Notes From The Editor

Successful stock trading is based on repetitive events. For example, the constant fluctuation of price provides opportunity for profit. It is within this never-ending up and down movement that traders find opportunity.

One way to profit comes by repeatedly anticipating support and resistance levels where prices are most likely to either reverse or accelerate. These critical levels provide reasonably safe entry points. This is because entering positions near support or resistance zones delivers a larger slice of the profit pie when the trade is favorable, and a quick small loss when it isn't.

We often emphasize that before entering a trade you should carefully consider exactly what you will do and when you will do it once you are in the position. This thoughtful consideration is to be done in advance of entering a trade, and in fact is much more important than finding the "perfect" stock or entry.

When evaluating your "what" and "when" always include an exit plan for three possible scenarios. The first is to be used if the trade moves favorably, the second is used if the trade moves unfavorably, and the third is used if it doesn't move at all. Remember that your exit plan is in place BEFORE entering a trade. Pay attention to details and be sure to include the specific exit price when planning your stop-losses.

Also, when using the trailing stop method to lock in gains make certain that you know in advance the exact point you will adjust your trailing stop. Again, it's very important that you write down your exit plan specifics BEFORE you get in. When your trades are moving quickly and the phone is ringing while your dog is barking at the Fed- Ex driver knocking at your front door ... you'll be glad you did!

Here's to a good weekend,

Thomas Sutton, Editor

Quick List

    
Stock     07/29     07/29      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

MSB       27.27      1.36     27.92                    2.6/1.3       1.9
IMCR      46.14      1.14     46.81                  4.53/2.27       5.8
KYMR      22.03     -0.28     22.42      20.7        1.72/0.86      3.94
RVMD      22.59     -0.67     23.38     21.57        1.81/0.91       3.1
EE        22.14      0.04     22.92     21.13         1.79/0.9       3.2

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

The major US stock indexes were higher on Friday, as the final trading session of July locked in the largest monthly gain for the S&P 500 since August of 2020. The bullish move took place with upbeat earnings results from several important companies, including Amazon (AMZN $135), Exxon Mobil (XOM $97), Chevron (CVX $164) and Apple (AAPL $162). In other earnings news, Procter & Gamble (PG $139) and Intel (INTC $36) both fell short of quarterly projections and released disappointing guidance. A mixed economic calendar revealed employment costs were higher than expected, inflation continues to increase, and Chicago manufacturing activity decelerated more than analysts predicted. On the plus side, personal income and spending was up more than expected and consumer sentiment rebounded from record lows more than estimated. The USD/dollar was lower, treasuries were mixed, while oil prices and gold advanced upward.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 32,845.13   315.50      +945.84     2.97%
Nasdaq              12,390.69   228.09      +556.58      4.7%
S&P 500              4,130.29    57.86      +168.66     4.26%

NYSE Volume                      4.68B                       
NYSE Advancers                   2,316                       
NYSE Decliners                     912                       

Nasdaq Volume                    4.96B                       
Nasdaq Advancers                 2,674                       
Nasdaq Decliners                 1,883                       

                                 New Highs/Lows

                   07/22  07/25  07/26  07/27  07/28  07/29
                 --------------------------------------------
NYSE New Highs        16     25     21     33     44     42
NYSE New Lows         45     60     70     45     50     46
Nasdaq New Highs      43     55     52     58     84     91
Nasdaq New Lows       97    149    172    144    131    121
   

TRADER'S TIP: "Know Before You Go"

Before entering a trade, carefully plan "what you will do" and "when you will do it" once you are in the position. Actually, this is much more important than finding the "perfect" entry. And always include an exit plan for three possible scenarios: the trade moves favorably, unfavorably, or doesn't move at all. Be sure to include the specific exit price when planning stop-losses. When using the trailing stop method to lock in gains, make certain that you decide in advance at what point the trailing stop will be adjusted.

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 - 4130.29 July 29, 2022

52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4519.21
Resistance 2: 4289.80
Resistance 1: 4210.04
Pivot: 4060.39
Support 1: 3980.63
Support 2: 3830.98
Support 3: 3601.57

NASDAQ Composite - 12390.69 July 29, 2022

52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 13902.55
Resistance 2: 13009.66
Resistance 1: 12700.17
Pivot: 12116.77
Support 1: 11807.28
Support 2: 11223.88
Support 3: 10330.99
        
Dow Industrials - 32845.13 July 29, 2022

52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 34896.53
Resistance 2: 33691.71
Resistance 1: 33268.42
Pivot: 32486.89
Support 1: 32063.60
Support 2: 31282.07
Support 3: 30077.25
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, August 01, 2022:
01-Aug  9:45 am   
01-Aug  10 am   ISM manufacturing index
01-Aug  10 am   Construction spending

Tuesday, August 02, 2022:
02-Aug  10 am   Job openings
02-Aug  10 am   Quits

Wednesday, August 03, 2022:
03-Aug  9:45 am   
03-Aug  10 am   ISM services index
03-Aug  10 am   Factory orders
03-Aug  10 am   Core capital equipment orders (revision)
03-Aug  10 am   Rental vacancy rate
03-Aug  10 am   Homeowner vacancy rate

Thursday, August 04, 2022:
04-Aug  8:30 am   Initial jobless claims
04-Aug  8:30 am   Continuing jobless claims
04-Aug  8:30 am   Trade deficit

Friday, August 05, 2022:
05-Aug  8:30 am   Nonfarm payrolls
05-Aug  8:30 am   Unemployment rate
05-Aug  8:30 am   Average hourly earnings
05-Aug  8:30 am   Labor-force participation rate, ages 25-54


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

TRADER'S TIP: "The Buy and Hold Myth"

Most long-term investors like to believe they are unaffected by short- term price fluctuations in the market. However, since most buy-and- hold advocates have no Exit Plan or Risk Control Strategy to protect capital and profits, the emotions of fear and pain eventually come to bear, often forcing unprepared investors to sell under the worst conditions.

Stocks Covered in This Issue

BASIC MATERIALS SECTOR

Mesabi Trust (MSB: Basic Materials/Steel) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Friday's session to close at 27.27. Anticipate the rebound to continue, and be ready to buy MSB at 27.92. Follow your entry with a trailing stop of 2.6 which can be tightened to 1.3 on a 1.9 profit. Earnings Report Date: Sep 12, 2022. Beta: 0.87. Market-Cap: 357.782M. Optionable.

HEALTHCARE SECTOR

Immunocore Holdings plc (IMCR: Healthcare/Biotechnology) - BULLISH BOUNCE. Up-trending stocks like IMCR have a tendency to bounce their way skyward rather than travel higher in a straight line. After touching down to a moving average support level on Friday, IMCR is poised to lift off again. To take advantage of this setup, prepare to BUY shares at 46.81 if positive price action occurs. As always, follow your entry with a trailing stop. A 4.53 trailer should work well with IMCR. Tighten it to 2.27 on a 5.8 gainer. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.025B. Optionable.

Kymera Therapeutics, Inc. (KYMR: Healthcare/Biotechnology) - SQUEEZE PLAY. KYMR is caught in a dilemma. The stock's compressed price range on Friday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. KYMR is now at 22.03. We can capture price action either way by placing a BUY trigger at 22.42 and a SELL short trigger at 20.7. Once KYMR reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.72. When you acquire a 3.94 profit, tighten the stop to 0.86. Earnings Report Date: Aug 09, 2022. Beta: N/A. Market-Cap: 1.139B. Optionable.

Revolution Medicines, Inc. (RVMD: Healthcare/Biotechnology) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In RVMD's case we will enter a BUY should it reach the 23.38 level, or a SELL short trade if it drops to 21.57. As usual a trailing stop is essential, 1.81 which should be tightened to 0.91 on a 3.1 gain. RVMD closed Friday at 22.59. Earnings Report Date: Aug 09, 2022. Beta: 1.67. Market-Cap: 1.937B. Optionable.

UTILITIES SECTOR

Excelerate Energy, Inc. (EE: Utilities/Utilities-Renewable) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into EE. A move to the upside will trigger our BUY entry at 22.92, while a drop to 21.13 will trigger our SELL short entry. Follow your position with a 1.79 trailing stop. Tighten the stop to 0.9 once you have a 3.2 gain. EE closed Friday at 22.14. Earnings Report Date: Aug 11, 2022. Beta: N/A. Market-Cap: 2.397B. 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       2/1/2022   7/18/2022   20-for-1   Yes
Nasdaq Inc        NDAQ       7/20/2022  8/29/2022    3-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

Stops: One Size Doesn't Fit All

Knowing when to get out of a trade is every bit as important as knowing when to get in. Since the majority of our exits come as a result of our stops getting triggered, understanding the concepts and strategies behind setting those stops is critical to success.

Stops are the trader's first line of defense against trades that turn against you. Traders with longer time horizons will typically use much wider stops than short-term traders, so the best stop amount is not the same for everyone. As traders we are looking for stops that will take us out of a position before we incur significant losses, yet keep us in a trade if the stock is just wavering slightly before moving higher.

In this discussion we are assuming that traders are buying long positions rather than going short. However when going short the same concepts still apply, but in reverse.

When buying, it's usually best to set stops just below some type of support. When setting stops we have to identify the most significant support levels near the current price of the stock. At times the DMA (Daily Moving Average) will offer the strongest support, while in other cases a trend line or previous specific price level may provide stronger support.

Sometimes the best stop is the one set just below a specific price level. You may find that when a stock's price falls to a certain price level, demand increases and buyers begin to buy. This creates a "floor" or support level.

In contrast, you will find instances where a stock's price rises to a level where demand decreases and shareholders begin to sell. This is the "ceiling" or resistance level. The more times that the stock has bounced from a specific price level, the stronger the support or resistance.

When you see stocks that seem to have little or no consistent trend for any period of time, look to see if they tend to bounce back and forth between specific support and resistance points. If they do, these stocks can present great plays for short-term traders who buy just as the stock bounces off support.

Set your stop based on the daily trading range and continually move it upward using a trailing stop (see below) until it approaches resistance. Then tighten your stop. Once stopped out, wait for the next bounce off support and then repeat the process. Some traders will try to double the benefit offered by these range-bound stocks by going short as the stock bounces down from resistance and long on the bounce up from support.

If you buy a stock when it is breaking out to new highs, setting your stop at support may mean that you'll be exposed to quite a loss by the time the stock drops back to that level. Be sure to lower your position size so that the actual dollar risk is lessened.

Traders who intend to set their stops at one of these support levels should consider waiting for a pullback, and then buy on a bounce off of support rather than buying the breakout.

Buying breakouts is a momentum player's strategy. Very short term momentum traders often watch the stock as it climbs higher, set a close trailing stop mentally, and stay ready to pull the trigger when the stock slows or reverses its momentum.

As mentioned above, shorter-term traders normally use tighter stops. Using tighter stops translates into smaller losses if the stock turns south, but also increases the probability that you'll get jiggled out on a quick drop before the stock climbs higher. While these "unwanted" exits can sometimes be frustrating, they are just a part of the game for short-term traders.

NOTE: You can safely use larger stops by reducing your position size. The RightLine Risk Calculator makes it easy to select the optimum number of shares for a particular stop size.

We often talk about "Trailing Stops." A trailing stop is a stop that you move upward as the price of a stock appreciates. Here's how it works. You initially set a stop to minimize losses. Then as time goes on the trailing stop is adjusted in the profitable direction of the trade, which protects your gains.

Note that some brokers may not allow you to set an automatic "trailing stop." Depending on your broker, you may have to set a stop, and then when the stock appreciates, you cancel the initial stop and replace it with another higher stop. You then continue to move it up higher to protect your profit as the stock advances.

Some Pointers on Using Stops:

1. Decide where you will set your stop BEFORE YOU BUY.

2. Once you determine where to set your stop, calculate how many shares you can buy (position size) so that you will never risk more than 2% of your trading capital in one trade.

3. Set the stop the instant your buy order gets filled.

4. Move stops up as the stock rises, first to break even, then to protect profits. On a long position, NEVER lower a stop - only raise it.

5. As the stock moves up sharply, and looks like it may be "topping out" or if market conditions become unfavorable, tighten your stop, which will effectively employ an "up or out" strategy.

Different Stop Order Types

Note the difference between a stop-loss order and a stop-limit order. We recommend using "stop loss orders" rather than "stop-limit orders."

- Stop-Loss Orders

A stop-loss order is a sell order that will automatically turn into a market order to sell if the stop price is hit. A stop-loss order turns into a market order to sell when the stock's price reaches the stop price that you've set. This means that the stock will immediately be sold at the best available market price, regardless of what that price is, once your stop price is reached. If what you really want is to sell a stock if it falls to $X, you must use a stop market order.

- Stop-Limit Orders

A stop-limit order is a sell order that turns into a limit order to sell at a predetermined price after the stop price is hit. A limit order says in effect that you will sell only at a certain price or better. If the stock is dropping quickly or is gapped over, you may not be filled at your limit price and the stock could plummet as you continue to hold your shares.

Keep in mind that a stop-limit order may not fill even if the stock reaches the limit price. All limit orders are filled in sequence by the exchanges, so if the price changes due to the number of orders put in before yours, your order may not be filled.

More Pointers on Setting Stops

Another strategy is to set a stop below the previous or current day's low price. This technique is more effective on stocks with low volatility. It is a short-term approach for those who don't like to set wide stops. Once in a profitable position, some intermediate-traders may consider widening the stop loss or loosening the "trailer."

When you look at the chart of a stock, try to see which type of support and resistance has been strongest in the past. Probably the most important question you should ask yourself is "What level would I expect the stock to bounce up from?" The answer usually gives you a price level just above where you should set your stop.

- Average True Range (ATR)

Another good method is to take the Average True Range (ATR) over a number of days, multiply it by a chosen factor, and then place the stop an equal distance from the entry point of the trade. In order to prevent being stopped out by normal price movement, it is usually best to place the stop more than one ATR from the entry price. The main advantage of using an ATR stop is that it adapts very well to the current market environment. The distance from the entry point to the stop increases when market volatility is high, and decreases when volatility drops.

Most problems with the ATR Stop tend to occur when the short term ATR becomes much smaller than normal, and the narrow range stops result in being stopped out of the trade too soon. To prevent this, you can calculate two ATR stops - a shorter term 3 or 4 day ATR and a longer term 15 to 20 day ATR. Set your stops using whichever is the largest. This allows the stops to move away quickly but prevents them from moving in too close after a few unusually quiet days.

For quick bounce and reversal plays, you may not need (or want) the full range of the ATR. RightLine Chart users make a note that the default setting for the ATR indicator is 14 days, but you can change it by going to "Utilities" and "Parameters."

On any stock, there will be an assortment of choices that make reasonable stops. One size does not fit all. Among other factors, the stop to use will depend on your individual time frame and risk tolerance. With experience you can recognize the best levels and improve your chances of setting a successful stop.

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

The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.

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