Notes From The Editor

A quick look at the major indices reveals that the primary trend remains decidedly bullish on both weekly and daily charts. We know how powerful trends can be, so the question is, should we be Bullish or Bearish?

The answer is neither. Though trading in harmony with the prevailing trend is a principle that we follow, Bull and Bear posturing isn't. This is because the preconceptions and methods associated with being bullish or bearish usually conflict with good trading and investment practices.

"Trading in harmony" isn't limited to just trading in the same direction as the primary (main) trend. It also includes taking advantage of counter-trends that move in the opposite direction. Primary trends in all timeframes have counter-trends in shorter time frames.

Timing these counter-trend moves requires a certain amount of skill, yet the basics really aren't all that complicated. Let's take a look at several important aspects involved.

Shorting Counter-Trend Declines ...

1) Enter short positions near qualified resistance levels in shorter time frames than you usually trade.

2) Place your safety stops just above the resistance levels.

3) Manage each trade in the shorter-term time frame with trailing stops until the position either becomes marginally profitable, or is sold with a minor loss.

4) Allow the profits in the winners to grow to a comfortable margin.

5) Chart the developing trendlines in the next higher time frame, and then use these trendlines to manage the trades.

Regardless of what any of us would like to see happen in the market, it pays to remain as unbiased as possible. This means intentionally setting aside any preferences or emotional constraints that decrease our ability to make a profit.

Though it can be hard to accept, we obviously have no control over market direction. Due to this irrefutable fact, the best strategy applies tactics that take advantage of price trends - whether up, or down.

Trade well!

~ Thomas Sutton, Editor

Quick List

    
Stock     01/26     01/26      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

SGML      22.73      0.07     23.46      21.8        1.66/0.83      3.02
RDNT      37.26      0.31     38.21                   2.59/1.3      2.02
VKTX      21.37     -0.14     22.29     20.29              2/1       2.6
AKRO      22.12      0.06     22.58     21.37        1.21/0.61      2.38
CSIQ      22.97     -0.35     23.85     21.88        1.97/0.99      1.76

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

US stocks experienced a slight decline Friday, breaking a streak of six consecutive days of gains. While the technology sector has been a major driver of recent market highs, the Nasdaq faced losses at the close of the session, primarily due to disappointing earnings and discouraging guidance from Intel that caused the stock price to drop by approximately 11%. Conversely, European equities demonstrated broad gains, buoyed by positive earnings from LVMH, which triggered a rally in other luxury stocks. Additionally, WTI oil climbed to $78, extending its weekly gain by 6%, supported by robust economic data.

In terms of economic data, optimistic news on inflation served as a supportive factor for both stocks and bonds. The core PCE (core personal consumption expenditures price index), the Federal Reserve's preferred inflation measure, increased by 2.9% in December year-over-year, marking the slowest pace in nearly three years. On a six-month basis, the annualized rate is now below the Fed's target for two consecutive months, potentially paving the way for rate cuts in the upcoming months. The data also included a fresh assessment of inflation-adjusted consumer spending, which exhibited a 0.5% increase for the second consecutive month, representing the most significant consecutive rise in about a year. This resilient economic performance and moderating inflation could enhance the likelihood of a smooth landing if the Fed aligns with market expectations for rate cuts this year.

Looking ahead, the upcoming week is set to be eventful, featuring a wide range of macroeconomic and corporate releases. The Federal Reserve will announce its policy-rate decision on Wednesday, with expectations of unchanged rates and a data-dependent approach, coupled with a potential shift away from a tightening bias in preparation for later-year rate cuts. On Friday, attention will shift to January's job data, anticipated to reveal a gradual cooling in the labor market with moderating job gains. Despite elevated wage growth, increased productivity in the US is helping alleviate cost pressures on businesses.

Finally, next week marks the peak of the earnings season, with major technology companies like Microsoft, Alphabet, Meta, and Amazon scheduled to report results. The insights from these earnings, particularly on the AI trend, will further elucidate the key factors driving the outperformance of the markets.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 38,109.43    60.30      +245.63     0.65%
Nasdaq              15,455.36   -55.13      +144.39     0.94%
S&P 500              4,890.97    -3.19       +51.16     1.06%

NYSE Volume                      3.36B                       
NYSE Advancers                   1,614                       
NYSE Decliners                   1,185                       

Nasdaq Volume                    4.52B                       
Nasdaq Advancers                 2,148                       
Nasdaq Decliners                 2,040                       

                                 New Highs/Lows

                   01/19  01/22  01/23  01/24  01/25  01/26
                 --------------------------------------------
NYSE New Highs       118    180     93    141    122    143
NYSE New Lows         48     35      8     11     21     12
Nasdaq New Highs     197    283    147    246    141    137
Nasdaq New Lows      223    157     96    101    132     75
   

TRADER'S TIP: "Excuse Me... Care For Another Round?"

Ever notice how casinos give gamblers free drinks? This is because intoxicated people are more emotional and tend to take more risk than sober folks. Las Vegas floor managers are happy when gamblers throw their money around recklessly, yet the same managers throw card counters out of the casinos - permanently.

Wall Street is sometimes compared to Vegas. However, there are at least two big differences. You're not encouraged to trade drunk, and you don't get banned for being smart!

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".

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, JAN. 29					
None scheduled
				
TUESDAY, JAN. 30					
9:00 am	S&P Case-Shiller home price index 	
10:00 am	Job openings	
10:00 am	Consumer confidence
	
WEDNESDAY, JAN. 31					
8:15 am	ADP employment	
8:30 am	Employment cost index	
9:45 am	Chicago Business Barometer (PMI)	
2:00 pm	Fed interest-rate decision
				
THURSDAY, FEB. 1					
8:30 am	Initial jobless claims	
8:30 am	U.S. productivity	Q4
9:45 am	S&P U.S. manufacturing PMI (final)	
10:00 am	ISM manufacturing
	
FRIDAY, FEB. 2					
8:30 am	U.S. nonfarm payrolls	
8:30 am	U.S. unemployment rate	
8:30 am	U.S. hourly wages	
8:30 am	Hourly wages year over year	
10:00 am	Factory orders	
10:00 am	Consumer sentiment (final)

For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Seeing the Big Picture"

A common mistake that traders make is to narrow their focus on only one of the major indexes. Those who trade tech stocks, for example, might closely follow the Nasdaq while ignoring the S&P 500 and Dow. The problem with this narrowed perspective is that the major indices often move in tandem. So even though the Nasdaq may have broken out, the buying could disappear if the Dow or SPX runs into overhead resistance. Keep an eye on broader market behavior by monitoring major support/resistance levels all three indexes. When at least two of them are showing similar technicals - such as a breakout to new highs or a bounce from a key moving average - odds of a successful trade are improved.

Stocks Covered in This Issue

BASIC MATERIALS SECTOR

Sigma Lithium Corporation (SGML: Basic Materials/Other Industrial Metals & Mining) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In SGML's case we will enter a BUY should it reach the 23.46 level, or a SELL short trade if it drops to 21.8. As usual a trailing stop is essential, 1.66 which should be tightened to 0.83 on a 3.02 gain. SGML closed Friday at 22.73. Earnings Report Date: N/A. Beta: 0.25. Market-Cap: 2.489B. Optionable.

HEALTHCARE SECTOR

RadNet, Inc. (RDNT: Healthcare/Diagnostics & Research) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. RDNT's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 38.21. Use a 2.59 trailing stop, which should work well with RDNT's typical daily range. Tighten it to 1.3 on a 2.02 profit. RDNT closed at 37.26 on Friday. Earnings Report Date: Feb 26, 2024. Beta: 1.75. Market-Cap: 2.53B. Optionable.

Viking Therapeutics, Inc. (VKTX: Healthcare/Biotechnology) - SQUEEZE PLAY. VKTX is caught in a dilemma. The stock's compressed price range on Friday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. VKTX is now at 21.37. We can capture price action either way by placing a BUY trigger at 22.29 and a SELL short trigger at 20.29. Once VKTX reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 2. When you acquire a 2.6 profit, tighten the stop to 1. Earnings Report Date: Feb 06, 2024. Beta: 0.53. Market-Cap: 2.138B. Optionable.

Akero Therapeutics, Inc. (AKRO: Healthcare/Biotechnology) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into AKRO. A move to the upside will trigger our BUY entry at 22.58, while a drop to 21.37 will trigger our SELL short entry. Follow your position with a 1.21 trailing stop. Tighten the stop to 0.61 once you have a 2.38 gain. AKRO closed Friday at 22.12. Earnings Report Date: Mar 15, 2024. Beta: -0.43. Market-Cap: 1.232B. Optionable.

TECHNOLOGY SECTOR

Canadian Solar Inc. (CSIQ: Technology/Solar) - SQUEEZE PLAY. Trader indecision has put CSIQ squarely in the center of a Bull versus Bear standoff. This tight spot should soon give way to a clear winner in the short-term, and we want to be in position for the move. To do that we've set a BUY entry at 23.85 and a SELL short entry at 21.88. Now it's up to CSIQ to show us which entry will be filled. Once the trade is underway place a 1.97 trailing stop, which can be tightened to 0.99 after you achieve a 1.76 profit. CSIQ closed on Friday at 22.97. Earnings Report Date: N/A. Beta: 1.46. Market-Cap: 1.485B. 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

Lower-Risk, Higher-Return Trades

There are many ways to reduce the risk of a trade, but it all comes down to when you decide to enter and when you exit. Using trend lines to help enter and exit trades is one of the valuable ways to reduce risk. Today we'll talk about using trend lines and give some tips on other ways to find low risk trades.

Tips on Reading Trend Lines

Most charting programs allow traders to draw in their own trend lines. For those who aren't familiar with trend lines, they are straight lines drawn across the highs or lows in order to clearly see the general direction, or trend, of the stock's movement. A support trend line is drawn across two or more low points on a chart and a resistance trend line is drawn across two or more high points.

In the chart below, we see a "channel" formation, which is characterized by two parallel trend lines. Channels can either rise or fall, depending on the price action. Traders can also take advantage of directionless (flat) channels, which are formed when a stock repeatedly bounces back and forth between support and resistance - just like a ping-pong ball.



A stock's trend line over the past year can look very different than its trend line over the past month. The longer that a stock holds its trend and the more times it bounces on its trend line, the stronger the support becomes and the harder it is for the stock to fallout from the trend.

Watch for indications that a stock will continue to trend. It is less risky to buy a stock when it bounces off support than when there is no clear support. The same is true for short positions entered on a bounce down from resistance.

In the popular book "Trading for a Living," Dr. Alex Elder points out some important tips on drawing and reading trend lines:

"First, note that the long tails on intra-day lows are important, but not for drawing trend lines. These long tails usually don't show the point where the majority of traders intend to sell; rather the long tails indicate panic selling. When drawing trend lines, the best approach is usually to simply connect the closing prices. Trends formed by the tails often come into play when that "primary" trend fails. One more caveat: Many charting programs have "regression channel" formations that use automatic best-fit methods to connect highs and lows. These use mathematically determined "best-fit" formulas to form the trends, rather than simply connecting prices."

Secondly Dr. Elder points out that the angle of a trend line (up or down) shows the "emotional intensity of the dominant market crowd." When you see the angle of the trend line beginning to move more vertically off of the stocks previous trend line, it is normally a sign that the trend line is unsustainable and that shorter-term traders should be trailing their stops a little tighter.

Third, Volume is key. Increasing volume at different points can indicate different things. Watch for the volume to confirm a move or to warn of upcoming change. If price is moving in the direction of the trend line, it confirms the trend line. If volume decreases as the stock approaches the trend line that also confirms the trend line. However, "if volume expands when prices return to a trend line, it warns of a potential break; if volume shrinks when prices pull away from a trend line; it warns that the trend line is in danger."

Fourth, don't try to jump the gun in anticipating that a stock will move through support or resistance. The difference between actually breaking out and coming within pennies of breaking out is like the difference between night and day.

Searching for Lower Risk Trades

Studying charts can help us recognize and take advantage of lower risk trades, avoid higher-risk trades, and help us to find higher-than- normal potential returns. We are always on the lookout for reduced risk trades, especially during a choppy trading environment. Here are some ideas to consider.

Double Tops and Double Bottoms

Many times the strongest support or resistance doesn't come from a trend line, but from a specific price level. One common trading strategy used by traders trying to decrease risk and increase returns is to look for double bottoms or double tops. Let's start by looking at double tops. The basis for a double top is that if stock found significant resistance at a specific level once, then chances are that the strong resistance will hold again the next time the stock rises to that level.

Here's how it works. When we see a chart that has a "sharp" intra-day decline, we look to see what the high point was just prior to the collapse. That high point will become a resistance level in the future. Over the following days or weeks, the stock will often hit a short-term bottom and then turn higher as the stock climbs back toward that previous resistance level. We'll watch closely for the "double top" and consider going short if the stock starts bouncing down from resistance.

On the other hand, consider going long after a stock begins to bounce up from a strong support level. The key to playing double tops or bottoms is to WAIT until you actually see the bounce begin before taking a position. The larger the initial reaction from hitting support or resistance, the better the chance that it will happen again the next time around. Set your stops fairly tight to avoid big losses if the stock doesn't follow through with the bounce the way you expected.



There are times when a stock will have a short-term support trend line created by higher lows, while at the same time the highs are holding steady. Eventually the two trend lines start to converge and it can present a nice trading opportunity because the stock will break out one way or the other. If the stock breaks above the resistance, it often will surge higher; but if it the support fails, it can quickly fall sharply lower. This pattern is often referred to as a "wedge."

When trading using "trend lines," "double bottoms," "double tops," or "ascending support with horizontal resistance," it's a good idea to use tight stops. We know the support and resistance levels, so if we are long, for example, any failure to hold the support level is grounds for exiting the position.

Doji Formation

A doji price bar is formed when a stock opens the day at a certain price and then dips or climbs before closing back near the opening price. It is a sign that bulls and bears are undecided about which way to go, and often indicates that the current short-term direction of the stock is about to reverse. When you are in a trade and a doji appears, tighten stops on existing positions, and be ready to take profits.

Summary

Again, no single indicator should be used in isolation, but when used in conjunction with other tools and strategies, the ideas mentioned above can help to reduce risk and increase returns. There are many other chart formations that can help provide lower-risk, higher-return trades.

Chart reading can be challenging at times because we all have a tendency to see what we want to see. Before making a trade, look for reasons why the chart is indicating a move higher, lower or sideways. Don't be overly biased when viewing a chart, and remember to set your stop immediately after entering the position.

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

The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.

The publishers of The RightLine Report recommend that anyone trading securities should do so with caution, exercise prudent trading discipline and have a personal risk management strategy in place before doing so. It is possible at this or some subsequent date, the publishers and staff of The Pro Right Line Corp. may own, buy or sell securities presented. The Pro Right Line Corp. is not a financial advisory service. Its publishers, owners or investors, are not liable for any losses or damages, monetary or otherwise, that result from the content of The RightLine Report. Past RightLine Report performance may not be indicative of future performance.

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