Notes From The Editor

There's no question that traders who learn to anticipate when and where profitable price action is likely to occur are more successful than those who don't. Fortunately this type of anticipation is a trading skill that can be learned quickly, and then easily plugged into your current trading plan.

When it comes to anticipating good trading setups, it always pays to look both ways. First you simply look backward to locate price zones of support and resistance where significant reversals took place in the past. Then you look forward in anticipation of your stock reaching the same price zone in the days ahead.

A good way to do this is to review price charts in a longer period than your usual trading time frame. For example, if you normally trade daily charts, shift up to weekly charts to look for pivot highs and lows that will soon come into play. Take note that previous support and resistance levels dating as far back as weeks, months and even years will influence current price action.

Winning traders are skilled opportunists. Anticipating price movement gives you a distinct advantage in the market by making it easier to locate premium profit opportunities. However, to find the optimum setups you must get accustomed to periods of waiting.

Stocks spend a lot of time moving toward or away from previous price levels where significant support and resistance zones exist. You have to be willing to wait for price to move into these areas. Once a stock reaches one of these zones, the probability of either a reversal or rapid acceleration increases dramatically.

Typically a brief period of volatile price action takes place within the zone at a previously pivotal level. Following this heated skirmish, the stock will usually commit to moving in one direction. Once the price direction is established you can enter trades in the same direction with little risk.

Trade well!

- Thomas Sutton, Editor

Quick List

    
Stock     07/15     07/15      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

AMLX      20.50      0.20     21.27                    1.8/0.9      4.36
AMPH      36.99      1.43     37.83                  3.75/1.88      3.02
BCYC      20.98      0.12     21.48     19.33        2.15/1.08      2.94
LAW       21.54      0.58      22.3     20.22        2.08/1.04      2.66
FROG      22.06     -0.01     22.78     21.14        1.64/0.82      2.24

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 rallied on Friday following the release of upbeat economic data, yet the positive move wasn't quite enough to put the major indices into the bullish zone for the week. The headlines included June retail sales increasing more than expected, consumer sentiment up from recent record lows, July manufacturing output in New York surging into expansion territory, and cooler than expected import price inflation. However, capacity utilization and industrial production reports were below forecasts. Earnings news dominated the equities front, with Wells Wells Fargo & Company (WFC $41) falling short of expectations yet offering encouraging net interest income performance and guidance, while Citigroup (C $50) and UnitedHealth Group (UNH $530) both announced strong quarterly earnings. Treasuries and oil prices were higher, gold and the USD/dollar declined.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 31,288.26   658.09       -49.89    -0.16%
Nasdaq              11,452.42   201.24      -182.89    -1.57%
S&P 500              3,863.16    72.78       -36.22    -0.93%

NYSE Volume                      4.19B                       
NYSE Advancers                   2,653                       
NYSE Decliners                     571                       

Nasdaq Volume                    4.38B                       
Nasdaq Advancers                 3,176                       
Nasdaq Decliners                 1,344                       

                                 New Highs/Lows

                   07/08  07/11  07/12  07/13  07/14  07/15
                 --------------------------------------------
NYSE New Highs         7      5     10      3      3      9
NYSE New Lows         56    132    158    211    379     90
Nasdaq New Highs      27     23     23     23     17     38
Nasdaq New Lows       83    182    211    297    448    166
   

TRADER'S TIP: "Changing Your RightLine Subscriber Acct Info"

RightLine Subscribers can easily change their account preferences and other information. Simply go to https://www.rightline.net/preferences/lookup.html.

There are several items you can change in this section. For example, you can choose whether to receive the RightLine Report in html with color and graphics, or just plain text. You can also choose to turn the Split & Buyback email alerts "on" or "off." You can change your password and other contact information too.

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 - 3863.16 July 15, 2022

52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4140.64
Resistance 2: 3981.26
Resistance 1: 3922.21
Pivot: 3821.88
Support 1: 3762.83
Support 2: 3662.50
Support 3: 3503.12

NASDAQ Composite - 11452.42 July 15, 2022

52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 12403.49
Resistance 2: 11868.32
Resistance 1: 11660.37
Pivot: 11333.15
Support 1: 11125.20
Support 2: 10797.98
Support 3: 10262.81
        
Dow Industrials - 31288.26 July 15, 2022

52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 33380.48
Resistance 2: 32156.86
Resistance 1: 31722.56
Pivot: 30933.24
Support 1: 30498.94
Support 2: 29709.62
Support 3: 28486.00
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, July 18, 2022:
18-Jul  10 am   NAHB home builders' index

Tuesday, July 19, 2022:
19-Jul  8:30 am   Building permits (SAAR)
19-Jul  8:30 am   Housing starts (SAAR)

Wednesday, July 20, 2022:
20-Jul  10 am   Existing home sales (SAAR)

Thursday, July 21, 2022:
21-Jul  8:30 am   Initial jobless claims
21-Jul  8:30 am   Continuing jobless claims
21-Jul  8:30 am   Philadelphia Fed manufacturing index
21-Jul  10 am   Leading economic indicators

Friday, July 22, 2022:
22-Jul  9:45 am   S&P Global U.S. manufacturing PMI (flash)
22-Jul  9:45 am   S&P Global U.S. services PMI (flash)


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

TRADER'S TIP: "Choose Courage"

"Being a successful trader also takes courage; the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when the going gets tough."

~ Michael Marcus

Stocks Covered in This Issue

HEALTHCARE SECTOR

Amylyx Pharmaceuticals, Inc. (AMLX: Healthcare/Biotechnology) - BULLISH BOUNCE. AMLX has charted an upward weekly trend until recently when sellers showed up to push prices lower. On Friday the selling ran into solid support. A potential bounce up from this level should attract buyers and likely return AMLX to the previously established uptrend. The Bullish Bounce set-up is the basis for our BUY entry, so be ready to go long on a rise to our trigger at 21.27. Set a trailing stop of 1.8, tightening to 0.9 on a 4.36 profit. AMLX closed at 20.50 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.2B. Optionable.

Amphastar Pharmaceuticals, Inc. (AMPH: Healthcare/Drug Manufacturers-Specialty & Generic) - BULLISH BOUNCE. This trader-friendly setup turns repetitive stock behavior into real profits. Based on the tendency for up-trending stocks to drop briefly and then resume the up-trend, the Bullish Bounce places traders into excellent stocks when conditions are primed for more skyward movement. AMPH's current price action near moving average support signals a potential BUY entry at 37.83, followed by a 3.75 trailing stop which can be tightened to 1.88 upon earning 3.02. AMPH closed Friday at 36.99. Earnings Report Date: Aug 08, 2022. Beta: 0.67. Market-Cap: 1.806B. Optionable.

Bicycle Therapeutics plc (BCYC: Healthcare/Biotechnology) - SQUEEZE PLAY. BCYC 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 21.48 and a SELL short entry at 19.33. Once your trade is filled, enter a 2.15 trailing stop. Tighten it to 1.08 after a 2.94 gain. BCYC closed on Friday at 20.98. Earnings Report Date: Aug 03, 2022. Beta: 0.53. Market-Cap: 622.026M. Optionable.

TECHNOLOGY SECTOR

CS Disco, Inc. (LAW: Technology/Software-Application) - SQUEEZE PLAY. Traders are feeling the pressure as LAW'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 22.3 and a SELL short entry at 20.22. LAW's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.08 trailing stop. Tighten it to 1.04 after you get a 2.66 gain. LAW closed Friday at 21.54. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.263B. Optionable.

JFrog Ltd. (FROG: Technology/Software-Application) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in FROG, 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 22.78 and a SELL short entry at 21.14. Let FROG's price action determine your long or short entry. Once the order is filled, place a 1.64 trailing stop, and tighten it to 0.82 upon getting a 2.24 gain. FROG closed Friday at 22.06. Earnings Report Date: Aug 03, 2022. Beta: N/A. Market-Cap: 2.18B. 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  
---------------- -------     --------    -------     ------  -------   
Gamestop          GME        7/7/2022   7/22/2022    4-for-1   Yes
Alphabet          GOOG       2/1/22     7/18/22     20-for-1   Yes    

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

"How Important Is A High Percentage of Winners?"

I sometimes see advertisements for trading services that proudly proclaim an ultra-high percentage of winners. These ads remind me of my early trading days. Like most rookies, I thought that a high percentage of wins was necessary to be successful. A lot of water has flowed under the trading bridge since then. I've learned that things aren't always as they seem - especially in the stock market!

Here's an example of what I mean - pretend for a minute that we're at the local county fair. As we walk down the fairway there are two games of chance side by side. The guy at the first booth leans over the counter and says, "Give it a try - a dollar a play, four out of 10 winners every time!"

At the next booth the fellow behind the counter shouts, "Step right up - a buck a play, six out of 10 winners guaranteed." Assuming that we're there to have fun (and make a little money if we get lucky), which game should we play?

At first glance it looks simple. Both games cost the same per play, but one has a higher percentage of winners. Of course we would take the six-out-of-ten game over the four-out-of-ten-game. But what if we took a step closer and found that the lower odds game paid out $4 for each winner, but the second game paid only $2. How would that affect our choice?

Now lets do the math. The first game costs $10 for ten plays, with four winners at $4 each. That's 4 times $4, or $16 in winnings. Subtract the $10 to play and we're left with $6 profit. The second game costs the same to play, but we end up with six winners. That's 6 times the $2 payoff for each winner, or $12 total minus the $10 to play leaves us with $2.

It's clear in this case that the lower percentage game pays off the most because each winner is twice the amount as in game two. In other words, the same amount invested in a lower percentage game produced three times the profits because the payoff per winner is higher.

It's obvious in this example that the higher reward to risk ratio in the first game was a very important component in the profitability of the game. That exact same aspect is true in trading stocks. While our intuition may tell us that a trading method with a very high percentage of winners is always "better," logic indicates otherwise. Not only should we consider the percentage of winners when deciding which strategy to use, but we should also consider the reward to risk ratio.

All things being equal, a high percentage approach will produce higher profits. However, there is a severe penalty for pushing too hard toward a high percentage of wins. The unpredictable and relatively efficient nature of the stock market insures that traders who follow this approach will be forced into two very damaging situations - smaller profits and larger losses.

To maintain the high number of winners, traders are forced to limit the reward for each trade and take quick profits. Strategies that depend on small profits are capable of high winning percentages, yet to achieve this high win-to-loss ratio they also have to take on more risk per trade.

If they limit the amount of risk or loss per trade, the percentage of winners drops too. A study of different trading systems by Keener Capital Management show that higher winning percentages are characteristic of the worst performing strategies. By contrast, strategies with lower winning percentages were the most profitable.

In summary, a high percentage of wins don't necessarily mean more profit. Robust trading strategies require risk control tactics that include reasonable stop placement.

Instead of trying to maintain a very high win-to-loss ratio, traders will benefit more by focusing on trade management to arrive at a profitable balance between risk and reward. A simple yet extremely effective guideline is to:

- Limit losses to reasonable amounts

- Use trailing stops to lock in accumulating profits

- Let the winners grow!

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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