July 15, 2023 - The RightLine Report
Notes From The Editor
The fear of losing money often causes traders to make detrimental mistakes. Dealing with this fear is crucial for success in the trading world. While eliminating fear entirely may not be realistic, understanding how normal trading concerns can escalate into paralyzing fear is key to overcoming this dilemma.
Fear has a way of consuming our attention and causes us to focus on negative outcomes. This can lead to a cycle of escalating fear, making it difficult to believe in and accept positive results. However, it's important to acknowledge that considering potential losses and preparing for them is a necessary part of trading. The challenge lies in finding a balance between addressing potential risks and maintaining confidence in our trading decisions.
One of the ironies of fear is that we often attract the very thing we fear. Our thoughts have the power to shape our reality, and when infused with emotions like fear, they can manifest the dreaded outcomes with astonishing speed and effectiveness. This principle holds true in trading as well. If we constantly fear losses, we are more likely to experience them.
Controlling our focus is an effective way to address fear in trading. Similar to race car drivers who focus on where they want to go, not on what they fear, we can steer our trading decisions by directing our attention towards positive outcomes. Just as staring at a wall while skidding can lead to a collision, fixating on our fears can hinder our ability to navigate through challenges. By shifting our focus and looking towards our desired goals, we increase our chances of maneuvering out of difficult situations.
The analogy of race car driving resonates with another valuable trading insight: sometimes, slowing down is necessary to go faster. Similarly, facing our fears requires us to take the time to contemplate and address our fearful thoughts. By acknowledging our fears and developing strategies to overcome them, we can gradually build confidence in our trading approach.
It's worth noting that whatever we dwell on in fear tends to become our reality. On the flip side, our thoughts and beliefs based on faith can also shape our reality. Although it may seem paradoxical, most of us experience both fearful and faithful thinking in different aspects of our lives. Ignoring or denying our fears rarely works, and self-punishment only perpetuates the cycle. When it comes to reducing or eliminating fear, a different approach is needed.
Acknowledging and embracing our fears is a more effective strategy. From a perspective rooted in robotics or computer science, fear is a result of negative programming reinforced by certain behaviors. This understanding suggests that our thoughts and behaviors are influenced by programmed memories, and we have the power to change our emotions and actions by altering our thinking patterns.
Developing self-patience and cultivating supportive thinking can transform our fearful mindset into a confident and integrated approach. It is beneficial to redirect our attention towards thoughts and actions that build faith and confidence in ourselves. This simple act of choice, based on personal experience, has the potential to improve not only our trading results but also the overall quality of our lives.
In conclusion, mastering fear when trading requires a balanced approach. Understanding the nature of fear, controlling our focus, and acknowledging our fears while building confidence are essential steps in overcoming trading anxieties. By embracing our fears and adopting positive thinking patterns, we can navigate the trading landscape with greater resilience and achieve improved trading outcomes.
Trade well,
Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 07/14 07/14 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
REX 35.01 -0.03 35.6 2.03/1.02 1.48
IPI 24.10 0.15 24.57 22.91 1.66/0.83 1.64
MUSA 310.08 4.72 314.78 20.31/10.16 12.7
SNBR 30.45 -0.48 31.31 29.25 2.06/1.03 2.3
ARVN 24.16 -0.47 25.06 23.38 1.68/0.84 4.12
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
What a great run for US stocks of late, up a 4th straight day, with the S&P 500 topping the 4,500 level on Thursday for the first time since April 2022. The Nasdaq topped and held above the 14,000-level, also the highest since April 2022, as data showed for a second straight day that inflation moderated in June and came in below consensus estimates. With the latest gains, NYSE breadth has been positive by more than 2-1 for five straight days now as the risk-on mood in stocks surged and the dollar weakened to a 15-month low on inflation data.
Big tech stocks continued to charge higher as Amazon advanced on the back of its Prime Day sale, while chipmaker Nvidia also rose to new all-time highs along with the semi-index. All S&P sectors were higher excluding Energy, which is still up 3% on the week.
Market momentum remains clearly to the upside this year with Technology up 41% YTD, Communications up 41% as well and Consumer Discretionary up 35%. With inflation data in the rear view mirror, and a 25-bps hike "baked in" to the July FOMC meeting, earnings are the next market catalyst starting with the big banks on Friday and into next week.
Late day, big news was that St Louis Fed President and well-known "hawk" James Bullard announced he was stepping down in August, giving stocks another lift. Overall, it was just another wild day adding to a wild week going into an options expiration session next Friday during the Fed Bank quiet period.
Friday On The Week
-------------------- --------------------
Dow 34,509.03 113.89 +774.15 2.29%
Nasdaq 14,113.70 -24.87 +452.98 3.32%
S&P 500 4,505.42 -4.62 +106.47 2.42%
NYSE Volume 3.65B
NYSE Advancers 734
NYSE Decliners 2,224
Nasdaq Volume 5.37B
Nasdaq Advancers 1,339
Nasdaq Decliners 3,104
New Highs/Lows
07/07 07/10 07/11 07/12 07/13 07/14
--------------------------------------------
NYSE New Highs 54 81 148 216 174 112
NYSE New Lows 21 25 9 10 12 24
Nasdaq New Highs 57 73 145 227 275 185
Nasdaq New Lows 67 58 49 52 47 77
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "When Your Indicators Contradict The Trend"
Due to their overly sensitive nature, some technical indicators will turn in one direction while the price trend remains in the other. A rule of thumb - whenever a price trend and indicators are in conflict, always go with price until the trend is broken.
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 - 4505.42 July 14, 2023
52-Week High: 4527.76
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4750.04
Resistance 2: 4612.20
Resistance 1: 4558.81
Pivot: 4474.36
Support 1: 4420.97
Support 2: 4336.52
Support 3: 4198.68
NASDAQ Composite - 14113.70 July 14, 2023
52-Week High: 14232.11
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15271.37
Resistance 2: 14624.13
Resistance 1: 14368.91
Pivot: 13976.89
Support 1: 13721.67
Support 2: 13329.65
Support 3: 12682.41
Dow Industrials - 34509.03 July 14, 2023
52-Week High: 34712.28
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 36042.15
Resistance 2: 35155.57
Resistance 1: 34832.29
Pivot: 34268.99
Support 1: 33945.71
Support 2: 33382.40
Support 3: 32495.82
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, July 17, 2023: 17-Jul 8:30 am Empire State manufacturing survey Tuesday, July 18, 2023: 18-Jul 8:30 am U.S. retail sales 18-Jul 8:30 am Retail sales minus autos 18-Jul 9:15 am Industrial production 18-Jul 9:15 am Capacity utilization 18-Jul 10:00 am Business inventories 18-Jul 10:00 am Home builder confidence index Wednesday, July 19, 2023: 19-Jul 8:30 am Housing starts Thursday, July 20, 2023: 20-Jul 8:30 am Initial jobless claims 20-Jul 8:30 am Philadelphia Fed manufacturing survey 20-Jul 10:00 am Existing home sales 20-Jul 10:00 am U.S. leading economic indicators Friday, July 21, 2023: 21-Jul None scheduled 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: "Trendlines & Volume"
When expanding volume accompanies price action in the direction of a trendline, it confirms the trend. The same is true when volume dries up as prices retreat back to the trendline. However, if volume increases as prices pull back to a trendline, or if volume drops when prices pull away from a trendline, consider it a warning that the trendline may be in trouble.
Stocks Covered in This Issue
BASIC MATERIALS SECTOR
REX American Resources Corporation (REX: Basic Materials/Chemicals) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 35.01, REX is on our radar for a BUY entry at 35.6. If you purchase shares of REX, be sure to also place a trailing stop of 2.03. Snug it up to 1.02 on a 1.48 gain. Earnings Report Date: Aug 28, 2023. Beta: 0.93. Market-Cap: 609.517M. Optionable.
Intrepid Potash, Inc. (IPI: Basic Materials/Agricultural Inputs) - SQUEEZE PLAY. IPI 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 24.57 and a SELL short entry at 22.91. Once your trade is filled, enter a 1.66 trailing stop. Tighten it to 0.83 after a 1.64 gain. IPI closed on Friday at 24.10. Earnings Report Date: Aug 02, 2023. Beta: 2.09. Market-Cap: 317.122M. Optionable.
CONSUMER CYCLICAL SECTOR
Murphy USA Inc. (MUSA: Consumer Cyclical/Specialty Retail) - 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. MUSA's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 314.78. Use a 20.31 trailing stop, which should work well with MUSA's typical daily range. Tighten it to 10.16 on a 12.7 profit. MUSA closed at 310.08 on Friday. Earnings Report Date: Aug 02, 2023. Beta: 0.82. Market-Cap: 6.755B. Optionable.
Sleep Number Corporation (SNBR: Consumer Cyclical/Furnishings, Fixtures & Appliances) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in SNBR, 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 31.31 and a SELL short entry at 29.25. Let SNBR's price action determine your long or short entry. Once the order is filled, place a 2.06 trailing stop, and tighten it to 1.03 upon getting a 2.3 gain. SNBR closed Friday at 30.45. Earnings Report Date: Jul 27, 2023. Beta: 1.96. Market-Cap: 702.384M. Optionable.
HEALTHCARE SECTOR
Arvinas, Inc. (ARVN: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as ARVN'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 25.06 and a SELL short entry at 23.38. ARVN's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.68 trailing stop. Tighten it to 0.84 after you get a 4.12 gain. ARVN closed Friday at 24.16. Earnings Report Date: Aug 02, 2023. Beta: 1.76. Market-Cap: 1.29B. 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
---------------- ------- -------- ------- ------ -------
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
"Market Liquidity and Fund Flows"
You may remember from high school economics that business operates on the basic principle of "supply and demand." If there is a lot of demand for a limited amount of supply, prices will go higher, if there is more supply than demand, than prices will go lower. In the stock market, the principle works the same way. If there are more people who want to buy (demand) than there are people who want to sell (supply) prices will head higher, and visa versa.
Successfully forecasting short-term supply/demand for stocks can improve our odds as traders, but is it possible to do it? To find out, let's take a look at the providers of mutual fund flows and liquidity numbers to see how they can be helpful to traders.
- Who Provides the Mutual Fund Flow Data?
There are three premier companies that specialize in tracking flows in and out of mutual funds: Trim Tabs, AMG Data (Lipper), and the Investment Company Institute. Even though each company provides its own specific interpretation of the data, they all understand how important these flows are to the market.
At RightLine, we primarily use the TrimTabs reports. Trim Tabs Fund Flows report attempts to reliably forecast the Investment Company Institute's results by taking a sampling of approximately 850 statistically significant funds. The ICI numbers are more comprehensive, but are not always released as quickly as Trim Tabs.
- Trim Tabs
Trim Tabs is the only independent research service that publishes daily and weekly in-depth coverage of stock market liquidity going back to 1990. Charles Biderman, a former Barron's Financial Weekly editor, is the originator of the "Liquidity Theory". This view is based on the premise that the total market capitalization - price - is a function of liquidity, and has nothing to do with value.
The Mutual Fund Flows provided by TrimTabs is very popular with the media, but the Liquidity Report really gives a much broader picture of how money is shifting in and out of the market. TrimTabs considers liquidity a "coincident indicator" to stock prices. In other words, if we know where liquidity is heading, then we'll know where stock prices are heading at the same time.
The "Mutual Fund Flows" are the net amount of money either going in or out of mutual funds. Trim Tabs surveys over 850 equity and bond funds daily to calculate this figure. The flows are categorized as follows:
~ Total Equity Funds are made up of US Equity funds and International funds.
~ The US Equity funds include "Aggressive Growth", "Growth", and "Growth and Income" funds.
~ The Total Bond funds include Hybrid (stock and bond) funds, Government and GNMA bonds, Municipal Bonds, Corporate/Income/Global bond funds, and High Yield funds.
If US Equity funds show a significant inflow, the individual fund managers scramble to put the money to work in the market by buying stock. On the other hand, if there are major outflows from mutual funds, the fund managers liquidate stock to fulfill redemption requests from fund shareholders.
- Trim Tabs Liquidity Calculation
Liquidity is the difference between inflows and outflows of cash in the stock market over a given period of time. Trim Tabs calculates liquidity by adding US Equity Fund Inflows, two-thirds of newly announced cash takeovers, one-third of completed cash takeovers and subtracting new offerings.
Cash takeovers of publicly traded companies are considered a new inflow of cash into the market. On the other hand, new offerings (IPOs) are considered a drain on liquidity because they "use" money that would have been available for investing in the "previously-existing" stocks.
Liquidity tends to run higher during tax refund season and year-end bonus time, and lower near dates when people and companies have to pay their taxes.
The Trim Tabs website can be seen at https://www.trimtabs.com/.
- Investment Company Institute
The Investment Company Institute gets its data from ICI members, which represent 95 percent of the total investment company industry's assets.
The ICI web site shows similar information as the Trim Tabs Fund Flows, but as mentioned above, it covers a wider number of sources and isn't released as quickly.
ICI reports the assets of money market funds to the Federal Reserve Board each week and makes this data available to the public on a weekly basis. The Institute also reports monthly on three broad categories of funds. They are:
(1) Short-term funds which include tax-exempt money market funds;
(2) Taxable retail and institutional money market funds; and
(3) All funds other than money market funds - such as stock, income, corporate bond and municipal bond funds.
For more information you can visit ICI's website at: https://www.ici.org/new/index.html.
- AMG Data (Lipper)
AMG Data (Lipper) is another respected company that provides mutual fund flow information. They offer weekly aggregate and fund specific Money Flow reports on just about any sector. They maintain an archive of historical fund flow reports and year-end statistical data dating back to 1992 on all AMG sectors.
AMG collects and reports the numbers for all fund groups as soon as each company releases data. Vanguard, Fidelity, and American Funds report month-end numbers early the following month. Information on weekly reporting funds is for each week ended Wednesday. Monthly flows are calculated by combining weekly reported flows and monthly reported flows for each month.
AMG's "Cash Track" describes the rate at which money is coming into or going out of a sector. Most funds report weekly, and some report monthly, so AMG uses a 4-week moving average across the entire set of funds, even those that report less often. Weekly reporting funds include 93% of the share classes, which represent 75% of the total fund assets.
The AMG Data (Lipper) Services website is at https://www.lipperusfundflows.com.
Bottom Line: In conclusion, market liquidity and fund flow reports have historically been a timely indicator of investor sentiment and current demand. While liquidity and fund flows aren't something you would necessarily consider before each trade, this information can give you valuable insight into the market's current supply and demand situation.
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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