June 11, 2022 - The RightLine Report
Notes From The Editor
Back in my greenhorn trading days, I made a number of stupid mistakes - repeatedly. One of the most frustrating was when I would find a great set-up, lose confidence and fail to pull the trigger, and then watch the trade play out exactly as I had expected.
This scenario is inevitable for any trader; there will always be the "ones that got away." What's important is that it doesn't happen constantly.
One of the best remedies for trigger-shy traders is a pre- entry checklist that you run through every time - much like a pilot goes through a safety checklist before takeoff. The checklist helps you defeat two kinds of fear: loss of money and loss of opportunity.
Proper risk management is the best way to ensure that your account won't take too big of a hit if the trade turns against you. If you've determined ahead of time how big your positions will be, as well as your stop-loss, you've already got a worst-case scenario for the trade.
Those who trade small-cap equities should also verify that the average daily volume (ADV) is a bare minimum of 20,000 shares. Anything under that could spell trouble in terms of liquidity and unexpected price swings.
The fear of missing out on a better opportunity can be especially high if most of your trading capital is already tied up in other positions. It's very easy to justify not pulling the trigger when you tell yourself "there are better places to put my money."
With so many possible set-ups out there, you should only take the ones that fit with your personal goals and trading style. The way to make sure this happens is to verify that the equity has sufficient volatility for your timeframe. You can check both a stock's Beta (its volatility versus the S&P 500) and its recent trading range to get a good sense for what it might do once you jump onboard.
That said, here's an example of a quick checklist that a trader might run through before entering a trade. If all these conditions are met, it's simply a matter of sending the order and waiting to see how things play out. No more balking!
- Beta is more than 1.50
- Average Daily Volume is greater than 30,000 shares
- Average Trading Range over the past week has been more than 3% per day
- The risk/reward ratio is at least 1:2.5
- The proper number of shares have been calculated
- Stop-loss placement has been determined
Have a great week!
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 06/10 06/10 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
PINS 19.23 -1.02 18.56 1.91/0.96 2.96
EDR 21.28 -1.17 22.38 20.63 1.75/0.88 2.66
CAKE 30.48 -1.57 29.47 2.85/1.43 3.6
CVNA 22.01 -1.12 24.05 20.95 3.1/1.55 13.46
CLDX 21.67 -0.17 22.34 20.36 1.98/0.99 4.38
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
The major US stock indexes were solidly lower on Friday, as selling followed an unexpected acceleration in domestic consumer price inflation for May. With the inflation rate now at a 40-year high, consumer sentiment also dropped much more than anticipated as the preliminary University of Michigan Consumer Sentiment Index now shows consumer confidence at a new record low. In equity headlines, Advanced Micro Devices (AMD $96) presented an upbeat long-term outlook at Investor Day, yet warned of a weak PC market this year, while DocuSign (DOCU $67) announced disappointing earnings results and lowered its billings expectations. Gold was sharply higher, the USD/dollar rallied, oil prices declined and treasuries were lower, raising yields.
Friday On The Week
-------------------- --------------------
Dow 31,392.79 -880.00 -1506.91 -4.58%
Nasdaq 11,340.02 -414.20 -672.71 -5.6%
S&P 500 3,900.86 -116.96 -207.68 -5.05%
NYSE Volume 4.93B
NYSE Advancers 521
NYSE Decliners 2,768
Nasdaq Volume 5.15B
Nasdaq Advancers 933
Nasdaq Decliners 3,758
New Highs/Lows
06/03 06/06 06/07 06/08 06/09 06/10
--------------------------------------------
NYSE New Highs 50 83 98 91 12 4
NYSE New Lows 25 54 66 51 111 251
Nasdaq New Highs 37 66 55 50 25 23
Nasdaq New Lows 136 201 180 124 177 464
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Raindrops Keep Fallin' On My Head"
According to the Hulbert Digest, professors from Ohio State and the University of Michigan found that weather had a strong impact on the stock markets of 26 countries around the globe between 1982 and 1997. Specifically, those stock markets went up more than average when it was sunny in the cities where the markets were located, and declined more than average when it was cloudy.
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 - 3900.86 June 10, 2022
52-Week High: 4818.62
52-Week Low: 3810.32
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4527.17
Resistance 2: 4258.55
Resistance 1: 4079.70
Pivot: 3989.93
Support 1: 3811.08
Support 2: 3721.31
Support 3: 3452.69
NASDAQ Composite - 11340.02 June 10, 2022
52-Week High: 16212.23
52-Week Low: 11035.69
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13472.15
Resistance 2: 12555.02
Resistance 1: 11947.52
Pivot: 11637.89
Support 1: 11030.39
Support 2: 10720.76
Support 3: 9803.63
Dow Industrials - 31392.79 June 10, 2022
52-Week High: 36952.65
52-Week Low: 30635.76
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35700.39
Resistance 2: 33852.86
Resistance 1: 32622.82
Pivot: 32005.33
Support 1: 30775.29
Support 2: 30157.80
Support 3: 28310.27
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, June 13, 2022: 13-Jun 11 am NY Fed 1-year inflation expectations 13-Jun 11 am NY Fed 3-year inflation expectations Tuesday, June 14, 2022: 14-Jun 6 am NFIB small-business index 14-Jun 8:30 am Producer price index final demand Wednesday, June 15, 2022: 15-Jun 8:30 am Retail sales 15-Jun 8:30 am Retail sales excluding vehicles 15-Jun 8:30 am Import price index 15-Jun 8:30 am Empire state manufacturing index 15-Jun 10 am NAHB home builders index 15-Jun 10 am Business inventories 15-Jun 2 pm FOMC statement 15-Jun 2 pm FOMC projections 15-Jun 2 pm Fed Chair Jerome Powell news conference Thursday, June 16, 2022: 16-Jun 8:30 am Initial jobless claims 16-Jun 8:30 am Continuing jobless claims 16-Jun 8:30 am Building permits (SAAR) 16-Jun 8:30 am Housing starts (SAAR) 16-Jun 8:30 am Philadelphia Fed manufacturing index Friday, June 17, 2022: 17-Jun 9:15 am Industrial production index 17-Jun 9:15 am Capacity utilization 17-Jun 10 am Leading economic indicators 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: "Four Cornerstones of Successful Trading"
The four primary objectives of a Trader are to:
1. Clearly define how you see the market.
2. Know under what circumstances you will enter it.
3. Determine in advance what has to happen for you to accept that your trade is or isn't working.
4. Know when to exit your position.
Stocks Covered in This Issue
COMMUNICATION SERVICES SECTOR
Pinterest, Inc. (PINS: Communication Services/Internet Content & Information) - BEARISH U-TURN. The weekly trend for PINS is down, but recent daily price activity has lifted shares upward in what's known as a "counter-trend" bounce. As the name implies, this type of rebound is against the main trend. These bounces tend to revert back to the direction of the main trend - in this case downward - once the bounce reaches significant resistance. This is exactly the situation PINS finds itself in, as Friday's recoil from moving average resistance presents the beginnings of a possible return to the weekly downtrend. PINS now sits at 19.23 after reaching an intra-day high of 20.20 during the latest session. Place a short-SELL order with your broker if price drops to the 18.56 level. Follow your entry with a trailing stop of 1.91 and tighten to 0.96 on a 2.96 profit. Earnings Report Date: Jul 27, 2022. Beta: 1.25. Market-Cap: 12.759B. Optionable.
Endeavor Group Holdings, Inc. (EDR: Communication Services/Entertainment) - SQUEEZE PLAY. EDR 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 22.38 and a SELL short entry at 20.63. Once your trade is filled, enter a 1.75 trailing stop. Tighten it to 0.88 after a 2.66 gain. EDR closed on Friday at 21.28. Earnings Report Date: Aug 15, 2022. Beta: N/A. Market-Cap: 6.044B. Optionable.
CONSUMER CYCLICAL SECTOR
The Cheesecake Factory Incorporated (CAKE: Consumer Cyclical/Restaurants) - BEARISH U-TURN. Despite the fact that Bears have shown the ability to force CAKE into a painful downtrend, recent bullish action has provided shareholders with some welcome relief. However, the upward reprieve may now be about to end. Friday's intra-day price reaction near Moving Average resistance signals an increased probability that CAKE will head lower in the near term. CAKE now sits at 30.48. Prepare to sell shares SHORT if the weakening price reaches our trigger at 29.47. Place a 2.85 trailing stop after you enter, then reduce it to 1.43 when you've gained 3.6. Earnings Report Date: Jul 25, 2022. Beta: 1.44. Market-Cap: 1.609B. Optionable.
Carvana Co. (CVNA: Consumer Cyclical/Internet Retail) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in CVNA, 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 24.05 and a SELL short entry at 20.95. Let CVNA's price action determine your long or short entry. Once the order is filled, place a 3.1 trailing stop, and tighten it to 1.55 upon getting a 13.46 gain. CVNA closed Friday at 22.01. Earnings Report Date: Aug 03, 2022. Beta: 2.59. Market-Cap: 3.909B. Optionable.
HEALTHCARE SECTOR
Celldex Therapeutics, Inc. (CLDX: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as CLDX'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 22.34 and a SELL short entry at 20.36. CLDX's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.98 trailing stop. Tighten it to 0.99 after you get a 4.38 gain. CLDX closed Friday at 21.67. Earnings Report Date: Aug 03, 2022. Beta: 2.72. Market-Cap: 1.013B. 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
Trading Tactic: The New High Dip
The New High Dip tactic takes advantage of reoccurring market behavior that often takes place after a stock has just set a new 52-week high. It consists of buying the first pullback or "dip" after a stock moves above previous resistance and sets a new high. What makes this tactic so effective is the consistency of human nature - the driving force behind all price movement. Here's how it works:
After the initial flurry of buying that occurs when a stock breaks out to a new high, prices will usually pull back for a breather. This retreat is often a good place to buy, and usually provides a safe entry on a stock that has obviously shown strength already.
Several emotional dynamics are behind this tactic. One group of traders missed the first breakout move, and is hoping for another chance to get in before prices race off to even more new highs. They buy into the pullback and in doing so contribute their part to slowing the decline with their cash investment. They feel that they've made a wise choice and patiently wait for the shares to bounce.
Another group is already in the stock with profits, having bought into the stock before the breakout. This group is looking for a chance to add to their positions and will take advantage of the retreat to get in at a good price.
The last group of traders - just like the second group - bought into the stock before the breakout. But instead of holding on as prices began to retreat, they sold near the high and pocketed some profits for their efforts. Now they are waiting for a rebound to give them a chance to get back in and ride the "profit highway" once again.
The best place to enter a buy order is usually near the original breakout level. Sometimes a significant moving average will also line up to strengthen the support at the breakout level. The dip back to the support in that zone will usually result in a short-term bounce.
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Each of the previously mentioned groups of buyers will help the stock rebound from the support level and often resume the advance to new highs.
While the market dynamics at work increase the odds that the upward trend will continue, there are a few things that can interrupt the stock's upward progress.
If the broader market falls hard enough and long enough, trader's moods can change and more selling will occur, stopping the stock from rebounding. Negative news about the company or industry can also have an impact and keep the stock from heading higher.
To protect your trading account, always use protective stops to prevent unplanned losses. Remember that no tactic will work 100-percent of the time, but sound risk management will ensure that any losses are minimal.
Just make sure that the reason for the stock's decline after reaching a new 52-week high appears to be the result of normal profit taking and not some significant negative event.
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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