July 2, 2022 - The RightLine Report
Notes From The Editor
The terms "conservative" and "aggressive" are familiar to most investors. Mutual funds often have these words in their descriptions, and financial advisors will talk about the various strategies you can use. The basic premise is simple: risk more with the potential to make more money, or reap smaller gains with less risk.
It's also important for traders to have the right strategic posture. But what exactly does "aggressive" and "conservative" mean when you're trading?
The types of set-ups you take reflect your strategic posture. Let's say you're targeting a long entry in a stock that's trading under some resistance. You're aware of this, but want to jump in earlier to capitalize on current momentum. You're assuming that the equity will be able to clear that resistance. This is an aggressive approach. A conservative strategy would wait until resistance has been cleared before pulling the trigger.
Volatility also plays a role. Looking at a stock's Average True Range (ATR), or daily price swings, gives you a sense for how fast it usually moves. Aggressive traders tend to prefer stocks with higher ATRs, while conservative types gravitate toward tickers that tend to have more gradual movement.
A bit of top-down sector analysis helps here. Internets stocks, for example, are usually far more volatile than utilities. Knowing the current tendencies of a sector can help you zero in on set-ups that fit your risk tolerance.
Striking a balance is sometimes the best approach. There's no rule that says you can't have conservative and aggressive positions open at the same time. I've found a mix to be the most effective in terms of growing an account over time. Experiment to find your own balance - but as always, remember to use risk management techniques to protect yourself from intolerable losses.
Have a great weekend!
Kent Barton
Senior Analyst
Note: The markets will close for the USA Independance 4th of July Holiday on Monday July 4th. We wishe you the very best as we celebrate the freedom that we enjoy in this great nation!
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 07/01 07/01 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
FL 25.10 -0.15 25.89 23.8 2.09/1.05 2.12
EDU 20.23 -0.13 21.15 19.08 2.07/1.04 3.12
BPT 21.24 0.77 22 19.57 2.43/1.22 4.28
NOAH 20.33 0.10 20.79 1.78/0.89 1.82
LSPD 22.68 0.38 23.42 21.42 2/1 3.28
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
US stocks kicked off the third quarter with a bullish session on Friday ahead of a long Independence Day Holiday weekend. Traders continue to wrestle with recession concerns, which have increased as monetary policies tighten and economic data suggests slowing activity. On that note, reports show that manufacturing activity slowed in June, while construction spending surprisingly decreased in May. In equities, shares of Kohl's Corporation (KSS $29) dropped after the retailer called off takeover negotiations with Franchise Group (FRG $32), and Micron Technology (MU $52) beat earnings estimates but released guidance well below expectations. The USD/dollar, oil prices and treasuries were higher, gold finished near even.
Friday On The Week
-------------------- --------------------
Dow 31,097.26 321.83 -403.42 -1.28%
Nasdaq 11,127.85 99.11 -479.77 -4.13%
S&P 500 3,825.33 39.95 -86.41 -2.21%
NYSE Volume 4.1B
NYSE Advancers 2,412
NYSE Decliners 805
Nasdaq Volume 4.89B
Nasdaq Advancers 2,755
Nasdaq Decliners 1,719
New Highs/Lows
06/24 06/27 06/28 06/29 06/30 07/01
--------------------------------------------
NYSE New Highs 10 14 12 9 12 12
NYSE New Lows 68 65 89 199 342 205
Nasdaq New Highs 33 26 34 13 18 15
Nasdaq New Lows 147 145 191 346 535 318
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Trends vs. Trading Ranges"
"Money management tactics are different in trends and trading ranges. It pays to put on a smaller position in a trend but use a wider stop. Then you will be less likely to get shaken out by reactions while you keep risk under control. You may put on a bigger position in a trading range but use a tighter stop."
~ Alex Elder
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 - 3825.33 July 1, 2022
52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4251.00
Resistance 2: 4043.81
Resistance 1: 3934.57
Pivot: 3836.62
Support 1: 3727.38
Support 2: 3629.43
Support 3: 3422.24
NASDAQ Composite - 11127.85 July 1, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 12873.40
Resistance 2: 12045.92
Resistance 1: 11586.88
Pivot: 11218.45
Support 1: 10759.40
Support 2: 10390.96
Support 3: 9563.49
Dow Industrials - 31097.26 July 1, 2022
52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 34044.51
Resistance 2: 32591.29
Resistance 1: 31844.27
Pivot: 31138.07
Support 1: 30391.05
Support 2: 29684.85
Support 3: 28231.63
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, July 04, 2022: 04-Jul Independence Day holiday. None scheduled Tuesday, July 05, 2022: 05-Jul 10 am Factory orders 05-Jul 10 am Core capital equipment orders revision Wednesday, July 06, 2022: 06-Jul 9:45 am 06-Jul 10 am ISM services index 06-Jul 10 am Job openings 06-Jul 10 am Quits Thursday, July 07, 2022: 07-Jul 8:15 am ADP employment report (monthly change) 07-Jul 8:30 am Initial jobless claims 07-Jul 8:30 am Continuing jobless claims 07-Jul 8:30 am Foreign trade balance Friday, July 08, 2022: 08-Jul 8:30 am Nonfarm payrolls (monthly change) 08-Jul 8:30 am Unemployment rate 08-Jul 8:30 am Average hourly earnings 08-Jul 8:30 am Labor force participation rate, 25-54 08-Jul 10 am Wholesale inventories revision 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: "The Bigger The Profit, The Tighter The Stop"
As your profits in a trade grow, be sure to tighten up your stops. However this doesn't mean that you should attempt to guess where the "top" is. To consistently get the most out of each trade, be willing to stay in a position until your stop takes you out of the trade. It's okay to be slightly late to take profits, just be sure to set your stops to allow for normal intra-day price fluctuations. A good exit strategy doesn't usually get you out at the "perfect" moment. Why? Because a properly set trailing stop is always wide enough to keep you in the trade long enough to get NEAR the top. Keep in mind that if you do get shaken out too early, you can always get back in if conditions merit.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Foot Locker, Inc. (FL: Consumer Cyclical/Apparel Retail) - SQUEEZE PLAY. FL shareholders know what it feels like to be squeezed. Friday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. FL closed Friday at 25.10. The plan is to enter in the right direction by placing a BUY trigger at 25.89 and a SELL short trigger at 23.8. Once FL establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 2.09. After you've collected a 2.12 profit, tighten the stop to 1.05. Earnings Report Date: Aug 18, 2022. Beta: 1.26. Market-Cap: 2.372B. Optionable.
CONSUMER DEFENSIVE SECTOR
New Oriental Education & Technology Group Inc. (EDU: Consumer Defensive/Education & Training Services) - SQUEEZE PLAY. In certain stocks a tightly constricted price range is a sign that neither bulls nor bears are confident of winning in the near term. This often means that the side that gives up first causes a quick move in the opposite direction. In these fear dominated skirmishes, opposing traders always benefit from the retreat. In the Squeeze Play setup you can actually play both sides of the inevitable surge. EDU traders reached this state of stand-off on Friday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 21.15 and a SELL short trigger at 19.08. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 2.07 which can be tightened to 1.04 on a 3.12 gain. EDU closed Friday at 20.23. Earnings Report Date: Sep 12, 2022. Beta: 0.79. Market-Cap: 3.433B. Optionable.
ENERGY SECTOR
BP Prudhoe Bay Royalty Trust (BPT: Energy/Oil & Gas Refining & Marketing) - SQUEEZE PLAY. BPT traders on both sides of the fence are now locked in a head-to-head shootout. Friday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 22 and a SELL short trigger at 19.57. When one of the orders is filled, cancel the remaining order and enter a 2.43 trailing stop. When you've reached a 4.28 paper profit, tighten the stop to 1.22. BPT closed at 21.24 on Friday. Earnings Report Date: N/A. Beta: 0.11. Market-Cap: 454.536M. Optionable.
FINANCIAL SERVICES SECTOR
Noah Holdings Limited (NOAH: Financial Services/Asset Management) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, NOAH fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 20.33, plan to buy shares at 20.79 and use a 1.78 trailing stop. Tighten the stop to 0.89 on a 1.82 gain. Earnings Report Date: Aug 15, 2022. Beta: 1.33. Market-Cap: 1.224B. Optionable.
TECHNOLOGY SECTOR
Lightspeed Commerce Inc. (LSPD: Technology/Software-Application) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. LSPD found itself in this condition on Friday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 23.42 and a SELL short trigger at 21.42. When LSPD moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2 trailing stop. After you've got a 3.28 profit, tighten the stop to 1. LSPD closed at 22.68 on Friday. Earnings Report Date: Aug 03, 2022. Beta: 3.19. Market-Cap: 3.387B. 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
---------------- ------- -------- ------- ------ -------
Amazon AMZN 3/9/2022 6/6/2022 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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Buying The Pullback
Buying the pullback makes good sense after a strong rally, but it's a great way to lose money if you jump in too early or too late.
How can you find perfect timing when it comes to this classic play? The key lies in reading the clues of the charting landscape. It's natural for markets to correct after big rallies. This countertrend move lowers the emotional fires and sets up the ideal conditions for a swing back to higher prices.
But any pullback can turn into a reversal and trap your position in a downward spiral. So let's look at the types of pullbacks we want to buy and those that should be avoided at all costs.
Volume presents important evidence about a stock's intentions when it starts to pull back. Look for selling to contract when bars test lower prices. The most bullish volume shows a steady downslope in the histograms under the price bars. This suggests shareholders are hanging tough because they believe in higher prices. Alternatively, big red volume spikes show fear and may signal important tops.
Don't trade a pullback against a gap. There are two types of gaps you need to worry about. The first shows up on a high-volume move near the end of the rally. This corresponds with an exhaustion gap that warns traders a reversal is near. It also marks resistance after a stock finds support on the pullback and starts to rally again.
Second, don't buy into a gap down when the stock is pulling back unless it gets filled the same day. This is a tough one because falling stocks often find support right after the longs give up and sell into a gap down opening. The problem comes when the gap doesn't fill by day's end. This prints a bearish reversal on the price chart and attracts more selling.
The simplest entry comes from a pullback into a strong support level. Trend lines, old highs and Bollinger Bands ease selling pressure, and allow buyers to carry the market back in the other direction. The biggest problem with these falling-knife entries is usually psychological. The trader loses confidence while watching the intensity of the selloff and fails to act when it's time to pull the trigger.
A trip down to the 50-day moving average offers an excellent opportunity for dip buyers who want to hold positions for a few days or a few weeks. This price zone usually marks strong support after a rally. A market pulling back here also suggests early dip buyers got beat up on the ride down.
Pullbacks tend to feed on traders who buy too early. In other words, they buy and the market drops, stopping them out and forcing prices even lower. This downward spiral continues until prices reach a large pool of buying interest. This fresh demand often sits right at the 50- day moving average.
Many traders use Fibonacci retracements to uncover hidden support on a pullback. But this is a lot harder than it looks. Stocks commonly drop to three different retracement levels, and you can lose a lot of money when you pick the wrong one. Fortunately there are ways to focus in and locate the most likely support level. Put the odds squarely in your favor by standing aside until price reaches a deep retracement that corresponds with other types of support. This means the safest strategy is to focus on the 62% retracement and look for intermediate averages or old highs at the same prices. This process is called cross-verification. It works because it's self- fulfilling. Different traders look for different types of support in various pullback scenarios. Finding convergence of multiple support types at narrow price levels taps into this broad set of buying signals.
The intraday chart holds the key to pullback profits. Often, it's hard to make sense of a market pulling back on a daily chart. Fortunately trends evolve in all time frames, and traders can use the intraday chart to uncover hidden support and resistance levels.Focus on the 60-minute chart because this gives you many days of intraday price bars to work with. Pull one up when you see a correction in progress, and start searching for common patterns, such as bull flags or double bottoms. These inflection points reveal low- risk entry prices for positions taken in much longer time frames.
This special guest 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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