Notes From The Editor

With the daily noise and constant churn of the market, it's easy to forget what's really driving all that movement. The basic laws of supply and demand govern anything that can be bought or sold - and nowhere is this more true than the stock market.

A great way to view stock charts is as a measure of traders' fundamental emotions - fear and greed. But it's also helpful to view those charts from a supply/demand perspective. And better yet, it doesn't take an advanced degree in economics to make sense of these dynamics.

Picture, for example, a stock that's sitting just above major horizontal support. As shares approach that level, the supply/demand balance may even out. This happens for a simple reason: neither buyers nor sellers want to commit to any action while the stock is at such an important level. As supply and demand temporarily dry up, volume will dry up as well.

What happens next depends on Bulls' ability to defend the horizontal support level. But more fundamentally, it depends on the outcome to a simple contest: will demand - or the expectation that the stock will bounce - overwhelm supply? Or will supply, inflated by traders bailing out of their current positions on the expectation of a breakdown, gain the upper hand and force prices lower?

Conventional stock charts aren't the only way to view supply and demand. In fact, there's another form of charting that's specifically designed to measure this dynamic. It's called point-and-figure - and while it takes some getting used to, it's well worth the time investment. These can be particularly useful for swing traders and longer-term investors. Daytraders, who bet on intraday fluctuations, may be better off focusing on the smaller intervals (5-minute and 1-minute, for example) of conventional charts.

Next time you find your eyes glazing over at the endless supply of stock-related information, remind yourself what's really driving prices; sometimes a fresh perspective is all you need to spot new opportunities.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     06/23     06/23      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

SNBR      22.41     -0.32     23.07     21.44        1.63/0.82      2.28
LOB       25.06      0.59     25.48                  2.23/1.12      2.44
KYMR      22.97     -0.46     23.57      21.8        1.77/0.89      2.88
RMR       23.40     -0.19     24.05                   1.7/0.85      1.38
ZI        23.99     -0.28     24.59     22.79          1.8/0.9      1.98

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

Equities broke their weekly winning streak due to worries that lingering inflation pressures might force central banks to keep tightening, though markets finished off their lows. The S&P 500 posted a weekly loss after five straight weeks of gains, while global stocks logged their biggest weekly decline in more than three months. Oil prices were lower for the day and down almost 5% for the week.

Elsewhere, government bonds and the US dollar rose, both consistent with the cautious tone in equity markets with defensive sectors outperforming. Adding to fears of hawkish central bank policies, Fed Chair Powell in his semiannual appearance on Capitol Hill Chair affirmed that more interest rates are likely ahead until additional progress is made on inflation.

In our view the central bank will keep its policy restrictive this year to push inflation down by forcing some type of landing or a slowdown in the economy. We continue to think that the Fed is nearing the end of its tightening campaign. The weaker growth that we anticipate down the road and further improvement on inflation will likely pave the way for the Fed to move to the sidelines, possibly after one more rate hike next month.

Putting the pullback into perspective, while the market weakness during this holiday-shortened week might feel abrupt and uncomfortable, it should be interpreted as a payback for this quarter's strong market rally. Earlier this week, volatility as proxied by the VIX index declined to a new three-year low, while the S&P 500 rallied almost 8% over the past three months and 15% year-to-date. Markets are unlikely to ignore a potential slowdown in growth as the lagged impact of the Fed's rate hikes filter through the economy. We would view any renewed phase of volatility in equities as an opportunity to position for a more sustainable rebound that is likely to have broader shoulders with more stocks and sectors participating in the upside.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 33,727.43  -219.28      -571.69    -1.67%
Nasdaq              13,492.52  -138.09      -197.05    -1.44%
S&P 500              4,348.33   -33.56       -61.26    -1.39%

NYSE Volume                      6.29B                       
NYSE Advancers                     910                       
NYSE Decliners                   2,024                       

Nasdaq Volume                    7.93B                       
Nasdaq Advancers                 1,445                       
Nasdaq Decliners                 2,935                       

                                 New Highs/Lows

                   06/16  06/19  06/20  06/21  06/22  06/23
                 --------------------------------------------
NYSE New Highs       145      0     69     92     50     52
NYSE New Lows         15      0     19     29     37     47
Nasdaq New Highs     217      0     91     92     67     49
Nasdaq New Lows       79      0    100    132    125    153
   

TRADER'S TIP: "Paper Trading"

"The purpose of rehearsal is to create the habit of the objective."

~ William H. Macy, actor

Paper trading is helpful because it allows newcomers to learn and develop a certain degree of skill without putting real money into the market. However, this type of "virtual" experience is limited because it doesn't produce genuine emotional involvement.

In fact there is a huge difference between the safety of imagined risk and the raw challenge of having to put cash - your cash - at risk. In the real world, emotional challenges due to routine losses usually influence a trader's attitude and decision-making process to a larger degree than ever expected.

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 - 4348.33 June 23, 2023

52-Week High: 4448.47
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4593.47
Resistance 2: 4486.41
Resistance 1: 4417.37
Pivot: 4379.35
Support 1: 4310.31
Support 2: 4272.29
Support 3: 4165.23

NASDAQ Composite - 13492.52 June 23, 2023

52-Week High: 13864.06
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 14444.24
Resistance 2: 14021.80
Resistance 1: 13757.16
Pivot: 13599.36
Support 1: 13334.72
Support 2: 13176.92
Support 3: 12754.48
        
Dow Industrials - 33727.43 June 23, 2023

52-Week High: 34712.28
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35871.72
Resistance 2: 34929.61
Resistance 1: 34328.52
Pivot: 33987.50
Support 1: 33386.41
Support 2: 33045.39
Support 3: 32103.28
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, June 26, 2023: 
26-Jun          None scheduled 

Tuesday, June 27, 2023:
27-Jun  8:30 am   Durable-goods orders
27-Jun  8:30 am   Durable-goods minus transportation
27-Jun  9:00 am   S&P Case-Shiller home price index (20 cities)
27-Jun  10:00 am   New home sales
27-Jun  10:00 am   Consumer confidence   

Wednesday, June 28, 2023:
28-Jun  8:30 am   Advanced U.S. trade balance in goods
28-Jun  8:30 am   Advanced retail inventories
28-Jun  8:30 am   Advanced wholesale inventories 

Thursday, June 29, 2023:
29-Jun  8:30 am   Initial jobless claims
29-Jun  10:00 am   Pending home sales  

Friday, June 30, 2023:
30-Jun  8:30 am   Personal income (nominal)
30-Jun  8:30 am   Personal spending (nominal)
30-Jun  8:30 am   PCE index]
30-Jun  8:30 am   Core PCE index
30-Jun  8:30 am   PCE (year-over-year)
30-Jun  8:30 am   Core PCE (year-over-year)
30-Jun  9:45 am   Chicago Business Barometer
30-Jun  10:00 am   Consumer sentiment (final)


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

TRADER'S TIP: "How Do You Get To Carnegie Hall?"

We've all heard the answer to this old joke . . . "practice, practice, practice!" While it is certainly obvious that trading successfully requires plenty of it, many investors have yet to apply this ancient bit of oriental wisdom: "Practice is the best of all instructors."

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Sleep Number Corporation (SNBR: Consumer Cyclical/Furnishings, Fixtures & Appliances) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in SNBR, 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 23.07 and a SELL short entry at 21.44. Let SNBR's price action determine your long or short entry. Once the order is filled, place a 1.63 trailing stop, and tighten it to 0.82 upon getting a 2.28 gain. SNBR closed Friday at 22.41. Earnings Report Date: Jul 25, 2023. Beta: 1.83. Market-Cap: 497.143M. Optionable.

FINANCIAL SERVICES SECTOR

Live Oak Bancshares, Inc. (LOB: Financial Services/Banks-Regional) - BULLISH BOUNCE. LOB 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 LOB 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 25.48. Set a trailing stop of 2.23, tightening to 1.12 on a 2.44 profit. LOB closed at 25.06 on Friday. Earnings Report Date: Jul 25, 2023. Beta: 1.46. Market-Cap: 1.114B. Optionable.

HEALTHCARE SECTOR

Kymera Therapeutics, Inc. (KYMR: Healthcare/Biotechnology) - SQUEEZE PLAY. A look at KYMR's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 23.57 and a SELL short trigger at 21.8. Once KYMR shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.77 and tighten to 0.89 on a 2.88 gain. KYMR closed Friday at 22.97. Earnings Report Date: Aug 07, 2023. Beta: 1.72. Market-Cap: 1.27B. Optionable.

REAL ESTATE SECTOR

The RMR Group Inc. (RMR: Real Estate/Real Estate Services) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, RMR 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 23.40, plan to buy shares at 24.05 and use a 1.7 trailing stop. Tighten the stop to 0.85 on a 1.38 gain. Earnings Report Date: Aug 02, 2023. Beta: 1.51. Market-Cap: 388.896M. Optionable.

TECHNOLOGY SECTOR

ZoomInfo Technologies Inc. (ZI: Technology/Software-Application) - SQUEEZE PLAY. Friday's trading action forced ZI's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction ZI will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 24.59 if ZI moves higher, and place your order to SELL short at 22.79 if price declines to that level. As usual follow your entry with a trailing stop, 1.8 should be sufficient. Reduce your stop to 0.9 on a 1.98 gain. ZI closed Friday at 23.99. Earnings Report Date: Jul 31, 2023. Beta: 0.94. Market-Cap: 11.343B. 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  
---------------- -------     --------    -------     ------  -------   

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.

Trader's Corner

"The Profitable Trader"

Let's look at the differences between profitable and unprofitable traders. Is it a question of experience, or are some folks just born with the talent to play the markets successfully? How does risk tie in with profitability? Are profitable traders more willing to make riskier trades?

Author Mark Douglas talks about three stages in becoming a profitable trader. First you learn how to find promising trade setups. Second, you learn how to enter and exit those positions at the right time. Third, get to a point where you build equity on a consistent basis. The secret to this third step is really no secret at all. You master the discipline required to follow your methodology, plan or system.

Traders need to make an important choice early in their careers. They can decide to follow a specific method that forces them out of the market during unfavorable conditions. Or they can master a broad range of skills, and then apply the right one at the right time. Neither approach is right or wrong, but both require paying close attention to the profit-and-loss feedback.

Most unprofitable traders rely on a poorly matched execution style, or a good one they haven't mastered yet. Very often they fail to recognize critical errors in their methodology because it was learned in a book, or through inappropriate conditioning, i.e., making money on bad decisions. Realize that profitable traders know all the weak points in their strategies and exercise damage control at all times.

You can't understand your methodology until you analyze your profits and losses. Identify its weaknesses quickly, and then decide if it really works at all. You may discover that your whole approach to the market isn't right for your lifestyle, emotional nature or long-term goals. For example, you could be a scalper with the disposition of an investor, or a daytrader who hates risk. Bad things will happen when your system doesn't match your personality.

Traders hate to think about discipline. After all, it's not as sexy as just becoming a market gunslinger. But the bottom line is that most of us don't follow our own rules. This is ironic, because the folks who ignore the reasons they lose money are the same ones who spend thousands of dollars attending trading seminars. Personal discipline is the one thing you can't learn sitting in an audience.

Discipline and money management go a long way toward becoming a profitable trader. But let's be realistic. However you trade, you must be confident in the positive expectancy of your style or methodology. This poorly understood concept refers to how much profit you can reasonably expect to make vs. each dollar risked on a trade. Gamblers know this equation as the player's edge in a casino. The problem is that most of us don't understand our strategy well enough to determine whether or not it has a positive expectancy.

System traders use backtesting to gauge the positive expectancy of their systems. Retail traders choose entry and exit without this methodology, so they need to compensate through extensive record- keeping and analysis of each trade result. Even so, they could be fooling themselves into believing they have an edge in their pursuit of profitability.

The sell side of the positive expectancy equation is more important than where you buy. Research suggests that a very profitable system can be built using random trade entry. Yes, you heard that right. It's possible to make money in the same way as a chimp who throws darts at a dartboard. But the hairy primate still has the same problem as the losing trader: He doesn't know when to take money off the table.

Positive expectancy requires a robust exit strategy. But you already knew that, didn't you? Volumes have been written about money management techniques, such as cutting your losses, riding your winners and trading adequate reward/risk. But somehow, losing traders continue to outnumber profitable ones by a very wide margin.

One aspect of positive expectancy is more difficult to manage than any pure numbers game. All trading styles experience drawdowns, and profitable ones are no exception. Traders routinely abandon profitable methods because they hate to lose money. They stop following perfectly good rules because they aren't getting the instant gratification they want from the markets.

If this all sounds like a big loop from the top of our discussion, it's meant to be that way. Losing traders get stuck in a vicious cycle. They want to profit from the market so they come up with a strategy to make money. They trade the strategy until it frustrates them to the point they abandon it and go looking for another strategy. In the process, they never take the time to find out whether or not it had positive expectancy in the first place. In other words, they don't let their methodology mature enough to watch its real potency bear fruit.

Which brings us back to discipline. Sure, it's boring to plan the trade and trade the plan. But it's the only way to break this losing cycle and get on the road to consistent profitability.


NOTE: 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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