Notes From The Editor

One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm not talking about some pseudo-philosophical mumbo jumbo here, but real life lessons and skills that come in handy every day.

Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:

* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.

* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.

* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.

* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.

I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     01/31     01/31      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

OOMA      13.13      0.05     13.37                  0.84/0.42      0.76
EPZM      20.93     -0.39     21.62     19.78        1.84/0.92      3.30
MIST      22.05      0.05     22.49     20.61        1.88/0.94      2.64
AKRO      24.69     -0.21     25.59     23.51        2.08/1.04      4.70

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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Market Summary

US and global stocks fell hard on Friday after a health emergency was declared by the World Health Organization due to the spread of the coronavirus. Confirmed cases have been reported from over a dozen countries, including China, Canada, the United Kingdom and the USA. The move from stocks to safer havens benefited US treasuries, while the USD/dollar, gold and oil all finished the session lower. Equities news featured strong earnings reports from Amazon (AMZN $2,009), Exxon Mobil (XOM $62 and Caterpillar (CAT $131). Economic headlines included positive moves in personal income, spending and consumer sentiment.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    28,256  -603.41         -734    -2.53%
Nasdaq               9,150.94  -146.00      -164.06    -1.76%
S&P 500                 3,226   -58.14          -69    -2.09%

NYSE Volume                      4.72B                       
NYSE Advancers                     611                       
NYSE Decliners                    2330                       

Nasdaq Volume                    2.75B                       
Nasdaq Advancers                   742                       
Nasdaq Decliners                  2487                       

                                 New Highs/Lows

                   01/24  01/27  01/28  01/29  01/30  01/31
                 --------------------------------------------
NYSE New Highs       238    111    144    202    179    159
NYSE New Lows         63    102     57     59    111    114
Nasdaq New Highs     196     78     85    108    104    101
Nasdaq New Lows       60     96     42     60    100    126
   

TRADER'S TIP: "Try a Few Diamonds and Spiders!"

If you are new to shorting, a good place to start is with index "stocks" like QQQQ (NASDAQ 100 Trust), DIA (Dow Diamonds), or SPY (Spiders). While they aren't actually "stocks," these popular instruments are widely traded in virtually the same fashion.

However, there is one distinct advantage. Unlike individual stocks, each index "stock" represents a broad list of securities. The DIA includes 30 stocks, the QQQQ contains 100, and the SPY consists of 500. As a result, trading this type of index security lowers the risk associated with holding positions in specific companies. TRADER'S TIP: "Up or Down?"

It doesn't matter which way the market goes as long as long as we keep our opinions about direction from blinding us to the opportunity at hand. Traders can increase profitability in all market conditions by following a few time proven guidelines:

1) Locate the trend, and trade in harmony with it. This dramatically shifts the odds of winning into your favor.

2) Never risk more than 2% on any one trade.

3) Use stops to protect against unplanned losses.

4) Be confident, but keep your ego in check. Respect your emotions; yet don't let them prevent you from following your trading plan while you are in a trade.

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 - 3225.52 January 31, 2020

52-Week High: 3337.77
52-Week Low: 2681.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3402.13
Resistance 2: 3323.34
Resistance 1: 3274.43
Pivot: 3244.55
Support 1: 3195.64
Support 2: 3165.76
Support 3: 3086.97


NASDAQ Composite - 9150.94 January 31, 2020

52-Week High: 9451.43
52-Week Low: 7225.14
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9671.50
Resistance 2: 9430.43
Resistance 1: 9290.68
Pivot: 9189.36
Support 1: 9049.61
Support 2: 8948.29
Support 3: 8707.22
        
Dow Industrials - 28256.03 January 31, 2020

52-Week High: 29373.62
52-Week Low: 24680.57
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 30006.02
Resistance 2: 29231.31
Resistance 1: 28743.67
Pivot: 28456.60
Support 1: 27968.96
Support 2: 27681.89
Support 3: 26907.17
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, February 03, 2020:
03-Feb  9:45 am   Markit manufacturing PMI
03-Feb  10 am   ISM manufacturing index
03-Feb  10 am   Construction spending
03-Feb  Varies   Motor vehicle sales

Tuesday, February 04, 2020:
04-Feb  10 am   Factory orders

Wednesday, February 05, 2020:
05-Feb  8;15 am   ADP employment report
05-Feb  8:30 am   Trade deficit
05-Feb  10 am   ISM nonmanufacturing index

Thursday, February 06, 2020:
06-Feb  8:30 am   Weekly jobless claims
06-Feb  8:30 am   Productivity
06-Feb  8:30 am   Unit labor costs

Friday, February 07, 2020:
07-Feb  8:30 am   Nonfarm payrolls
07-Feb  8:30 am   Unemployment rate
07-Feb  8:30 am   Average hourly earnings
07-Feb  10 am   Wholesale inventories
07-Feb   3 pm   Consumer credit

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

TRADER'S TIP: "Concentrate on Execution"

"The last thing you should have to worry about during market hours is where the market is going, and whether to be long or short. Your strategy will tell you all of this. You should not be concerned about the news, or even if you are making or losing money. You should not be concerned with analyzing the market, always reserve this for when the market is closed.

The only thing you should be doing during market hours is concentrating on effectively executing your strategy. If you can't execute your strategy effectively, there really is no point in trading. There are two sides to trading, strategy development and trading execution. During market hours is when you should concentrate on execution and nothing else."

~ Charlie Wright, Veteran Trader and Hedge Fund Manager

Stocks Covered in This Issue

COMMUNICATION SERVICES SECTOR

Ooma, Inc. (OOMA: Communication Services/Telecom Services) - BULLISH BOUNCE. Up-trending stocks like OOMA have a tendency to bounce their way skyward rather than travel higher in a straight line. After touching down to a moving average support level on Friday, OOMA is poised to lift off again. To take advantage of this setup, prepare to BUY shares at 13.37 if positive price action occurs. As always, follow your entry with a trailing stop. A 0.84 trailer should work well with OOMA. Tighten it to 0.42 on a 0.76 gainer. Earnings Report Date: N/A. Beta: 0.94. Market-Cap: 284.884M. Optionable.

HEALTHCARE SECTOR

Epizyme, Inc. (EPZM: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in EPZM's narrowest trading range of the past seven sessions. With neither group able to take complete control on Friday, the stock's short term destiny is up for grabs. You can capitalize on this unusually tight condition by placing both a BUY order at 21.62 and a SELL order at 19.78. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.84 trailing stop. Tighten the stop to 0.92 once you have a 3.30 gain. EPZM closed Friday at 20.93. Earnings Report Date: Feb 23, 2020. Beta: 2.66. Market-Cap: 2.046B. Optionable.

Milestone Pharmaceuticals Inc. (MIST: Healthcare/Biotechnology) - SQUEEZE PLAY. In certain stocks a tightly constricted price range is a sign that neither bulls nor bears are confident of winning in the near term. This often means that the side that gives up first causes a quick move in the opposite direction. In these fear dominated skirmishes, opposing traders always benefit from the retreat. In the Squeeze Play setup you can actually play both sides of the inevitable surge. MIST traders reached this state of stand-off on Friday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 22.49 and a SELL short trigger at 20.61. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.88 which can be tightened to 0.94 on a 2.64 gain. MIST closed Friday at 22.05. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 540.075M. Not Optionable.

Akero Therapeutics, Inc. (AKRO: Healthcare/Biotechnology) - SQUEEZE PLAY. AKRO traders on both sides of the fence are now locked in a head-to-head shootout. Friday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 25.59 and a SELL short trigger at 23.51. When one of the orders is filled, cancel the remaining order and enter a 2.08 trailing stop. When you've reached a 4.70 paper profit, tighten the stop to 1.04. AKRO closed at 24.69 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 705.114M. 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  
---------------- -------     --------    -------     ------  -------   

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

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

"Hammer Time"

Technicians throughout the world have adopted the Japanese practice of candlestick charting. In fact, many have abandoned Western bars in favor of this visual tool that generates detailed information from short-term price movement. Of all candlestick patterns, single bar hammers and dojis provide the most versatile immediate feedback. Western technical analysis rarely offers such dependable single bar signals.

These formations print when a significant battle between bulls and bears ends in a draw. Two characteristics generate their predictive power:

1. High to low range greater than average.

2. Closing tick equal to or near opening tick.

Dojis represent perfect opening-closing balance as price finishes exactly where it started. Hammers need only close so that the central body of the candlestick is less than one-third the length of the bar's total range. But the body must sit near one end of the bar's action. Dojis and hammers predict immediate reversals within the time frames they are created. Their significance directly relates to their position within the overall chart pattern. When appearing on high volume near significant highs or lows, they may represent price extremes signifying an important change in trend. If printed within an ongoing congestion pattern, they often reflect market makers or specialists "cleaning out" stops in one direction so they can move the market in the opposite direction.

Retracement science assists traders in predicting events subsequent to one of these important candles. Shifting down one time frame from the bar reveals the length of the short-term trend being reversed by the long finger. Very often, dojis and hammers represent first rise/first failure setups within the smaller time frame. This further predicts where the reversal momentum will fade for a test of the candle.

Following a doji or hammer reversal, a test of the candle high or low often takes place within 3 to 5 bars. When the test fails, expect price to thrust sharply forward, especially when overbought/oversold indicators show no divergence. When the test succeeds, shift down one time frame again and trade the setup according to double bottom/double top strategy. Specifically look for price to surge on the breakout past the high/low of the initial reversal generated by the candle.



Hundreds of stocks printed long-legged dojis and hammers during the dramatic October 1998 reversal day. DELL never returned to test its low following a death-defying leap into the abyss. Pay close attention to gap support or resistance created by the bar following the candle event.

>

Price returns to test ALTR's new high doji and reverses. Reviewing this chart on a 5-min intraday interval reveals a classic double top scenario. Aggressive traders often enter short sales at doji tops, recognizing their hidden power.

*********************************************************

This guest article was written by Alan Farley, trader and author of "The Master Swing Trader." To order a copy of Alan's premier book, please go to The RightLine Bookstore.

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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