Notes From The Editor

The market goes up and it goes down, but most folks never buy or sell a single share. It's no secret that those who learn how to trade are better equipped to take advantage of the unique opportunities found only in the stock market. So why doesn't everyone do it?

There are a number of reasons why people sit on the sidelines. One of the most common is the feeling that they just aren't smart enough. Let's see ... folks that trade stocks successfully often get rich, and rich folds are smart folks ... right?

It depends on how you define the word "smart." Yahoo writer Laura Rowley says that that people with high IQs, while generally better paid, aren't likely to become millionaires. At least one study reveals that smart people tend to make bad financial decisions just like those with lower intelligence scores. In other words, smart people are typcially like everyone else when it comes to accumulating wealth.

Researcher Jay Zagorsky confirmed this idea when he studied the relationship between IQ and wealth. The Ohio State University scientist found that although smarter people are likely to be paid more for the work they do, but there's no relationship between intelligence and net worth. So what's the common dominator? What are the personality traits that can lead to big bucks?

First, it seems that people who accumulate wealth tend to play by their own rules. They often don't do well in school because it's too structured for them. However they are very creative. They understand how things work, and how to get things done.

It also appears that wealth builders are willing to take more risks. Consequently they tend reap more rewards. The average person with an average brain may be a bit more naive and willing to jump in than their high-IQ friends. They're quicker to learn new skills or make investments. They don't brood over every angle and think too much about the potential downside of a venture.

There are some things that can be learned only by doing them. Trading is one of them. You can paper trade all you want, and it's not a bad idea to do that when you're first getting started in the market. However, things change when you put real money on the table.

It's like watching a "How To Swim" video or actually getting in the water. There are some things you need to know before diving in, but you only learn to swim when you get wet.

Start in the shallow end of the pool. Buy small amounts of shares until you have gained confidence in your abilities, and then ramp up your positions within the boundaries of your personal risk calculations. It won't be long until your wealth IQ relects the changes in your thinking and behavior.

Enjoy the weekend,

- Thomas Sutton, Editor

Quick List

    
Stock     06/03     06/03      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

WOW       21.82     -0.07     22.14                  1.43/0.72      1.82
PERI      20.31     -0.48     20.93     19.43         1.5/0.75      2.28
TNK       20.95     -0.11     21.34     19.85        1.49/0.75      2.02
VREX      22.44     -0.02     22.92                  1.58/0.79       1.8
SAVE      20.68     -0.43     21.23     19.62        1.61/0.81      2.54

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

Stocks were lower on Friday following a labor report showing employment is up, a sign that the Federal Reserve Bank has more work to do to slow the economy and get inflation under control. In equities, Lululemon Athletica (LULU $301) beat quarterly earnings estimates and raised its guidance, while Tesla (TSLA $712) CEO Elon Musk reportedly suggested the company needs to reduce its workforce. Gold and treasuries were lower, raising yields, the USD/dollar and oil prices were higher.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 32,899.70  -348.58      -313.26    -0.94%
Nasdaq              12,012.73  -304.16       -118.4    -0.98%
S&P 500              4,108.54   -68.28        -49.7     -1.2%

NYSE Volume                      3.71B                       
NYSE Advancers                     909                       
NYSE Decliners                   2,351                       

Nasdaq Volume                    4.14B                       
Nasdaq Advancers                 1,650                       
Nasdaq Decliners                 2,973                       

                                 New Highs/Lows

                   05/27  05/30  05/31  06/01  06/02  06/03
                 --------------------------------------------
NYSE New Highs        88      0    105     52     64     50
NYSE New Lows         36      0     33     52     38     25
Nasdaq New Highs      49      0     64     30     33     37
Nasdaq New Lows      113      0    116    190    143    136
   

TRADER'S TIP: "True Confidence"

Most new traders have the potential to become profitable, yet the majority has a tough time surviving the early days. The main reason is that the average trader gets virtually no training in risk and trade management. As a result, they accumulate losses, and give up before they've invested enough time and effort to gain the "true" confidence that comes with experience. "True" confidence is more than just ego- based bravado. It allows traders to be patient, and compels them to choose intelligent action instead of jumping into the market without a protective strategy. The beliefs that make up true confidence cause us wait for a good trade setup instead of grabbing the first one that comes along.

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 - 4108.54 June 3, 2022

52-Week High: 4818.62
52-Week Low: 3810.32
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4327.28
Resistance 2: 4223.62
Resistance 1: 4166.08
Pivot: 4119.96
Support 1: 4062.42
Support 2: 4016.30
Support 3: 3912.64

NASDAQ Composite - 12012.73 June 3, 2022

52-Week High: 16212.23
52-Week Low: 11035.69
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 12989.79
Resistance 2: 12526.51
Resistance 1: 12269.62
Pivot: 12063.23
Support 1: 11806.34
Support 2: 11599.95
Support 3: 11136.67
        
Dow Industrials - 32899.70 June 3, 2022

52-Week High: 36952.65
52-Week Low: 30635.76
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 34419.64
Resistance 2: 33656.73
Resistance 1: 33278.21
Pivot: 32893.82
Support 1: 32515.30
Support 2: 32130.91
Support 3: 31368.00
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, June 06, 2022:
06-Jun          None scheduled

Tuesday, June 07, 2022:
07-Jun  8:30 am   Foreign trade balance
07-Jun   3 pm   Consumer credit

Wednesday, June 08, 2022:
08-Jun  10 am   Wholesale inventories revision

Thursday, June 09, 2022:
09-Jun  8:30 am   Initial jobless claims
09-Jun  8:30 am   Continuing jobless claims
09-Jun  12 noon   Real household net worth (SAAR)
09-Jun  12 noon   Real domestic nonfinancial debt (SAAR)

Friday, June 10, 2022:
10-Jun  8:30 am   Consumer price index (monthly)
10-Jun  8:30 am   Core CPI (monthly)
10-Jun  8:30 am   CPI (year-over-year)
10-Jun  8:30 am   Core CPI (year-over-year)
10-Jun  10 am   UMich consumer sentiment index (preliminary)
10-Jun  10 am   5-year inflation expectations (preliminary)
10-Jun   2 pm   Federal budget balance


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

TRADER'S TIP: "Inside Game"

An Inside Day occurs when the entire price action for the day is within the range of the previous day. This indicates that supply and demand has become balanced, and traders are indecisive over which direction to go. In theory, when the market overcomes this indecision by penetrating either the high or low of the Inside Day, it is indicating the direction of the next short-term move.

Stocks Covered in This Issue

COMMUNICATION SERVICES SECTOR

WideOpenWest, Inc. (WOW: Communication Services/Telecom Services) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 21.82, WOW is on our radar for a BUY entry at 22.14. If you purchase shares of WOW, be sure to also place a trailing stop of 1.43. Snug it up to 0.72 on a 1.82 gain. Earnings Report Date: Aug 03, 2022. Beta: 1.77. Market-Cap: 1.927B. Optionable.

Perion Network Ltd. (PERI: Communication Services/Internet Content & Information) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in PERI's narrowest trading range of the past seven sessions. With neither group able to take complete control on Friday, the stock's short term destiny is up for grabs. You can capitalize on this unusually tight condition by placing both a BUY order at 20.93 and a SELL order at 19.43. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.5 trailing stop. Tighten the stop to 0.75 once you have a 2.28 gain. PERI closed Friday at 20.31. Earnings Report Date: Aug 01, 2022. Beta: 1.28. Market-Cap: 929.3M. Optionable.

ENERGY SECTOR

Teekay Tankers Ltd. (TNK: Energy/Oil & Gas Midstream) - SQUEEZE PLAY. TNK 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 21.34 and a SELL short trigger at 19.85. When one of the orders is filled, cancel the remaining order and enter a 1.49 trailing stop. When you've reached a 2.02 paper profit, tighten the stop to 0.75. TNK closed at 20.95 on Friday. Earnings Report Date: Aug 03, 2022. Beta: -0.22. Market-Cap: 708.211M. Optionable.

HEALTHCARE SECTOR

Varex Imaging Corporation (VREX: Healthcare/Medical Devices) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. VREX's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 22.92. Use a 1.58 trailing stop, which should work well with VREX's typical daily range. Tighten it to 0.79 on a 1.8 profit. VREX closed at 22.44 on Friday. Earnings Report Date: Aug 01, 2022. Beta: 0.92. Market-Cap: 899.923M. Optionable.

INDUSTRIALS SECTOR

Spirit Airlines, Inc. (SAVE: Industrials/Airlines) - 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. SAVE 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 21.23 and a SELL short trigger at 19.62. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.61 which can be tightened to 0.81 on a 2.54 gain. SAVE closed Friday at 20.68. Earnings Report Date: Jul 26, 2022. Beta: 1.22. Market-Cap: 2.246B. 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  
---------------- -------     --------    -------     ------  -------   
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.

Trader's Corner

"Money Management"

Here are some quotes from some great traders and investors:

"I haven't met a rich technician." - Jim Rogers

"I always laugh at people who say "I've never met a rich technician" I love that! It's such an arrogant, nonsensical response. I used fundamentals for 9 years and got rich as a technician." - Mary Schwartz

"Diversify your investments." - John Templeton

"Diversification is a hedge for ignorance." - William O'Neil

"Don't bottom fish." - Peter Lynch

"Don't try to buy at the bottom or sell at the top." - Bernard Baruch

"Maybe the trend is your friend for a few minutes in Chicago, but for the most part it is rarely a way to get rich." - Jim Rogers

"I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms." - Paul Tudor Jones

So here we have a group of guys who have collectively taken billions of dollars out of the market and they don't agree on a darn thing regarding how to make money. Not one. So what is a person to do? Is there anything they do agree on? Just one:

"My basic advice is don't lose money." - Jim Rogers

"I'm more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand." - Marty Schwartz

"I'm always thinking about losing money as opposed to making money. Don't focus on making money, focus on protecting what you have." - Paul Tudor Jones "Rule number one of investing is never lose money. Rule number two is never forget rule number 1." - Warren Buffet

There really are a lot of ways to make money in the market. There are tons of seminars you can pay for that will tell you "How I made $1 katrillion dollars in the stock market" and its sister book "How I Double my Money Every Hour" is available in many different forms too for only $29.95. All of these will tell you some patterns that will work sometimes and won't others. Some might have you going long with Jimmy Rogers, while others will have you doing it with Bernard Baruch, but when it gets right down to it the most critical part of making money, is not losing much. You're always going to take stops and lose some. But you don't want to lose much, because you won't make a penny tomorrow if you go broke today.

One of the most common mistakes traders will make is that of "risking the whole wad." There is not a faster way to have bad things happen to you than to do this. Studies have been done that suggest the most you should risk on any one trade is 2%. And most pros will tell you that is way too much and they risk 1/4 % to 1% on each trade. The idea here is that no one trade is going to really affect you either way. You're not going to get rich, but you're also not going to have to sell the house, as has happened to people.

One other benefit of small positions is that it allows you some freedom from worry. If you are risking a fairly small amount, you're not going to get shaken out. You're also not going to find yourself in a position where you say "Sheesh, I can't lose this much money" and you turn a bad trade into a terrible investment. So, if you are serious about this, if you want to make it long term you will practice sound money control. Before you ever enter a trade, the first thing you should ask yourself is how much am I risking here because, remember that while we are here to make money, we won't make any if we go broke.

The key to not going broke is to respect risk, take small positions that won't allow you to blow out. You must always keep in mind that in trading you are only playing the odds. You may have a setup that is correct 75% of the time but each trade is a random event. It doesn't take into account the last trade. If you have a 75% system, you can still be wrong 10 times in a row, and if you trade for any amount of time it will happen.

I once thought I had a foolproof way to make money at roulette. I would bet on black and red. I would sit at the table, and after the ball had landed on black or red 5 times in a row I would start to bet on the opposite color (so if it were 5 reds in a row I would start to bet on black) Then, if I was wrong, I would go ahead and double down, meaning that if my starting bet is $1, the next time I will be $2, then $4, then $8, then $16, etc. Eventually I would win, and would come out $1 ahead. So I am 13 years old and really thinking I have the Holy Grail. If it's so easy for a 13 year old to figure out, why is it that all the casinos are not out of business and we are all millionaires? Simple. It does not work.

If we are flipping coins, heads has a 50% chance of turning up on each roll, and so does tails. But each flip is independent of the last. The last coin toss has nothing to do with the one before it. It's a random event. There is a certain chance heads will occur on this roll, or that tails will. But which of them it is that comes up is a random occurrence. Each time you flip a coin it is one flip of a coin amongst the billions of times coins have been flipped. That's why you can roll 100 heads in a row if you do it long enough. That's why the first time I played roulette black came up 19 times in a row and I went home defeated.

Trading is the same. We have a certain percentage of our trades that will work out, and a certain percentage that will not. But your next trade has nothing to do with your last one. So even if you have the world's most accurate method, over time you will go broke if you don't practice good money management and risk control.

So now that we all understand why money management and risk control are very important lets cover exactly how to apply these rules to your trading. As I stated before, you shouldn't ever risk more than 2% of your account on one trade. But, as I also said, that's a bit much for most people and I'm in that group of most people. I like to keep my risk to around 1%. So lets focus our attention on risking 1% of your account on a trade. For the sake of this example let's just assume you have a very average account size, $25,000:

Say you are scanning tonight and come across XYZ, which looks like it might be a great swing-trade buy if it trades at 15 3/16. The low of the prior day is 14 1/2. This means you will place your stop at 14 7/16, risking 3/4 of a point on this trade. Assuming a $25,000 trading account you can lose up to $250 per trade. You will use this number to determine how many shares you can buy, which in this case is up to, but not more than 333. Most people don't like to do odd lots, so would round down to 300. Never round up because then you throw the risk control out the window.

Let me leave you with a few more quotes on risk control:

"If you have an approach that makes money, then money management can make the difference between success and failure... ... I try to be conservative in my risk management. I want to make sure I'll be around to play tomorrow. Risk control is essential." - Monroe Trout

"If you personalize losses, you can't trade." - Bruce Kovner

"The best traders have no ego. You have to swallow your pride and get out of the losses." - Tom Baldwin

"Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." - Larry Hite

While all of these guys have different methods for making money, each of them agrees that risk control is the single most important aspect of trading. These individuals are the best in the world and the only thing they agree on is risk control. Think about it...

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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