Notes From The Editor

Falling markets always cause investors grief. The media reports any selling in a mortally serious tone, while bullish cheerleaders comfort the masses with promises of better days ahead. Negative sentiment usually intensifies right along with the selling, and desperate prayers are offered up as everyone nervously holds their breath.

Well, not everyone. In fact, more folks are taking advantage of the normal rising and falling of the market tides by learning to sell stocks short. For example, Investor's Business Daily newspaper founder William J. O'Neil's encourages investors to learn how to short, and in fact wrote a book is titled "How To Make Money Selling Stocks Short."

Imagine that. Mr. O'Neil encourages investors learn the art of short selling. As surprising as it may seem, you only have to look back to when Bill began his investing trading career to see why he is willing to take this "extreme" position.

In the early sixties O'Neil was a young stockbroker for a major NYSE member firm. Based on his research he decided to close out all of his long positions in the market by the spring of 1962. Then he started selling short. By the end of the year he had made a sizable profit while almost everyone else was getting crushed in one of the worst bear markets of that era. A year later he bought a seat on the NYSE and started his own firm.

After more than five decades studying the markets, Bill believes there are two main reasons why most investors "can't sell." First is the obvious lack of knowledge about the subject. The second reason is the psychological resistance most investors have against selling.

Beyond the educational, emotional, and mental programming required to get our heads in gear, a big part of our job as active investors is to find the dominant market trend and profit from it - even when it's down. Of course the "dominant trend" differs from one time frame to the next, so we want to make sure that the trend we trade matches our individual trading strategy.

Typical investors might scoff at the notion of shorting, but successful traders aren't typical. While accepting the fact that we can't change the stock market's direction, we take advantage of the opportunities offered by the "Bear" part of repetitive market cycles.

Trade well!

~ Thomas Sutton, Editor

Quick List

    
Stock     03/14     03/14      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

SHAK      38.70      2.49     39.85     35.09        4.76/2.38      5.84
FANG      27.19      1.57     28.53     24.58        3.95/1.98      5.96
FSB       24.67      1.71     24.99     22.80        2.19/1.09      1.58
SBNY      98.18      7.00    100.04     91.34        8.70/4.35      6.00

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 ended the week on a positive note with a solidly higher finish on Friday as traders contemplated a multitude of global monetary policy responses from Europe, the United Kingdom, Japan, China, Australia and the USA. In addition, President Trump declared a national emergency as a result of the coronavirus COVID-19 outbreak, unlocking funds and initiatives at the federal and state levels to help in the combat against the virus. In equities headlines, Oracle (ORCL $48) beat quarterly earnings forecasts, Adobe (ADBE $336) posted mixed results, while Broadcom (AVGO $234) disapppointed investors with its revenue numbers. The USD/dollar, oil and treasuries all advanced in price, gold declined.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    23,186   +1,985        -2679   -10.36%
Nasdaq               7,874.88  +673.07      -700.74    -8.17%
S&P 500                 2,711  +230.38         -261    -8.78%

NYSE Volume                      8.12B                       
NYSE Advancers                    2648                       
NYSE Decliners                     377                       

Nasdaq Volume                    4.63B                       
Nasdaq Advancers                  2503                       
Nasdaq Decliners                   850                       

                                 New Highs/Lows

                   03/06  03/09  03/10  03/11  03/12  03/13
                 --------------------------------------------
NYSE New Highs        28     15     13      6      2      3
NYSE New Lows        714   1620    688   1129   2377    644
Nasdaq New Highs      62     53     16      7     10      7
Nasdaq New Lows      623   1406    704   1034   2097    833
   

TRADER'S TIP: "Rallies Need Rest Too . . ."

For a rally to continue ahead in a healthy fashion requires some periods of rest. If a rally doesn't take periodic breaks, the inevitable exhaustion will result in a price collapse. Sustainable rallies proceed by taking two steps forward and one step back, pacing themselves so they don't burn out from climbing a sheer vertical ascent.

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 - 2711.02 March 13, 2020

52-Week High: 3393.52
52-Week Low: 2478.86
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3498.28
Resistance 2: 3094.55
Resistance 1: 2902.78
Pivot: 2690.82
Support 1: 2499.05
Support 2: 2287.09
Support 3: 1883.36


NASDAQ Composite - 7874.88 March 13, 2020

52-Week High: 9838.37
52-Week Low: 7194.67
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 10111.11
Resistance 2: 8958.38
Resistance 1: 8416.63
Pivot: 7805.65
Support 1: 7263.90
Support 2: 6652.92
Support 3: 5500.19
        
Dow Industrials - 23185.62 March 13, 2020

52-Week High: 29568.57
52-Week Low: 21154.46
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 30853.41
Resistance 2: 26986.88
Resistance 1: 25086.25
Pivot: 23120.35
Support 1: 21219.72
Support 2: 19253.82
Support 3: 15387.29
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, March 16, 2020:
16-Mar  8:30 am   Empire State index

Tuesday, March 17, 2020:
17-Mar  8:30 am   Retail sales
17-Mar  8:30 am   Retail sales ex-autos
17-Mar  9:15 am   Industrial production
17-Mar  9:15 am   Capacity utilization
17-Mar  10 am   Job openings
17-Mar  10 am   NAHB home builders' index
17-Mar  10 am   Business inventories

Wednesday, March 18, 2020:
18-Mar  8:30 am   Housing starts
18-Mar  8:30 am   Building permits
18-Mar   2 pm   Federal funds announcement
18-Mar  2:30 pm   Jerome Powell press conference

Thursday, March 19, 2020:
19-Mar  8:30 am   Weekly jobless claims
19-Mar  8:30 am   Current account
19-Mar  8:30 am   Philly Fed manufacturing index
19-Mar  10 am   Leading economic indicators

Friday, March 20, 2020:
20-Mar  10 am   Existing home sales

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

TRADER'S TIP: "Using The Market Map"

While Charting and Technical Analysis gives us a map of the market by revealing the price levels where trading decisions need to be made, it doesn't make those decisions for us. It's our job as traders to begin the journey by entering positions and taking the right exits along the way!

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Shake Shack Inc. (SHAK: Consumer Cyclical/Restaurants) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in SHAK, 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 39.85 and a SELL short entry at 35.09. Let SHAK's price action determine your long or short entry. Once the order is filled, place a 4.76 trailing stop, and tighten it to 2.38 upon getting a 5.84 gain. SHAK closed Friday at 38.70. Earnings Report Date: Apr 29, 2020. Beta: 1.25. Market-Cap: 1.454B. Optionable.

ENERGY SECTOR

Diamondback Energy, Inc. (FANG: Energy/Oil & Gas E&P) - SQUEEZE PLAY. Traders are feeling the pressure as FANG'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 28.53 and a SELL short entry at 24.58. FANG's price movement will decide which entry is filled. As soon as you're in the trade, enter a 3.95 trailing stop. Tighten it to 1.98 after you get a 5.96 gain. FANG closed Friday at 27.19. Earnings Report Date: May 04, 2020. Beta: 1.13. Market-Cap: 4.304B. Optionable.

FINANCIAL SERVICES SECTOR

Franklin Financial Network, Inc. (FSB: Financial Services/Banks-Regional) - SQUEEZE PLAY. FSB 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 24.99 and a SELL short entry at 22.80. Once your trade is filled, enter a 2.19 trailing stop. Tighten it to 1.09 after a 1.58 gain. FSB closed on Friday at 24.67. Earnings Report Date: N/A. Beta: 1.32. Market-Cap: 365.933M. Optionable.

Signature Bank (SBNY: Financial Services/Banks-Regional) - SQUEEZE PLAY. A look at SBNY'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 100.04 and a SELL short trigger at 91.34. Once SBNY shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 8.70 and tighten to 4.35 on a 6.00 gain. SBNY closed Friday at 98.18. Earnings Report Date: Apr 14, 2020. Beta: 1.37. Market-Cap: 5.301B. 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

"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 to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

Disclaimer

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