January 8, 2022 - The RightLine Report
Notes From The Editor
Many traders love Bull markets because entry points appear more frequently. Breakouts are particularly common. However, Bull markets also require discipline. All breakouts are not created equal.
When equities are rising sharply, it's often tempting to "chase" a stock higher, even if it has rallied dramatically during the past few sessions. The reasoning is that with no overhead resistance, there's nothing to stop the upward momentum. The trouble with this strategy is that it's difficult to gauge risk. Once profit-taking hits a high-flying stock, the rapid gains are often retraced just as quickly as they accumulated.
"Chase" plays can still be effectively employed in certain situations, but they typically demand tight stops. If a soaring stock starts to falter, it's time to head for the exits. Also watch for a decline in volume. This is an indication of fading momentum.
"Fresh" breakouts - stocks that have just moved past an important relative high or a major resistance level - tend to offer more favorable set-ups. This is because former resistance often turns into support once a breakout occurs. With a probable bounce point, it's easier to calculate downside risk.
Pullbacks are the best set-ups in Bull markets, but also require the most amount of patience. Pullback entries are hard to find when the broader market is shooting higher every day. In fact, stocks that are showing too much weakness should be viewed with suspicion; underperformance often heralds more selling.
The 13-day moving average is a traders' best friend in these situations. The 13 DMA closely follows price action, so it doesn't take much selling pressure to test that level. Once a rebound is confirmed with some renewed buying, entries can be taken with relatively little risk.
Here's to profits!
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 01/07 01/07 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
NOG 22.58 -0.16 23.35 21.64 1.71/0.86 2.02
LPRO 20.32 0.01 20.88 19.3 1.58/0.79 2.7
AHCO 22.25 0.03 22.58 20.92 1.66/0.83 2.14
CNM 25.45 0.10 26.18 24.28 1.9/0.95 3.06
CDR 24.72 0.67 25.21 2.05/1.03 1.54
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.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
The major US indices were lower on Friday as stocks kicked off 2022 with a weekly loss. However, the weekly uptrend remains postitive despite the loss and market concerns over inflation, along with the possibility that the Federal Reserve Bank may increase their rate of monetary policy tightening. Economic headlines featured another mixed payroll report showing December job growth missed forecasts, yet the unemployment rate dropped much more than expected. In equity news, T-Mobile US (TMUS $110) reported strong subscriber growth for the quarter along with cautious comments, while GameStop (GME $141) shares rallied following reports that the company will soon launch a division to establish cryptocurrency partnerships and develop a market for NFTs. NFTs are Non-Fungible Tokens, digital assets that represent real-world objects like art, music, in-game items and videos. The USD/dollar and oil prices were lower, treasuries were mixed and gold was higher.
Friday On The Week
-------------------- --------------------
Dow 36,231.66 -4.81 -353.4 -0.97%
Nasdaq 14,935.90 -144.96 -896.9 -5.66%
S&P 500 4,677.03 -19.02 -119.53 -2.49%
NYSE Volume 4.25B
NYSE Advancers 1,700
NYSE Decliners 1,600
Nasdaq Volume 4.27B
Nasdaq Advancers 1,970
Nasdaq Decliners 2,710
New Highs/Lows
01/03 01/04 01/05 01/05 01/06 01/07
--------------------------------------------
NYSE New Highs 96 132 132 112 64 101
NYSE New Lows 29 49 118 38 185 105
Nasdaq New Highs 98 148 123 104 90 103
Nasdaq New Lows 86 146 406 138 612 338
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Efficient Execution"
How well do you execute your trading plan? You can judge your effectiveness by how skillfully you move in and out of the market each time you act on an entry or exit signal. Preparation and practice is necessary to avoid delays or mistakes at the point of action. It is helpful to write down the exact required steps in advance, so you will know exactly what to do before you need to do it.
When the time arrives, don't wait; always be decisive. Keep records of your results so you can correct any glitches that may arise. This disciplined approach keeps you focused on a repetitive process to prevent execution errors and produce favorable results over time.
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 - 4677.03 January 7, 2022
52-Week High: 4818.62
52-Week Low: 3694.12
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 5031.22
Resistance 2: 4875.34
Resistance 1: 4776.18
Pivot: 4719.46
Support 1: 4620.30
Support 2: 4563.58
Support 3: 4407.70
NASDAQ Composite - 14935.90 January 7, 2022
52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 17170.91
Resistance 2: 16196.40
Resistance 1: 15566.15
Pivot: 15221.89
Support 1: 14591.64
Support 2: 14247.38
Support 3: 13272.87
Dow Industrials - 36231.66 January 7, 2022
52-Week High: 36952.65
52-Week Low: 29856.30
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 38114.18
Resistance 2: 37273.06
Resistance 1: 36752.36
Pivot: 36431.94
Support 1: 35911.24
Support 2: 35590.82
Support 3: 34749.70
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, January 10, 2022: 10-Jan 10 am Wholesale inventories (revision) Tuesday, January 11, 2022: 11-Jan 6 am NFIB small-business index Wednesday, January 12, 2022: 12-Jan 8:30 am Consumer price index 12-Jan 8:30 am Core CPI 12-Jan 2 pm Federal budget 12-Jan 2 pm Beige book Thursday, January 13, 2022: 13-Jan 8:30 am Initial jobless claims (regular state program) 13-Jan 8:30 am Continuing jobless claims (regular state program) 13-Jan 8:30 am Producer price index Friday, January 14, 2022: 14-Jan 8:30 am Retail sales 14-Jan 8:30 am Retail sales excluding autos 14-Jan 8:30 am Import price index 14-Jan 9:15 am Industrial production 14-Jan 9:15 am Capacity utilization 14-Jan 10 am UMich consumer sentiment index (preliminary) 14-Jan 10 am Business inventories For a chart of typical Up or Down market reactions to specific major US economic reports go to: Economic Indicator Effects
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "100% Guaranteed Winner!"
When it comes to the stock market, everybody wants a sure thing. Some traders will go to any length to be absolutely certain that their next trade is a winner. Unfortunately there's no way to do that. It doesn't matter how great the company is or how many analysts recommend you buy it, there is no way to be certain that your next trade will be a home run. In the world of stocks, certainty is a myth. Instead of struggling toward the impossible goal of certainty, focus your efforts on finding the best trade setups and executing your trading plan.
Stocks Covered in This Issue
ENERGY SECTOR
Northern Oil and Gas, Inc. (NOG: Energy/Oil & Gas E&P) - SQUEEZE PLAY. A look at NOG'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 23.35 and a SELL short trigger at 21.64. Once NOG shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.71 and tighten to 0.86 on a 2.02 gain. NOG closed Friday at 22.58. Earnings Report Date: Mar 10, 2022. Beta: 2.39. Market-Cap: 1.743B. Optionable.
FINANCIAL SERVICES SECTOR
Open Lending Corporation (LPRO: Financial Services/Credit Services) - SQUEEZE PLAY. LPRO is stuck in a Bull/Bear deadlock. Fortunately for traders this impasse should be resolved soon, with one side or the other taking control. We want to be positioned for a potential quick move up or down, so get ready to catch this train with a BUY entry at 20.88 and a SELL short entry at 19.3. Once your trade is filled, enter a 1.58 trailing stop. Tighten it to 0.79 after a 2.7 gain. LPRO closed on Friday at 20.32. Earnings Report Date: Mar 07, 2022. Beta: 0.33. Market-Cap: 2.564B. Optionable.
HEALTHCARE SECTOR
AdaptHealth Corp. (AHCO: Healthcare/Medical Devices) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in AHCO, 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 22.58 and a SELL short entry at 20.92. Let AHCO's price action determine your long or short entry. Once the order is filled, place a 1.66 trailing stop, and tighten it to 0.83 upon getting a 2.14 gain. AHCO closed Friday at 22.25. Earnings Report Date: Mar 02, 2022. Beta: 0.14. Market-Cap: 2.942B. Optionable.
INDUSTRIALS SECTOR
Core & Main, Inc. (CNM: Industrials/Industrial Distribution) - SQUEEZE PLAY. Traders are feeling the pressure as CNM'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 26.18 and a SELL short entry at 24.28. CNM's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.9 trailing stop. Tighten it to 0.95 after you get a 3.06 gain. CNM closed Friday at 25.45. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 4.074B. Optionable.
REAL ESTATE SECTOR
Cedar Realty Trust, Inc. (CDR: Real Estate/REIT-Retail) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday CDR seemed intent on initiating a rebound. With moving average support nearby, CDR is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 25.21. Manage risk with a 2.05 stop. Tighten your stop to 1.03 when you have a 1.54 profit. CDR ended the day at 24.72. Earnings Report Date: Feb 02, 2022. Beta: 1.45. Market-Cap: 337.69M. 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.
Stocks Covered Today Stock Splits Trader's Corner
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
---------------- ------- -------- ------- ------ -------
Arista Networks ANET 11/1/2021 11/18/2021 4-for-1 Yes
ePlus PLUS 11/9/2021 12/14/2021 2-for-1 Yes
NAPCO Security NSSC 12/8/2021 1/5/2022 2-for-1 Yes
AeroCentury Corp ACY 12/17/2021 1/10/2022 5-for-1 No
Merchants Bancorp MBIN 11/17/2021 1/18/2022 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.
Stocks Covered Today Stock Splits Trader's Corner
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.
This instructive article was written by Alan Farley, author of "The Master Swing Trader."
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.
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