January 25, 2020 - The RightLine Report 

 
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                      NOTES FROM THE EDITOR
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"Natural Born Traders"

Is there a trading gene? Some people make trading look so easy you would think they arrived in the delivery room with special market skills. However, while most successful traders share common traits, as far as I can tell it isn't something inherited genetically. Though aptitude varies, winners don't just inherently know how to make money in the market. They become successful at trading stocks the same way as everyone else - by learning from their experiences.

It's been said, "good judgment comes from experience, and experience comes from bad judgment." Sounds strange at first, yet it's true in many instances. Of course there is more than one way to benefit from experience. All of us have learned a few things "the hard way." Hopefully we try to appreciate the value of our experiences despite how painful they may feel at the time.

The most common method of learning is to make a mistake, and then pay for it. These lessons usually cost much more than we expected. Afterwards we often still aren't sure what we were supposed to learn from them.

Fortunately there is a better way. We can choose to develop good judgment from the experiences of others. Though perhaps not as common, learning from the experiences and mistakes of other traders is far superior to investing in over-priced experiences of our own.

Up-close work with many traders over the years reveals that planning and execution are two extremely important elements of consistent winning. Planning is the simple process of deciding exactly when to enter a trade, and precisely what to do if the stock goes up, goes down, or sideways. This is always done in advance of entering a position. Once you are in the market, the focus shifts from planning the trade, to managing the trade.

It may come as a surprise that trade management makes up a big part of what is usually referred to as "executing" the trade. While most traders assume that execution simply means placing a buy or sell order, winners know that there is much more to execution than that. The actual procedures for entering or exiting a trade can be learned quickly. Knowing when to enter, and more importantly when to exit, takes much longer to learn.

If you are new to the markets, commit to spending enough time to acquire the basic skills needed to keep your capital healthy. How much money you ultimately make is up to you. As you learn the ropes, prepare carefully for each trade and then stick with your prepared plan. Also take comfort in the fact that profits are born naturally from this process ... regardless of your genetic makeup!

Trade well,

Thomas Sutton, Editor 

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                           "QUICK LIST"
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Stock     01/24     01/24      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

RRGB      34.79     -0.01     35.55     33.33        2.22/1.11      1.94
PLAY      46.26      0.07     46.98     44.01        2.97/1.49      2.12
AFG      110.49      0.25    112.34                  5.54/2.77      2.08
SAFE      45.26      0.14     46.02     43.27        2.75/1.38      1.74


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 www.rightline.net/education/using-quicklist.html. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to www.RightLine.net and login to the Member's area.

To learn more about controlling risk go to the RightLine Risk Control System at http://www.rightline.net/education/riskcontrol.html

For a glossary of terms unique to The RightLine Report go to: http://www.rightline.net/education/glossary.html

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                           MARKET SUMMARY
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Stocks fell hard on Friday as worries about the recent dangerous coronavirus outbreak continued to escalate. Two cases have been confirmed in the US, the latest in a Chicago patient that recently traveled to the Wuhan region of China. The World Health Organization (WHO) hasn't yet declared a global health emergency, although the new virus has killed 41 people dead in China and sickened hundreds more. Gold teasury yields and the USD/dollar all moved higher as concerned traders moved from stocks into safe-havens. Oil prices were lower. In economic news headlines, reports show that growth continued in both the manufacturing and services sectors. Equities featured earnings reports from American Express (AXP $135) and Intel (INTC $69), with both companies topping expectations and presenting upbeat guidance. 


                       Jan 23, 2020           Jan 24, 2020   
                  --------------------   --------------------
Dow                    29,160   -26.18        28,990  -170.36
Nasdaq               9,402.48   +18.71         9,315   -87.57
S&P 500                 3,326    +3.79         3,295   -30.07

NYSE Volume                      4.08B                  3.78B
NYSE Advancers                    1459                    848
NYSE Decliners                    1425                   2081

Nasdaq Volume                    2.55B                  2.65B
Nasdaq Advancers                  1499                    810
Nasdaq Decliners                  1717                   2405

                                 New Highs/Lows

                   01/17  01/20  01/21  01/22  01/23  01/24
                 --------------------------------------------
NYSE New Highs       339      0    259    309    202    238
NYSE New Lows          7      0     27     29     45     63
Nasdaq New Highs     394      0    234    272    145    196
Nasdaq New Lows       16      0     42     39     44     60


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                              TRADER'S TIP:  
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TRADER'S TIP: "The Importance of Convergence"

When charting a stock or index, always be on the lookout for technical convergence. Consider it very important anytime two or more trend lines, moving averages, pivotal highs or lows, and other support or resistance levels show up in the same price zone.

Convergence multiplies the supportive or resistive strength of the combined elements, and increases the likelihood of a price reversal at that junction. Whenever a convergence zone isn't able to deflect price, the breakthrough indicates the trend in place is gaining momentum.

Use this insight to your advantage - from the moment you begin evaluating the strength of a potential setup, all the way to the point you exit the trade. Each new convergence along the way provides you with extremely valuable information! 
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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: www.rightline.net/education/how_to_use_rlr_technical_analyst.html. 
S&P 500 - 3295.47 January 24, 2020

52-Week High: 3337.77
52-Week Low: 2624.06
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3417.40
Resistance 2: 3361.16
Resistance 1: 3328.31
Pivot: 3304.92
Support 1: 3272.07
Support 2: 3248.68
Support 3: 3192.44

http://www.rightline.net/rlch/012420SPX.jpg

NASDAQ Composite - 9314.91 January 24, 2020

52-Week High: 9451.43
52-Week Low: 7011.47
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9702.92
Resistance 2: 9524.72
Resistance 1: 9419.81
Pivot: 9346.52
Support 1: 9241.61
Support 2: 9168.32
Support 3: 8990.12

Dow Industrials - 28989.73 January 24, 2020

52-Week High: 29373.62
52-Week Low: 24323.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 30129.45
Resistance 2: 29599.17
Resistance 1: 29294.45
Pivot: 29068.88
Support 1: 28764.16
Support 2: 28538.59
Support 3: 28008.30

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                             MARKET CALENDAR
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--ECONOMIC REPORTS AND EVENTS (all times are Eastern): 
Monday, January 27, 2020:
27-Jan  10 am   New home sales

Tuesday, January 28, 2020:
NONE

Wednesday, January 29, 2020:
05-Aug  8:30 am   Durable goods orders
05-Aug  8:30 am   Core capital goods orders
05-Aug   9 am   Case-Shiller home prices
05-Aug  10 am   Consumer confidence index
29-Jan  8:30 am   Advance trade in goods
29-Jan  10 am   Pending home sales index
29-Jan   2 pm   FOMC announcement
29-Jan  2:30p;m   Jerome Powell press conference

Thursday, January 30, 2020:
30-Jan  8:30 am   Weekly jobless claims
30-Jan  8:30 am   GDP

Friday, January 31, 2020:
31-Jan  8:30 am   Employment cost index
31-Jan  8:30 am   Personal income
31-Jan  8:30 am   Consumer spending
31-Jan  8:30 am   Core price index
31-Jan  9:45 am   Chicago PMI
31-Jan  10 am   Consumer sentiment index

For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: http://www.rightline.net/education/economic.html 
 
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                              TRADER'S TIP: 
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TRADER'S TIP: "Turn Off The Tube"

It's wise to limit the amount of information that does not help your trading. You may want to avoid stock chat rooms entirely, and though it may be hard, consider keeping financial news TV to a minimum. 

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                      STOCKS COVERED IN THIS ISSUE    
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CONSUMER CYCLICAL SECTOR

Red Robin Gourmet Burgers, Inc. (RRGB: Consumer Cyclical/Restaurants) - SQUEEZE PLAY. Traders are feeling the pressure as RRGB'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 35.55 and a SELL short entry at 33.33. RRGB's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.22 trailing stop. Tighten it to 1.11 after you get a 1.94 gain. RRGB closed Friday at 34.79. Earnings Report Date: Feb 23, 2020. Beta: 1.22. Market-Cap: 450.172M. Optionable.

Dave & Buster's Entertainment, Inc. (PLAY: Consumer Cyclical/Restaurants) - SQUEEZE PLAY. A look at PLAY's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 46.98 and a SELL short trigger at 44.01. Once PLAY shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 2.97 and tighten to 1.49 on a 2.12 gain. PLAY closed Friday at 46.26. Earnings Report Date: Mar 31, 2020. Beta: 0.81. Market-Cap: 1.414B. Optionable.

FINANCIAL SERVICES SECTOR

American Financial Group, Inc. (AFG: Financial Services/Insurance-Property & Casualty) - NEW HIGH DIP. AFG's upward price momentum produced a brand new 52-week high just a few sessions ago. Shares have been sliding downhill since reaching that point, but the bounce that took place during Friday's trading could be telling us the short-term decline is over. We need to confirm that sellers are exiting, so we'll wait for AFG to move a bit higher before buying this stock. Set your BUY trigger at 112.34, and then enter a trailing stop of 5.54. Tighten the stop to 2.77 when you accumulate a 2.08-point gain. AFG finished the Friday session at 110.49. Earnings Report Date: Feb 02, 2020. Beta: 0.83. Market-Cap: 9.964B. Optionable.

REAL ESTATE SECTOR

Safehold Inc. (SAFE: Real Estate/REIT-Diversified) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in SAFE, 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 46.02 and a SELL short entry at 43.27. Let SAFE's price action determine your long or short entry. Once the order is filled, place a 2.75 trailing stop, and tighten it to 1.38 upon getting a 1.74 gain. SAFE closed Friday at 45.26. Earnings Report Date: Feb 11, 2020. Beta: 0.46. Market-Cap: 2.163B. 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: http://www.rightline.net/education/riskcontrol.html

Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels.
Link: http://www.rightline.net/education/gap-adjusted.html 

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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  
---------------- -------     --------    -------     ------  -------   

Currently there are no upcoming stock splits on the major US exchanges.

For a closer look at the different stages of a Stock Split go to: http://www.rightline.net/splits/index.html/#split-stages 
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                           TRADER'S CORNER
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"Loose Lips Sink Ships" By Chuck LeBeau

In browsing around the web I often encounter discussions of the merits of a particular trade and opinions about the direction of a market. I know that the traders who voice these opinions have good intentions and much of the discussions could be helpful to the person receiving the information. However the provider of the opinion must be very careful that he doesn't start believing too strongly in his position because he has made the mistake of going public with it.

This is an important psychological issue that I seldom see discussed. Taking losses is always difficult and the reluctance to promptly acknowledge that we are on the wrong side of the market is probably the single most costly error a trader can make. Even under the best of conditions we hate to take losses. Publicly advocating a particular trade or the direction of a market just makes being wrong all the more painful and harder to accept. If we make it a policy to go around advocating the merits of our trades it will only make it harder to recognize when we are wrong.

Many years ago when I was a young futures broker at E. F. Hutton and Company, the firm decided that it would be a good idea to send our commodity research analysts on the road whenever they came up with a well researched idea that appeared to have great potential. Let's assume for a minute that our sugar analyst has decided that sugar is going to make a big move to the upside over the next six months. After publishing his research he would be sent from city to city where he would speak at meetings for brokers and clients suggesting why everyone should be buying sugar.

At first the analyst road shows seemed like a great idea. The clients received the benefit of hearing about a well-researched idea straight from the analyst himself and also had the opportunity to ask questions and engage the analyst in a discussion of the details of the sugar market. The clients enjoyed the meetings and a lot of new commodity business was generated as a result.

However, it turns out that the objectivity of the analysts was completely lost after the story had been told and the bullish scenario presented a dozen times or more. The analyst felt obligated to the firm and to the clients. The firm had spent a lot of money to send the analyst on the road and to host these meeting all over the country. As a result of the meetings the clients now knew the analysts by name and his personal and professional reputation was clearly on the line. This analyst was now committed and he was going to be bullish on sugar regardless of what happened in the market or what new information came to light.

From the point of the tours onward the analyst would only look for information to support his opinion. To ever admit that he was wrong would be such public humiliation that the analyst would tend to ignore any contrary information and would stick to his original position through thick and thin. We eventually learned that the talented Hutton research analysts did a much better job when they were free to change their minds as new facts were revealed without the pressure and responsibility generated by their repeated espousing of a particular position on a specific trade.

Discretionary traders should learn from this example and avoid discussing their open positions or their opinion about the direction of a market. It will only distort their objectivity and make it harder to take a loss promptly when that is the best course of action. Losses that only we know about are tough enough but losses that everyone knows about become much harder to stomach and we tend to postpone our exits in hope that the market will eventually turn around and prove us right.

Remember that the best discretionary traders are usually very neutral about their positions and tend to take their guidance from the price action and the flow of new information. Its OK to listen to others talk about their positions, but don't make it a habit of discussing your open trades. It will only cost you money - especially if you repeat your opinions often enough that you might actually start believing what you are saying.

This article was taken from an earlier work written by author and trading veteran Chuck LeBeau. It was originally titled "Discretionary Traders - Don't Talk About Your Open Positions." Chuck is the co- author of "Computer Analysis of the Futures Market" (McGraw-Hill 1992). To order a copy of Chuck's book go to http://www.invest-store.com/rightline/. 
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