Notes From The Editor

While many traders spend their time looking for the one "key" to success in the markets, there are actually several basic skills needed to flourish in this business. Some people pay an unnecessarily high price to acquire these skills through painfully tough "learning experiences." Obviously the best and most direct route is to actively seek a well-rounded education that prevents losing money during the process.

Despite the obvious benefits to be gained, many folks are in too big of a hurry to spend the time it takes to become a skillful stock trader. Some will even admit that they don't want to learn, and they only want only to be told when to buy and when to sell. This is a high-risk way to approach the market. In truth, after a few inevitable losses the short-cutters usually lose trust in the person doing the telling, and they give up.

Some will search for a market guru that only picks winners. Unfortunately, no one wins all the time. Plus, there are tremendously important lessons to be learned from our losses. Most veteran traders readily admit that they have gained as much or more from their losers as their winners. The losers, break-even, and winning trades all combine to teach us how to consistently profit from the stock market.

Some believe that an extremely high percentage of winners will do the trick. It comes as a surprise to most folks that the "key" to success isn't a high rate of winners to losers. Instead, trying to maintain a very high win to loss ratio usually has the opposite effect. Striving for exceptionally high win percentages typically causes traders to take profits too soon, as they try to insure that the trade goes into the book as a winner.

Selling too early does not allow small gains to develop into the full-grown winners that are needed to offset unavoidable losses and transaction costs. At the same time, losing trades are held way too long in the hope that they will turn around and become winners. They are under the impression that a losing trade doesn't really qualify as a loser until it's sold, so they don't sell it. That's too bad, because holding on to losers usually just allows the losses to get bigger and bigger.

One important key is to be in the market for the big moves, and not lose much money in between these trends. The only way to catch the major moves is to have open positions in the market. Many traders and investors pull out of the market when the trend is flat or declining, and try to predict when the next big move will occur. Unfortunately, these same people usually miss it.

Usually the best approach is to stay in the game. This gives valuable experience and teaches us how to trade properly from both sides of the market. Through repetition we quickly learn how to select the correct number of shares for each position, we learn to control risk using stops, we become adept at working in harmony with the trend, and we soon become adept at managing each trade on its own merits.

Bottom Line: To learn how to manage trades successfully we all have to experience a few losses. There's no getting around it. But you certainly want to keep them in check, so protect your capital by focusing on Risk Control first, and you'll be in great shape to profit when the big moves emerge!

Trade Well!

~ Thomas Sutton, Editor

Quick List

    
Stock     01/05     01/05      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

IPI       21.38     -0.25     22.12      20.5        1.62/0.81      2.42
MARA      24.12     -2.15     25.94     22.61        3.33/1.67      3.08
TRML      26.26     -0.32     27.42                  2.56/1.28      2.86
PKOH      25.78      0.31     26.24                  1.34/0.67      1.86
AEHR      22.49     -0.08     23.37     21.52        1.85/0.93      3.62

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 closed marginally positive, marking the first positive finish of 2024. However, this wasn't sufficient to extend the nine-week winning streak for major averages, and stocks experienced a decline for the week. The Nasdaq Composite, particularly impacted by rising Treasury yields, fell approximately 3.3% for the week.

Monthly jobs data revealed the addition of 216,000 jobs, surpassing the expected 170,000, while the unemployment rate remained steady at 3.7%. Revisions also brought down hiring figures for October and November. Treasury yields rose, breaking a three-week streak of declines, while the dollar remained stable, and oil prices increased.

Despite the Nasdaq 100 breaking its five-day losing streak and the S&P 500 snapping its four-day losing streak, major averages faced pressure throughout the day. Investors scaled back interest rate cut expectations for the year following robust jobs data.

Looking ahead, significant company updates are anticipated next week, coinciding with three major conferences and key economic indicators. The ICR Conference (1/8-1/10) in Orlando, FL, will feature many retailers and consumer-related companies. The JP Morgan 42nd Annual Healthcare Conference (1/7-1/11) in San Francisco, CA, will provide substantial updates in Healthcare/Biotech. The tech sector will witness developments at the Consumer Electronics Show (CES) (1/9-1/12) in Las Vegas, NV.

Earnings season begins next Friday (1/12) with Financials JPM, C, WFC, BLK, BX, UNH in Healthcare, and DAL in Transports. Looking further ahead, concerns about a potential partial government shutdown later in the month arise, with Congress addressing January 19 and February 2 deadlines for government spending.

In conclusion, with jobs data now behind, the focus shifts to inflation, particularly with the December Consumer Price Index (CPI) on Thursday and the Producer Price Index (PPI) on Friday. Investors will closely scrutinize inflation data as the Federal Reserve assesses progress on prices while contemplating potential rate cuts, making CPI particularly impactful a day before the onset of earnings season.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 37,466.11    25.77      -223.43    -0.59%
Nasdaq              14,524.07    13.77      -487.28    -3.25%
S&P 500              4,697.24     8.56       -72.59    -1.52%

NYSE Volume                      3.85B                       
NYSE Advancers                   1,527                       
NYSE Decliners                   1,285                       

Nasdaq Volume                    5.25B                       
Nasdaq Advancers                 1,817                       
Nasdaq Decliners                 2,384                       

                                 New Highs/Lows

                   12/29  01/01  01/02  01/03  01/04  01/05
                 --------------------------------------------
NYSE New Highs       101      0     46     42     63     55
NYSE New Lows          9      0     10     10     14     17
Nasdaq New Highs      59      0     62     26     83     56
Nasdaq New Lows       37      0     39     38     87     95
   

TRADER'S TIP: "What's It Worth?"

Garfield Drew, a prominent technician sixty years ago said that "Stocks do not sell for what they are worth, but for what people THINK they are worth." It is generally recognized among technical analysts that prices in ALL markets at ALL times are based on trader psychology instead of company fundamentals.

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".

S&P 500 - 4697.24 January 5, 2024

52-Week High: 4793.30
52-Week Low: 3802.42
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4935.25
Resistance 2: 4828.92
Resistance 1: 4763.08
Pivot: 4722.59
Support 1: 4656.75
Support 2: 4616.26
Support 3: 4509.93

NASDAQ Composite - 14524.07 January 5, 2024

52-Week High: 15150.07
52-Week Low: 10265.04
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15972.10
Resistance 2: 15338.23
Resistance 1: 14931.15
Pivot: 14704.36
Support 1: 14297.28
Support 2: 14070.49
Support 3: 13436.62
        
Dow Industrials - 37466.11 January 5, 2024

52-Week High: 37790.08
52-Week Low: 31429.82
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 38459.19
Resistance 2: 37992.93
Resistance 1: 37729.51
Pivot: 37526.67
Support 1: 37263.25
Support 2: 37060.40
Support 3: 36594.14
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    


MONDAY, JAN. 8						
3 pm	Consumer credit	
	
TUESDAY, JAN. 9						
8:30 am	Trade deficit	
	
WEDNESDAY, JAN. 10						
10 am	Wholesale inventories	
3:15 pm	New York Fed President John Williams speaks
					
THURSDAY, JAN.11						
8:30 am	Initial jobless claims		
8:30 am	CPI		
8:30 am	Core CPI		
8:30 am	CPI (year-over-year)			
8:30 am	Core CPI (year-over-year)				
2:00 pm	Budget statement	
	
FRIDAY, JAN. 12						
8:30 am	PPI	
8:30 am	Core PPI (year-over-year)
For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Beta - What Is It?"

Beta measures the level of risk, or price volatility of a stock in relation to the market as represented by the S&P 500. The market beta is always 1.0, so a stock with a beta of 1.0 means that the stock moves precisely with the market. When the market rises, the stock will rise on average to the same degree, and when the market drops, the stock will drop to the same extent.

A beta of more than one indicates higher risk than the market, while a beta of less than one indicates lower risk than the market. For example, a beta of 0.6 means a stock price is likely to move up or down only 60% of the market change, but a beta of 1.40 means the stock is likely to move up or down 40% more than the market. Some stocks have a negative beta and are inversely correlated with the market. When the market goes up, they go down, and vice versa. Each stock writeup in the RightLine Report includes the Beta for that particular stock.

Stocks Covered in This Issue

BASIC MATERIALS SECTOR

Intrepid Potash, Inc. (IPI: Basic Materials/Agricultural Inputs) - SQUEEZE PLAY. Friday's trading action forced IPI's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction IPI will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 22.12 if IPI moves higher, and place your order to SELL short at 20.5 if price declines to that level. As usual follow your entry with a trailing stop, 1.62 should be sufficient. Reduce your stop to 0.81 on a 2.42 gain. IPI closed Friday at 21.38. Earnings Report Date: Mar 04, 2024. Beta: 2.22. Market-Cap: 281.288M. Optionable.

FINANCIAL SERVICES SECTOR

Marathon Digital Holdings, Inc. (MARA: Financial Services/Capital Markets) - 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 MARA. A move to the upside will trigger our BUY entry at 25.94, while a drop to 22.61 will trigger our SELL short entry. Follow your position with a 3.33 trailing stop. Tighten the stop to 1.67 once you have a 3.08 gain. MARA closed Friday at 24.12. Earnings Report Date: Mar 14, 2024. Beta: 5.23. Market-Cap: 5.37B. Optionable.

HEALTHCARE SECTOR

Tourmaline Bio, Inc. (TRML: Healthcare/Biotechnology) - BULLISH BOUNCE. Entering a position in the early stages of a bounce is great way to get on board an up-trending stock. The "Bullish Bounce" setup identifies probable candidates by evaluating the trading action that takes place near support levels. TRML's behavior on Friday could very well be a sign that a new bounce is underway. Place a BUY trigger at 27.42. In the event your trigger is met, also place a 2.56 trailing stop which can be trimmed down to 1.28 when you have a 2.86 profit. TRML closed Friday at 26.26. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 534.042M. Not Optionable.

INDUSTRIALS SECTOR

Park-Ohio Holdings Corp. (PKOH: Industrials/Specialty Industrial Machinery) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with PKOH which met our setup criteria on Friday. The BUY trigger for this trade is at 26.24, and the trailing stop is sized at 1.34. Resize the stop to 0.67 upon collecting a 1.86 point gain. PKOH closed Friday at 25.78. Earnings Report Date: Mar 13, 2024. Beta: 1.21. Market-Cap: 337.416M. Optionable.

TECHNOLOGY SECTOR

Aehr Test Systems (AEHR: Technology/Semiconductor Equipment & Materials) - SQUEEZE PLAY. AEHR 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. AEHR is now at 22.49. We can capture price action either way by placing a BUY trigger at 23.37 and a SELL short trigger at 21.52. Once AEHR 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 1.85. When you acquire a 3.62 profit, tighten the stop to 0.93. Earnings Report Date: Jan 09, 2024. Beta: 1.91. Market-Cap: 647.696M. 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

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.



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.



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.



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.

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

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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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