July 16, 2024 - The RightLine Report
Notes From The Editor
How To Play The Bounce
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 - at least in my plan!
Trade well,
~Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 07/16 07/16 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
ROST 148.87 0.79 151.31 8.63/4.32 4.28
RGS 20.99 0.15 22.13 20.15 1.98/0.99 4.74
SOWG 22.02 -0.60 24.07 3.01/1.51 3.66
STVN 22.02 0.77 22.54 21.05 1.49/0.75 2.06
MTSI 117.30 3.65 119.09 8.81/4.41 5.84
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
Market Summary
Major stock indices ended higher on Tuesday, with small and mid-cap stocks outperforming their large-cap counterparts. Both the S&P 500 and Dow Jones Industrial Average achieved record highs. Sector performance was broadly positive, with industrial and materials stocks leading the gains. In global markets, Asia showed mixed results, while European markets closed lower. The USD/dollar strengthened against major currencies, and in the commodity markets, WTI oil declined on concerns over Chinese demand, while Bitcoin and gold prices moved higher.
Retail sales for June showed resilience, remaining flat compared to May, surpassing expectations of a 0.2% decline. Auto sales in June declined as anticipated, impacted by a cyberattack affecting numerous dealerships. This data suggests that consumer resilience remains robust, supporting ongoing economic growth, albeit likely at a slower pace than the above-trend growth observed in late 2023.
Bond yields saw a modest decrease, with the 10-year Treasury yield hovering around 4.16%. Bond markets are currently pricing in expectations for two Federal Reserve (Fed) interest-rate cuts this year, with a likelihood of more than 60% for a third cut in December. Recent statements from Fed officials indicate a shift in focus towards achieving a more balanced approach to inflation and employment goals, suggesting that rate cuts may be appropriate in the near term. We anticipate that continued moderation of core personal consumption expenditure (PCE) inflation towards the Fed's 2% target will likely prompt rate cuts, potentially as early as September and/or December of this year, supporting both the economy and financial markets.
Jul 15, 2024 Jul 16, 2024
-------------------- --------------------
Dow 40,211.72 210.82 40,954.48 742.76
Nasdaq 18,472.57 74.12 18,509.34 36.77
S&P 500 5,631.22 15.87 5,667.20 35.98
NYSE Volume 3.62B 4.05B
NYSE Advancers 1,625 2,276
NYSE Decliners 1,175 537
Nasdaq Volume 5.46B 5.82B
Nasdaq Advancers 2,549 3,306
Nasdaq Decliners 1,696 938
New Highs/Lows
07/09 07/10 07/11 07/12 07/15 07/16
--------------------------------------------
NYSE New Highs 91 141 279 305 304 419
NYSE New Lows 83 54 9 6 8 4
Nasdaq New Highs 149 180 275 318 349 499
Nasdaq New Lows 155 139 65 42 42 34
Stocks Covered Today Stock Splits
TRADER'S TIP: "The Big Kid On The Block"
The S&P 500 index is a powerful force for the market to reckon with, yet its influence varies from one individual stock to the next. This is one reason we include the "beta" for each stock we put into play - so that you will know how much effect movement in the S&P 500 has on YOUR stock!
For more on beta, click on this link: http://www.rightline.net/education/beta.html
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".
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, JULY 15 8:30 am Empire State manufacturing survey 12:00 pm Fed Chairman Powell speaks TUESDAY, JULY 16 8:30 am U.S. retail sales 8:30 am Retail sales minus autos 8:30 am Import price index 8:30 am Import price index minus fuel 10:00 am Business inventories May 10:00 am Home builder confidence index 2:45 pm Fed Gov. Adriana Kugler speaks WEDNESDAY, JULY 17 8:30 am Housing starts 8:30 am Building permits 9:15 am Industrial production 9:15 am Capacity utilization June 2:00 pm Fed Beige Book THURSDAY, JULY 18 8:30 am Initial jobless claims 8:30 am Philadelphia Fed manufacturing survey 10:00 am U.S. leading economic indicators FRIDAY, JULY 19 10:40 am New York Fed President Williams speaks 1:00 pm Atlanta Fed President Raphael Bostic speaks 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 TIP: "Stock Too Expensive?"
Sometimes traders are hesitant to buy a stock in the $75 to $150 range because it is priced "too high." Actually that price range holds no greater risk than a lower priced stock - if you just enter smaller positions. To do this properly, be sure to use the RightLine Risk Control Calculator 100% of the time. It converts every position to a "low risk" trade, and allows you to take advantage of the more rapid price movement that more expensive stocks often enjoy. You can access it at http://www.rightline.net/rcc/index.html using your email address and password.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Ross Stores, Inc. (ROST: Consumer Cyclical/Apparel Retail) - NEW HIGH DIP. The best stocks move steadily higher in a two-steps-forward and one-step-back series of repetitive new highs. ROST reached a new 52-week high a few days ago and has since retreated into Tuesday's encounter with moving average support. A bounce appears to be in the making, so prepare to pick up a few shares should ROST move up to our BUY trigger at 151.31. Post a 8.63 trailing stop which should be tightened to 4.32 after gaining 4.28. Earnings Report Date: Aug 15, 2024. Beta: 1.09. Market-Cap: 49.659B. Optionable.
Regis Corporation (RGS: Consumer Cyclical/Personal Services) - SQUEEZE PLAY. The ticker for Tuesday's session shows RGS is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 22.13 and a SELL short trigger at 20.15. When RGS starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.98 trailing stop. Upon reaching a 4.74 profit, resize the stop to 0.99. Earnings Report Date: Aug 21, 2024. Beta: 2.50. Market-Cap: 47.856M. Optionable.
CONSUMER DEFENSIVE SECTOR
Sow Good Inc. (SOWG: Consumer Defensive/Packaged Foods) - NEW HIGH DIP. Another high-flyer, SOWG just recently set a new 12-month max price. Having dipped since then, SOWG's bullish response to an encounter with moving average support on Tuesday shows that the stock may be ready for another move skyward. Now at 22.02, an upward push to 24.07 will signal a BUY entry. Once in the trade, place a 3.01 trailing stop which can be tightened to 1.51 once you've gained 3.66. Earnings Report Date: N/A. Beta: 2.00. Market-Cap: 223.336M. Optionable.
HEALTHCARE SECTOR
Stevanato Group S.p.A. (STVN: Healthcare/Medical Instruments & Supplies) - SQUEEZE PLAY. Tuesday's trading session left STVN in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 22.54 and your SELL short trigger at 21.05. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.49 trailing stop. Once you have a 2.06 profit, reduce the stop to 0.75. Earnings Report Date: N/A. Beta: 0.58. Market-Cap: 6.006B. Optionable.
TECHNOLOGY SECTOR
MACOM Technology Solutions Holdings, Inc. (MTSI: Technology/Semiconductors) - 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 117.30, MTSI is on our radar for a BUY entry at 119.09. If you purchase shares of MTSI, be sure to also place a trailing stop of 8.81. Snug it up to 4.41 on a 5.84 gain. Earnings Report Date: Aug 1, 2024. Beta: 1.69. Market-Cap: 8.458B. 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
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.
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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