Notes From The Editor

A high success rate and low risk entry requirements have made "the bounce" an extremely popular play. However, most traders don't get maximum benefit from these common reversal patterns. Let's take a quick look at a couple of key elements that will improve our profits when used in bounces and other trades that we enter.

A "bounce" occurs whenever price drops to a support level such as a previous pivot point or moving average, then reverses and proceeds higher. Obviously the amount of price movement after the reversal needs to be large enough to provide a reasonable profit. So how can we know for sure that a bounce is underway, and when is the best time to enter?

To help answer these questions I'd like to point out that there have to be two basic components in place before I'm willing to take a trade. The first is a Setup, and the second is a Trigger. The Set-up is a specific condition or set of conditions that are necessary before I will consider entering a position, and the Trigger is the specific signal that tells me exactly when to enter.

The conditions for Setups vary depending on the type of trade and the chosen timeframe. Here is an example of a simplified Set-up that might be used for a bounce play on a daily chart. Though it doesn't include all of the criteria that I normally look for, it should give you an idea of what may qualify as a Setup: "Price drops from previous level to within 1-percent of the 22 EMA, then reverses to close above the session low by at least 25 percent of the intraday range."

Just as with a Setup, the criteria for a Trigger will vary depending on the type of trade and the time frame. Here's an example of a simple Trigger for the described bounce Setup: "Buy shares when price rises 0.15 above the high of the Set-up session."

Be Specific ... While each trader may prefer to use their own set of conditions for the Setup and Trigger, it's very important that the rules for both are very precise. This allows us to track the effectiveness of our rules and make adjustments whenever needed - an important process when adapting to ever changing markets. Here are a few guidelines that I follow:

- A bounce setup should be specific enough to leave no doubt that a rebound is likely to occur.

- Regardless of the specifics for each Set-up and Trigger, the Trigger will always confirm the price direction that is indicated by the Set- up. This obligates price to clearly move in the intended direction before a position is entered, usually beyond a resistance level such as the high or opening price.

- Only change or revise the rules after careful review.

- Always stick with the rules when trading,

Bottom Line: Different traders use different Setups and Triggers. The important thing to remember is that every trade needs both.

Trade well,

~Thomas Sutton, Editor

Quick List

    
Stock     01/07     01/07      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

OPRT      23.33     -0.18     23.96     22.43        1.53/0.77      2.06
CCXI      35.40      0.62     36.35                  3.42/1.71      4.68
SAGE      74.82     -0.58               71.90        6.08/3.04      9.42
DOMO      22.65     -0.04     23.27     21.86        1.41/0.70      2.50

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 stocks closed lower on Tuesday despite a round of upbeat global and domestic economic reports that included services sector growth above forecasts and a narrower trade balance than expected. In equities news, shares of Apellis Pharmaceuticals (APLS $37) leaped more than 20% higher following positive results from its experimental treatment for a life-threatening form of anemia. The USD/dollar and gold advanced in value, oil prices declined and treasuries were mostly lower.

                        Jan 6, 2020            Jan 7, 2020    
                  --------------------   --------------------
Dow                    28,703   +68.50        28,584  -119.70
Nasdaq                  9,071   +50.70         9,069    -2.88
S&P 500                 3,246   +11.43         3,237    -9.10

NYSE Volume                      3.76B                  3.49B
NYSE Advancers                    1557                   1290
NYSE Decliners                    1347                   1652

Nasdaq Volume                    2.83B                  2.38B
Nasdaq Advancers                  1737                   1444
Nasdaq Decliners                  1482                   1765

                                 New Highs/Lows

                   12/31  01/01  01/02  01/03  01/06  01/07
                 --------------------------------------------
NYSE New Highs       103      0    214    145    125    131
NYSE New Lows          9      0      5      9      8     11
Nasdaq New Highs     109      0    265    109    100    144
Nasdaq New Lows       29      0     17     13     28     20
   

TRADER'S TIP: "Moving Average Rainbows"

Place a variety of moving averages on your chart, then watch how they crossover each other and fan out into a "rainbow." The patterns that are drawn as the trend unfolds will indicate the strength of a reversal. Try 13, 22, and 50 period Exponential Moving Averages to see how it works. This combination has shown to be effective under a wide range of conditions.

Take notice of any similarities in the rainbows that have occurred historically, with particular attention to the way the rainbow takes shape after bouncing from support or resistance. This is a helpful tool to avoid head fakes, and determine true trend reversals in almost any time frame.

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 - 3237.18 January 7, 2020

52-Week High: 3258.14
52-Week Low: 2562.02
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3327.22
Resistance 2: 3281.11
Resistance 1: 3257.98
Pivot: 3235.00
Support 1: 3211.87
Support 2: 3188.89
Support 3: 3142.78


NASDAQ Composite - 9068.58 January 7, 2020

52-Week High: 9093.43
52-Week Low: 6795.86
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9376.27
Resistance 2: 9192.03
Resistance 1: 9106.40
Pivot: 9007.79
Support 1: 8922.16
Support 2: 8823.55
Support 3: 8639.31
        
Dow Industrials - 28583.68 January 7, 2020

52-Week High: 28872.80
52-Week Low: 23581.45
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 29620.76
Resistance 2: 29124.40
Resistance 1: 28879.63
Pivot: 28628.03
Support 1: 28383.27
Support 2: 28131.67
Support 3: 27635.31
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, January 06, 2020:
06-Jan  1:15 pm   John Williams speaks
06-Jan  9:45 am   Markit services PMI

Tuesday, January 07, 2020:
07-Jan  8:30 am   Trade deficit
07-Jan  10 am   ISM nonmanufacturing index
07-Jan  10 am   Factory orders

Wednesday, January 08, 2020:
08-Jan  8:15 am   ADP employment
08-Jan   3 pm   Consumer credit

Thursday, January 09, 2020:
09-Jan   8 am   Richard Clarida speaks
09-Jan  8:30 am   Weekly jobless claims
09-Jan  8:30 am   Philly Fed annual revision
09-Jan  1:20 pm   Charles Evans speaks
09-Jan   2 pm   James Bullard speaks

Friday, January 10, 2020:
10-Jan  8:30 am   Nonfarm payrolls
10-Jan  8:30 am   Unemployment rate
10-Jan  8:30 am   Average hourly earnings
10-Jan  10 am   Wholesale inventories



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

TRADER'S TIP: "Using The Market Map"

While Charting and Technical Analysis gives us a map of the market by revealing the price levels where trading decisions need to be made, it doesn't make those decisions for us. It's our job as traders to pilot the journey by entering positions and taking the right exits along the way!

Stocks Covered in This Issue

FINANCIAL SERVICES SECTOR

Oportun Financial Corporation (OPRT: Financial Services/Credit Services) - 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 OPRT's case we will enter a BUY should it reach the 23.96 level, or a SELL short trade if it drops to 22.43. As usual a trailing stop is essential, 1.53 which should be tightened to 0.77 on a 2.06 gain. OPRT closed Tuesday at 23.33. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 630M. Not Optionable.

HEALTHCARE SECTOR

ChemoCentryx, Inc. (CCXI: Healthcare/Biotechnology) - NEW HIGH DIP. As a rule of thumb, outstanding stocks like CCXI continue to perform well for extended periods of time. The recent pullback from a new 52-week high gives us a chance to enter a position without taking much risk. CCXI's price behavior on Tuesday points to another move higher, so prepare to BUY shares at the trigger price of 36.35. Once in, follow the purchase with a 3.42 trailing stop. Change the stop to 1.71 upon gaining 4.68 points. CCXI closed Tuesday at 35.40. Earnings Report Date: N/A. Beta: 2.25. Market-Cap: 2.1B. Optionable.

Sage Therapeutics, Inc. (SAGE: Healthcare/Biotechnology) - BEARISH U-TURN. The weight of SAGE's declining weekly trend was lightened recently when shares began to move upward. However, like a swimmer against the tide SAGE encountered strong resistance on Tuesday. Price action indicates a likely return to the previous downtrend, so plan to short SAGE upon reaching our SELL trigger at 71.90. Set a 6.08 trailing stop which can be tightened to 3.04 after you have a 9.42 gain. SAGE ended the latest session at 74.82. Earnings Report Date: N/A. Beta: 2.50. Market-Cap: 3.9B. Optionable.

TECHNOLOGY SECTOR

Domo, Inc. (DOMO: Technology/Software-Application) - SQUEEZE PLAY. Trader indecision has put DOMO 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 23.27 and a SELL short entry at 21.86. Now it's up to DOMO to show us which entry will be filled. Once the trade is underway place a 1.41 trailing stop, which can be tightened to 0.70 after you achieve a 2.50 profit. DOMO closed on Tuesday at 22.65. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 631M. 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  
---------------- -------     --------    -------     ------  -------   

Penns Woods Banc   PWOD    09/03/2019  10/01/2019   3-for-2   No
Equity Lifestyle   ELS     09/20/2019  10/16/2019   2-for-1   Yes
Middlefield Banc   MBCN    10/07/2019  11/12/2019   2-for-1   No
    

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.

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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