wide price range throughout a session.

The "Beta" line you find at the end of every stock write-up gives some insight into how much price movement to expect. A Beta of 1.00 means that an equity tends to be as volatile as the S&P 500, while a reading of 2.00 would indicate twice as much volatility.

"Average True Range" (ATR) is another way to gauge choppiness. The indictor measures the average range that a stock traces in one session. Under most circumstances, a trade's initial stop should never be less that the ATR. This would be begging to get bounced out of a stock before it had a chance to perform.

Rightline set-ups are typically designated with a "swing trade" in mind. The holding period is expected to be anywhere from 3 days to 3 weeks, sometimes longer. Our analysts determine stops based on the anticipated movement that a stock might experience over that timeframe, taking into account both the Beta and ATR. Technical analysis also plays a key role here; analyzing a daily chart often reveals subtle tendencies that don't show up in the indicators.

Stop placement is anything but arbitrary. After all, how you get out is just as important as how you get in.

Here's to profits!

Kent Barton
Senior Analyst 

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                           "QUICK LIST"
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Stock     01/21     01/21      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

ECPG      64.26      0.45     65.61                  4.41/2.21      2.78
MSB       31.80     -0.31     32.76                   2.59/1.3      2.78
NEO       21.59     -0.29     22.54     20.67        1.87/0.94      3.88
CCXI      25.06     -1.58     26.67     23.66        3.01/1.51      4.22
OPNT      25.64      0.42     26.04     23.62        2.42/1.21      4.38


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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/.

To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/

For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/

Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/ 
 
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                           MARKET SUMMARY
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Stocks ended the week lower on Friday, recording the third consecutive bearish week in the new year. Driving the recent downtrend are trader expectations of rising interest rates and the economic implications of a more aggressive Fed Bank response to inflation pressures. In equities headlines, shares of Netflix (NFLX $398) fell hard after the media company's excellent earnings report was overshadowed by guidance suggesting subscriber growth and revenue will be decisively below forecasts in the next quarter. In other news, Intel Corporation (INTC $52) announced an initial $20-Billion investment to build chip factories in Ohio. The U.S. dollar dipped, and gold prices traded to the downside. Gold, oil and the USD/dollar declined, while treasuries were significantly higher which applied downward pressure on yields.


                     Friday                 On The Week      
                  --------------------   --------------------
Dow                 34,265.37  -450.02     -1646.44    -4.58%
Nasdaq              13,768.92  -385.10     -1124.83    -7.55%
S&P 500              4,397.94   -84.79      -264.91    -5.68%

NYSE Volume                       5.6B                       
NYSE Advancers                     680                       
NYSE Decliners                   2,757                       

Nasdaq Volume                    5.85B                       
Nasdaq Advancers                   896                       
Nasdaq Decliners                 4,006                       

                                 New Highs/Lows

                   01/14  01/17  01/18  01/19  01/20  01/21
                 --------------------------------------------
NYSE New Highs       101      0     97     50     32      8
NYSE New Lows        199      0    299    312    264    525
Nasdaq New Highs      79      0     89     38     26     22
Nasdaq New Lows      683      0    818    772    682  1,316

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                              TRADER'S TIP:  
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TRADER'S TIP: "No One Knows"

The stock market is a world shaped by human behavior, and no one has the slightest idea of what will happen in the future. Successful traders don't base their actions on what they THINK will happen, but instead they respond to what DOES happen. Price can only do three things; go up, go down, or go sideways. Plan ahead for all three, and you can react intelligently to whatever the market decides to do. 
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                         THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average.

For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ 
S&P 500 - 4397.94 January 21, 2022

52-Week High: 4818.62
52-Week Low: 3694.12
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 5025.78
Resistance 2: 4755.96
Resistance 1: 4576.95
Pivot: 4486.14
Support 1: 4307.13
Support 2: 4216.32
Support 3: 3946.50
https://www.prorightline.com/rlch/012122SPX.jpg

NASDAQ Composite - 13768.92 January 21, 2022

52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 16410.44
Resistance 2: 15277.02
Resistance 1: 14522.97
Pivot: 14143.60
Support 1: 13389.55
Support 2: 13010.18
Support 3: 11876.76


Dow Industrials - 34265.37 January 21, 2022

52-Week High: 36952.65
52-Week Low: 29856.30
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 38364.27
Resistance 2: 36597.36
Resistance 1: 35431.36
Pivot: 34830.46
Support 1: 33664.46
Support 2: 33063.55
Support 3: 31296.64


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                             MARKET CALENDAR
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--ECONOMIC REPORTS AND EVENTS (all times are Eastern): 
Monday, January 24, 2022:
24-Jan  9:45 am   Markit manufacturing PMI (flash)
24-Jan  9:45 am   Markit services PMI (flash)

Tuesday, January 25, 2022:
25-Jan   9 am   
25-Jan   9 am   FHFA national home price index (year-over-year change)
25-Jan  10 am   Consumer confidence index

Wednesday, January 26, 2022:
26-Jan  8:30 am   Advance report on trade in goods
26-Jan  10 am   New home sales starts (SAAR)
26-Jan   2 pm   FOMC statement
26-Jan  2:30 pm   Fed Chair Jerome Powell news conference

Thursday, January 27, 2022:
27-Jan  8:30 am   Initial jobless claims (regular state program)
27-Jan  8:30 am   Continuing jobless claims (regular state program)
27-Jan  8:30 am   Gross domestic product (SAAR)
27-Jan  8:30 am   Final sales of domestic product (SAAR)
27-Jan  8:30 am   Durable goods orders
27-Jan  8:30 am   Core capital equipment orders
27-Jan  10 am   Pending home sales index

Friday, January 28, 2022:
28-Jan  8:30 am   Real disposable incomes
28-Jan  8:30 am   Real consumer spending
28-Jan  8:30 am   PCE inflation (month-to-month change)
28-Jan  8:30 am   Core PCE inflation (month-to-month change)
28-Jan  8:30 am   PCE inflation (year-over-year change)
28-Jan  8:30 am   Core PCE inflation (year-over-year change)
28-Jan  8:30 am   Personal income (nominal)
28-Jan  8:30 am   Consumer spending (nominal)
28-Jan  8:30 am   Employment cost index
28-Jan  10 am   UMich consumer sentiment index (final)
28-Jan  10 am   UMich 5-year inflation expectations (final)

For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: https://prorightline.com/index.php/economic-indicator-effects/ 
 
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                              TRADER'S TIP: 
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TRADER'S TIP: "Earnings Conference Calls"

Since the SEC implemented the Fair Disclosure laws, most companies have begun allowing individual shareholders to listen in on earnings conference calls that were previously limited to analysts only. If you are tracking a stock as it approaches its scheduled earnings announcement, always look for the related conference call and mark it on your calendar.

The behavior of the stock during the call can telegraph early reaction to management's explanation of earnings related events. If you can't find any mention of the call, give the firm's Investor Relations department a ring and ask when or if a call will be held. 

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                      STOCKS COVERED IN THIS ISSUE    
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FINANCIAL SERVICES SECTOR

Encore Capital Group, Inc. (ECPG: Financial Services/Mortgage Finance) - 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. ECPG meets the setup criteria, so get ready to BUY into this outstanding performer at 65.61. Enter a trailing stop of 4.41 when your order is filled, then tighten it to 2.21 on a 2.78 gain. Earnings Report Date: Feb 22, 2022. Beta: 1.42. Market-Cap: 1.881B. Optionable.

Mesabi Trust (MSB: Financial Services/Mortgage Finance) - BULLISH BOUNCE. Another bullish bouncer, MSB 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 MSB reaches our entry trigger set at 32.76. Also place a 2.59 trailing stop which can be narrowed to 1.3 when you reach a 2.78 profit. MSB closed Friday at 31.80. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 417.216M. Optionable.

HEALTHCARE SECTOR

NeoGenomics, Inc. (NEO: Healthcare/Diagnostics & Research) - SQUEEZE PLAY. Friday's trading session left NEO 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 22.54 and your SELL short trigger at 20.67. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.87 trailing stop. Once you have a 3.88 profit, reduce the stop to 0.94. Earnings Report Date: Feb 22, 2022. Beta: 0.63. Market-Cap: 2.658B. Optionable.

ChemoCentryx, Inc. (CCXI: Healthcare/Biotechnology) - SQUEEZE PLAY. CCXI 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 26.67 and a SELL short entry at 23.66. Once your trade is filled, enter a 3.01 trailing stop. Tighten it to 1.51 after a 4.22 gain. CCXI closed on Friday at 25.06. Earnings Report Date: Feb 28, 2022. Beta: 1.77. Market-Cap: 1.755B. Optionable.

Opiant Pharmaceuticals, Inc. (OPNT: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as OPNT's intra-day price range on Friday 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 26.04 and a SELL short entry at 23.62. OPNT's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.42 trailing stop. Tighten it to 1.21 after you get a 4.38 gain. OPNT closed Friday at 25.64. Earnings Report Date: Mar 02, 2022. Beta: 0.49. Market-Cap: 121.028M. Not Optionable.


IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy.
Link: https://prorightline.com/index.php/rightline-risk-control-system/

Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels.
Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/ 

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                           STOCK SPLIT SUMMARY
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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 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  
---------------- -------     --------    -------     ------  -------   
ePlus             PLUS      11/9/2021   12/14/2021  2-for-1   Yes
NAPCO Security    NSSC      12/8/2021   1/5/2022    2-for-1   Yes
AeroCentury Corp  ACY       12/17/2021  1/10/2022   5-for-1   No 
Merchants Bancorp MBIN      11/17/2021  1/18/2022   2-for-1   No
SMART Global Hold SGH        1/4/2022   2/2/2022    2-for-1   Yes

For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ 

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                           TRADER'S CORNER
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"The Gap Primer"

Gaps are shock events that jolt price up or down and leave an "open window" to the last bar. Market folklore (such as the infamous "gaps Get filled") seems to offer guidance, but in reality it has little value. After all, many gaps never get filled. So how can we use these one-bar wonders to make good trades and increase profits? The first thing to do is figure out what kind of gap you're dealing with. It should fall into one of these three categories:

~ Breakaway gaps appear as markets break out into new trends, up or down.

~ Continuation gaps print about halfway through trends, when enthusiasm or fear overpowers reason.

~ Exhaustion gaps burn out trends with one last surge of emotion.

See chart - https://prorightline.com/rlr/TCwcom060703.gif

Certain trades work best with each gap type, so proper identification is extremely important. Use relative location and key characteristics to place them into the right category. There is also a psychological aspect to recognizing the correct gap. Breakaway gaps "surprise" because they appear suddenly on charts you've ignored. Continuation gaps "frustrate" because they pop up where you think price should reverse. Exhaustion gaps "relieve" because they print after you hold on for too long.

Trade the trend on the first pullback to a breakaway or continuation gap. In other words, buy the decline after a rally, or sell the rally after a decline. The odds favor a reversal back in the primary direction, even if these gaps fill. However, the pullback trade often requires great patience. Markets retest breakout gaps right after they occur, but many bars can pass before price returns to test a continuation gap.

See chart - https://prorightline.com/rlr/TCamd060703.gif

Use the continuation gap to target major reversals. The first test usually occurs after closure of the exhaustion gap. But you can't trade it if you can't find it, so here's a trick: Wait until you can count three price moves, up or down. Then place a Fibonacci grid across the entire trend and look for a continuation gap at the 50% level. If you find one, place a limit order within the gap and wait for a test to occur. The retracement should provide enough support or resistance to force a reversal. Once the gap is filled, place a trailing stop and keep it close behind current price action.

Modern markets fill many continuation gaps for a bar or two before they reverse. If you're a defensive trader, place your order within this extreme price level. Many times you won't get filled, but you'll save yourself whipsaws from entering too early. Keep in mind the filled gap presents low risk only when volume remains flat and price doesn't gap back through the old gap to get there.

See chart - https://prorightline.com/rlr/TCyhoo060703.gif

Exhaustion gaps print blowoffs that end a trend. This last burst of energy can occur on high volume, but the lack of it doesn't change the outcome. Exhaustion gaps fill easily, with price often heading lower in a hurry. After this reversal, use multiple time frame analysis to plan your next move. For example, an exhaustion gap may also print a continuation gap in the next larger time frame. Be patient if this sounds confusing. Seeing this three-dimensional landscape requires a sharp eye and a lot of charting experience.

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This instructive article was written by Alan Farley, author of "The Master Swing Trader." 
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Best of luck and have a Great Week!
 
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