Notes From The Editor

Sometimes the best trade is the one you don't make.

This concept is something you don't hear very often in the equity world. Brokerages promote constant trading as a way of generating higher commissions. The endless hype and buzz of the media creates a sense of urgency and a fear of missing the next big trade. It's the same sort of fear that motivates consumers to immediately jump on what they perceive to be a good deal before it goes away.

What the brokerages and media lack, in this case, is perspective. In a constantly-changing market environment teeming with a huge variety of stocks, there's never a shortage of potential trade set-ups. As attentive observers on the sidelines, we have the luxury of waiting to jump in the game until just the right moment.

While there's no guarantee that you will emerge victorious, your odds will be improved by only taking the best entry points. And during those times when you're on the sidelines, your trading account is completely protected.

Fear should NEVER be the motivating factor behind a trade. All of us have experienced the frustration that comes with seeing a stock soar after you decided not to snap up some shares. That's a perfectly natural emotion - and perfectly harmless, as long as the frustration doesn't produce a habit of over-trading.

Over-trading guarantees that you'll never miss a big profit because you hesitated at the last minute. The problem is that you'll also be hit with losses from trades taken under less-than-ideal conditions.

When a stock you've watched makes a big move without you on board, remind yourself that there will be another compelling set-up right down the pike. Warren Buffet's words of wisdom, quoted here before, are relevant:

"The stock market is a no-called-strike game. You don't have to swing at everything - you can wait for your pitch."

Have a great week!

Kent Barton
Senior Analyst

Quick List

    
Stock     06/26     06/26      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

OSB       20.89      0.12     21.19     19.65        1.54/0.77      2.30
OPES      15.59      0.03     16.44                  2.09/1.04      1.06
RCII      26.01      0.00     26.69     24.81        1.88/0.94      2.10
NREF      16.71      0.12     16.94                  1.23/0.61      2.22

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 access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

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

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Market Summary

Stocks closed lower on Friday as the financial sector fell hard on news that the Federal Reserve has put new restrictions on the USA banking industry. The Fed's recent annual stress test discovered that several banks could get close to minimum capital levels in scenarios tied to the coronavirus pandemic. Large banks are now required to suspend share buybacks and cap dividend payments at their current levels for the third quarter of 2020. Dividends will be based on a formula tied to each bank's recent earnings. In equities, shares of Gap (GPS $12) rocketed nearly 20% higher after the clothing firm announced a partnership with Kanye West. Treasury yields and oil finished the session lower, the USD/dollar was near even, gold moved higher.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    25,016  -730.05         -855     -3.3%
Nasdaq                  9,757  -259.78         -189     -1.9%
S&P 500                 3,009   -74.71          -89    -2.87%

NYSE Volume                      8.49B                       
NYSE Advancers                     552                       
NYSE Decliners                    2450                       

Nasdaq Volume                    7.46B                       
Nasdaq Advancers                   742                       
Nasdaq Decliners                  2621                       

                                 New Highs/Lows

                   06/19  06/22  06/23  06/24  06/25  06/26
                 --------------------------------------------
NYSE New Highs        68     64     63     15     25     35
NYSE New Lows          6      6      3     12     16     13
Nasdaq New Highs     167    150    200     54     74     69
Nasdaq New Lows        8     15      9     12     15     30
   

TRADER'S TIP: "Consolidation Means Anticipation"

The longer a stock trades within a specific range, the more likely it is that a breakout - either up OR down - will result. One reason is that as support and resistance build through regular successful tests, more traders note that a move OUTSIDE of the regular range is a significant event. Consequently, volume tends to pick up and generate momentum in the direction of the breakout when it does finally occur. Also, risk is limited since stops can be placed just inside the trading range in case the breakout fails. It pays to learn how to recognize this powerful charting tactic, which can be very effective in both the long and short terms.

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 3009.05 June 26, 2020

52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3356.73
Resistance 2: 3206.46
Resistance 1: 3107.75
Pivot: 3056.19
Support 1: 2957.48
Support 2: 2905.92
Support 3: 2755.65


NASDAQ Composite - 9757.22 June 26, 2020

52-Week High: 10221.85
52-Week Low: 6631.42
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 10854.94
Resistance 2: 10382.16
Resistance 1: 10069.68
Pivot: 9909.37
Support 1: 9596.90
Support 2: 9436.59
Support 3: 8963.81
        
Dow Industrials - 25015.55 June 26, 2020

52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 28121.73
Resistance 2: 26777.79
Resistance 1: 25896.67
Pivot: 25433.85
Support 1: 24552.73
Support 2: 24089.91
Support 3: 22745.96
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, June 29, 2020:
29-Jun  10 am   Pending home sales index

Tuesday, June 30, 2020:
30-Jun   9 am   Case-Shiller home price index
30-Jun  9:45 am   Chicago PMI
30-Jun  10 am   Consumer confidence index

Wednesday, July 01, 2020:
01-Jul  8:15 am   ADP employment report
01-Jul  9:45 am   Markit manufacturing index
01-Jul  10 am   ISM manufacturing index
01-Jul  10 am   Construction spending
01-Jul   2 pm   FOMC minutes
01-Jul  Varies   Motor vehicle sales

Thursday, July 02, 2020:
02-Jul  8:30 am   Nonfarm payrolls
02-Jul  8:30 am   Unemployment rate
02-Jul  8:30 am   Average hourly earnings
02-Jul  8:30 am   Trade deficit
02-Jul  8:30 am   Initial jobless claims (regular state program, SA)
02-Jul  8:30 am   Continuing jobless claims (regular state program)
02-Jul  10 am   Factory orders

Friday, June 03, 2020:
03-Jul          Independence Day holiday. None scheduled.

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

TRADER'S TIP: "Only Ten Percent"

Although only ten percent of individual traders use "money management," it is by far the most important aspect of any trading plan. Leave it out of any trade and you immediately place that position in a high-risk category. Many people believe they can ignore money management just because they have a small trading account, while in fact these vital concepts can be used successfully with any amount of capital. Establishing good habits with a small account not only allows your money to grow, it also prepares you to trade intelligently when you have a much larger account.

Stocks Covered in This Issue

BASIC MATERIALS SECTOR

Norbord Inc. (OSB: Basic Materials/Lumber & Wood Production) - SQUEEZE PLAY. Friday's trading session left OSB 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 21.19 and your SELL short trigger at 19.65. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.54 trailing stop. Once you have a 2.30 profit, reduce the stop to 0.77. Earnings Report Date: N/A. Beta: 2.55. Market-Cap: 1.696B. Not Optionable.

FINANCIAL SERVICES SECTOR

Opes Acquisition Corp. (OPES: Financial Services/Shell Companies) - BULLISH BOUNCE. OPES 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 OPES 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 16.44. Set a trailing stop of 2.09, tightening to 1.04 on a 1.06 profit. OPES closed at 15.59 on Friday. Earnings Report Date: N/A. Beta: 0.09. Market-Cap: 122.585M. Not Optionable.

INDUSTRIALS SECTOR

Rent-A-Center, Inc. (RCII: Industrials/Rental & Leasing Services) - SQUEEZE PLAY. RCII 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 26.69 and a SELL short entry at 24.81. Once your trade is filled, enter a 1.88 trailing stop. Tighten it to 0.94 after a 2.10 gain. RCII closed on Friday at 26.01. Earnings Report Date: Aug 05, 2020. Beta: 1.54. Market-Cap: 1.399B. Optionable.

REAL ESTATE SECTOR

NexPoint Real Estate Finance, Inc. (NREF: Real Estate/REIT-Diversified) - BULLISH BOUNCE. This trader-friendly setup turns repetitive stock behavior into real profits. Based on the tendency for up-trending stocks to drop briefly and then resume the up-trend, the Bullish Bounce places traders into excellent stocks when conditions are primed for more skyward movement. NREF's current price action near moving average support signals a potential BUY entry at 16.94, followed by a 1.23 trailing stop which can be tightened to 0.61 upon earning 2.22. NREF closed Friday at 16.71. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 87.937M. Not 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  
---------------- -------     --------    -------     ------  -------   

Currently there are no upcoming stock splits on the major US exchanges.
    

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

"WISHFUL THINKING: Thoughts from Dr. Alex Elder"

If you toss a frog into a pan of warm water and heat it very slowly you can boil it alive. When pain increases bit by bit, our natural tendency to do nothing and wait for an improvement. A sleepwalking trader keeps giving a losing trade more time, while it is slowly boiling him alive.

A sleepwalker hopes and dreams. He says, I know, my stock is going to come back, it always did before. Winners accept occasional losses, take them quickly and move on. Losers postpone taking losses, and some are foolish enough to look for a silver lining in a disaster. A broker calls his client and says, "I've got good news and bad news. What's the bad news? That stock you bought at 80 - it is down to 20. And what's the good news? The decline was on low volume."

An amateur enters a trade as if buying a lottery ticket. He waits for the wheel of fortune to decide whether he wins or loses. Professionals, on the other hand, have ironclad plans for getting out, either with a profit or a small loss. A key difference between professionals and amateurs is their planning for exits. Beginners dream of profits but are always ready to give a trade "more time to work out."

A sleepwalking trader buys a stock at 35 and puts in a stop at 32. The stock begins to sink, he says, 'I will give the market a little more room to breathe,' and moves his stop down to 30. This is a fatal mistake - he has breached his discipline, violated his own plan.

You may move your stops only one way - in the direction of the trade. Stops are like a ratchet on a sailboat, designed to take the slack out of your sails. If you start giving your trade "more room to breathe," that extra slack will swing and hurt you. Even if the market rewards you for breaking the rules on one trade, it will lay an even bigger trap for you on the next trade.

The best time to make decisions is before you enter a trade. Your money is not at risk, and you can weigh benefits and risks. Once you put on a trade, you begin to form an emotional attachment to it. The market will do its best to hypnotize you and lure you into making emotional decisions. Write down an exit plan and follow it!

Turning a losing trade into an "investment" is a disease of small private traders, but some institutional traders can catch it also. Disasters at banks and major financial firms have occurred when poorly supervised traders lost money in short-term trades and stuck them into long-term accounts, hoping that time will bail them out. If you are losing in the beginning, you'll lose in the end. Do not put off the hour of reckoning. The first loss is the best loss - this is the rule of those who trade with their eyes open.

A neighbor of mine had struggled with the markets for eight years before he grew into an internationally famous successful trader. Today many of our friends in New York like to reminisce about the days he clerked on one of the smaller exchanges in the city and struggled to make ends meet. An old trader said to me, 'I knew him then, and I thought he would succeed. He had the right combination of being very careful and having this optimism you need to get up in the morning and believe you're going to make money trading the markets.'

In order to succeed in trading you need both self-confidence and humility (also known as caution). If you have one but not the other, you're in a dangerous position. If you have self-confidence but no caution, you'll be arrogant, which is deadly for traders. If you have caution but no confidence, you won't be able to pull the trigger on your trades.

You need confidence to say - the market is going up, I believe it will continue to rally, I am going to get long and ride this trend. On the other hand, you need humility to accept the uncertainty of the markets - and to run fast when a trade goes against you.

It is a hallmark of emotional maturity to be aware of two conflicting feelings at the same time. When you feel a surge of confidence in your trading idea, it is hard to have the humility to think of the downside risk - but if you cannot think of the risk, you cannot handle it. When the market goes against you and hits your predetermined exit level, you have to humbly give a sell order, no matter how confident you feel about your analysis.

Being a trader is a journey of self-discovery. Trade long enough, and you will face all your feelings, including anxiety, greed, fear, and anger. But self-discovery is the byproduct, not the primary goal of trading. The main goal is to minimize losses and accumulate equity. Keep asking yourself - "What is my profit target in this trade" and "What will I do to protect my capital in this trade?"

A good trader accepts total responsibility for the outcome of every trade - even though he knows that others are trying to take his money. If other traders or even brokers take your money, you are still responsible. You have to keep improving your trading plans. You need to cultivate both self-confidence and humility.

EXITING TRADES

Whenever you plan a trade, three factors must be crystal-clear in your mind - where to get in, where to take profits, and where to bail out in case of an emergency. Daydreaming about profits will not make you rich. You must know at what point you will collect your winnings or else cut and run if the market turns against you.

Professional traders spend a lot of time and energy planning their exits from trades. Where to take profits, when to cut losses, how to maintain a good ratio between them in order to maximize gains and minimize losses - these and related questions are paramount in the pros' minds.

When people approach the markets, they go through a natural progression. Their first baby steps are stumbling but overconfident, while a pro is cautious but firm. Beginners keep looking for what to buy (they almost never sell short), like puppies that eat anything they find on the ground, including some very unhealthy stuff. The pros sniff and choose the best morsels. In trading, newbies are eagerly looking for markets to enter, without much thought about the exits. The pros are quite matter-of-factly about entries but very particular about exits. They have discovered the essential truth - you do not get paid for entering trades, you get paid for exiting them.

Planning for an exit must begin before you enter a trade. One of the first things we must do when looking at a new stock or a future, is measure the width of its channel. Let us see whether it is wide enough to be worth trading. We know that an "A" trader takes 30% or more out of a channel, while a "C" trader takes 10%. If we begin by accepting the possibility that we may have a C trade, then let us decide whether 10% of that channel is a worthwhile target. If a channel is 20 points wide, even a 10% gain will give us some money, but if the channel is only 5 points wide, then 10% will bring us peanuts, not worth the risk.

Exiting trades is more complex than entering them. It is simple to get in using a limit order to minimize slippage; either we are in or we aren't. Exits are much more challenging. We need to have a profit target, which will keep shifting as the trade goes on. We need to have a protective stop with a sensible formula for moving it as the trade moves in our favor. Sophisticated traders who swing large positions have strategies for canceling profit targets when they recognize especially powerful trends or taking only partial profits and carrying the rest of their position with a new exit strategy for runaway trends.

Exits sound complex because they are. As one multimillionaire said about trading, 'If this was easy, mermaids would be doing it.' Entering a trade can be as easy as buying a lottery ticket, but then the music starts and exits separate winners from losers.

**************

Dr. Elder is the author of several books including the classic "Trading For A Living." He also authored "Come Into My Trading Room: A Complete Guide To Trading" and his newest work "Sell and Sell Short." Order either book or all three at a substantial savings at RightLine Bookstore.

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

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