March 2, 2024 - The RightLine Report
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NOTES FROM THE EDITOR
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"The Runaway Stock"
My wife and I had completed our scuba diving lessons at the local YMCA, and after six weeks of rigorous training, we were prepared for our open water certification testing in the stunning Crystal River in Florida. This location was renowned for its diverse marine life, including the gentle manatee, making it a diver's paradise.
Our trip to the Gulf Coast of Florida was in early spring, and the lingering chill of winter necessitated full wet suits to keep us warm in the water. After enduring a couple of morning dives at depths of 50 to 60 feet, our instructor felt confident that our team of beginners was ready for some cave exploration in the afternoon. While I didn't particularly suffer from claustrophobia, I wasn't fond of the cold temperatures. So, it was a relief when our descent through the first cave led us into warmer waters, bathed in the mid-day sun.
merging from the cave, I followed our trail of bubbles to the surface, where I noticed the underside of a pontoon boat gently rocking in the shimmering water. Suddenly, a series of loud splashes caught my attention as a group of novice divers excitedly entered the water. Little did we know that this group had no formal scuba training; they had simply decided to rent equipment and dive on a whim. In hindsight, scuba diving must have seemed deceptively easy from afar.
However, they soon realized it wasn't. Before we knew it, a chaotic mass of bodies was hurtling towards us like a hailstorm. Ill-prepared and poorly balanced, these accidental parachutists struggled to control their descent, weighed down by excessive belts and clad only in t-shirts and shorts. Some even tumbled backwards, their legs flailing helplessly towards the sky.
Our team scrambled to avoid being struck by these inexperienced divers. The shock of the cold water must have been overwhelming for them. After some assistance from our more experienced members, they managed to regain their composure and continue their dive, albeit somewhat humbled.
Back on the boat, we couldn't help but laugh about the unexpected chaos caused by this impromptu dive. As we dried off, one of our usually reserved teammates couldn't help but remark, "For a moment there, I thought it was raining morons!" Needless to say, we all burst into laughter.
The moral of this tale extends to both diving and trading: motivation must be coupled with preparedness. These divers were eager but unprepared, much like traders tempted by the allure of a "Runaway Stock."
When a stock experiences a prolonged rally, inexperienced traders may be tempted to join in without considering the timing or risks involved. This fear of missing out on potential profits is driven by greed, rather than sound technical or fundamental analysis. The decision to buy is solely based on the market's upward momentum.
The lesson here is clear: never dive into a runaway stock without a well-defined entry and exit strategy. Wait for a strategic opportunity, such as a pullback to a known resistance level, to minimize risk. This approach will prevent you from tumbling into a financial abyss.
Trade wisely,
~Thomas Sutton, Editor
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"QUICK LIST"
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Stock 03/01 03/01 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
INBK 31.32 0.14 31.89 30 1.89/0.95 2.92
XNCR 23.82 0.86 24.27 2.45/1.23 1.74
XNCR 23.82 0.86 24.27 2.45/1.23 1.74
SAVA 23.00 0.02 23.59 22.14 1.45/0.73 2.08
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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/.
To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/
For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/
Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/
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MARKET SUMMARY
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Stock markets ended the week on a high note, with both the S&P 500 and Nasdaq reaching new record highs. The S&P 500 gained around 1.0% for the week, pushing its year-to-date gains to 7.7%. Investors closely monitored the US personal consumption expenditure (PCE) inflation data for January, which met expectations as core PCE inflation moderated to 2.8% year-over-year. This was well received by the markets, especially following hotter-than-expected readings earlier in the year for the consumer price index (CPI) and producer price index (PPI) inflation. Treasury yields declined after Federal Reserve speakers indicated a preference to hold interest rates steady, with the 10-year Treasury falling to 4.18%.
There are indications of broader participation in the equity markets, with sectors like communication services and technology leading the way, each up over 10% year-to-date. Additionally, cyclical and defensive sectors such as financials, health care, and industrials have also seen positive performance, up over 5% this year. Real estate and utilities, however, remain negative year-to-date due to their sensitivity to interest rates, but they may see some improvement if the Fed shifts towards rate cuts later in the year. As inflation potentially moderates and interest rates decrease, market leadership is expected to broaden to include cyclicals, small- and mid-cap stocks, and some international equities.
Next week, all eyes will be on the jobs report for February, set to be released on Friday, March 7. Expectations are for 190,000 jobs to be added, lower than the previous month's 353,000. The unemployment rate is forecasted to remain steady at 3.7%, while wage growth is expected to ease to 4.3% year-over-year. Despite some signs of fatigue in the labor market, such as lower job openings and quit rates, the solid labor market remains a pillar of strength for consumers. Over time, a better balance between labor supply and demand may alleviate pressure on wage gains.
Friday On The Week
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Dow 39,087.38 90.99 -68.14 -0.17%
Nasdaq 16,274.94 183.02 +278.12 1.74%
S&P 500 5,137.08 40.81 +48.28 0.95%
NYSE Volume 4.78B
NYSE Advancers 1,770
NYSE Decliners 1,049
Nasdaq Volume 5.47B
Nasdaq Advancers 2,586
Nasdaq Decliners 1,659
New Highs/Lows
02/23 02/26 02/27 02/28 02/29 03/01
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NYSE New Highs 272 195 181 163 239 270
NYSE New Lows 37 38 22 34 23 25
Nasdaq New Highs 263 223 254 172 271 368
Nasdaq New Lows 137 90 63 96 80 87
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TRADER'S TIP:
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TRADER'S TIP: "Reversal Gaps"
Morning gaps can occur in the same direction as a major trend or against it. When a gap moves against the trend, it can signal a significant trend change without any other pattern involved. This type of reversal gap after a strong rally should be taken as a serious event, especially if it occurs near a major high. The same is true of a reversal gap that takes place following a major decline. It pays to take notice of whether a gap near a high or low is in the direction of the trend or against it.
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THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average.
For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/
https://www.prorightline.com/rlch/030124SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern):
************************** MARKET CALENDAR **************************
MONDAY, MARCH 4 12:00 pm Philadelphia Fed President Tom Harker speaks TUESDAY, MARCH 5 10:00 am Factory orders 10:00 am ISM services 12:00 pm Fed Vice Chair for Supervision Michael Barr speaks 3:30 pm Fed Vice Chair for Supervision Michael Barr speaks WEDNESDAY, MARCH 6 8:15 am ADP employment 10:00 am Fed Chair Jerome Powell testifies to Congress 10:00 am U.S. wholesale inventories 10:00 am Job openings 12:00 pm San Francisco Fed President Mary Daly speaks 2:00 pm Federal Reserve Beige Book 4:15 pm Minneapolis Fed President Neel Kashkari speaks THURSDAY, MARCH 7 8:30 am Initial jobless claims 8:30 am U.S. productivity (revision) 8:30 am U.S. trade balance 9:40 am Fed Chair Jerome Powell testifies to Congress 11:30 am Cleveland Fed President Loretta Mester speaks 3:00 pm Consumer credit FRIDAY, MARCH 8 7:00 am New York Fed President John Williams speaks 8:30 am U.S. nonfarm payrolls 8:30 am U.S. unemployment rate 8:30 am U.S. hourly wages 8:30 am Hourly wages year over year
For a chart of typical Up or Down market reactions to specific major US economic reports, go to "Economic Indicator Effects" at this link: https://prorightline.com/index.php/economic-indicator-effects/
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TRADER'S TIP:
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TRADER'S TIP: "A School of Fish"
Have you ever watched a school of fish in the water? It's amazing how quickly these co-dependent aquatic creatures can change direction. The action of a single fish impacts the entire group, and vice versa. Just like the "school" of fish influences each individual fish that makes up the school, the larger stock market influences the price movement of the individual stocks that make up the market. Not all stocks move in exactly the same direction and same speed as the larger market, yet the greater "school" of stocks - as represented by the indices - dramatically affects the price movement of most individual stocks.
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STOCKS COVERED IN THIS ISSUE
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FINANCIAL SERVICES SECTOR
First Internet Bancorp (INBK: Financial Services/Banks - Regional) - SQUEEZE PLAY. Traders are feeling the pressure as INBK'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 31.89 and a SELL short entry at 30. INBK's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.89 trailing stop. Tighten it to 0.95 after you get a 2.92 gain. INBK closed Friday at 31.32. Earnings Report Date: Apr 24, 2024. Beta: 0.74. Market-Cap: 270.744M. Optionable.
HEALTHCARE SECTOR
Xencor, Inc. (XNCR: Healthcare/Biotechnology) - 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. XNCR's current price action near moving average support signals a potential BUY entry at 24.27, followed by a 2.45 trailing stop which can be tightened to 1.23 upon earning 1.74. XNCR closed Friday at 23.82. Earnings Report Date: May 06, 2024. Beta: 0.70. Market-Cap: 1.453B. Optionable.
Xencor, Inc. (XNCR: Healthcare/Biotechnology) - 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 23.82, XNCR is on our radar for a BUY entry at 24.27. If you purchase shares of XNCR, be sure to also place a trailing stop of 2.45. Snug it up to 1.23 on a 1.74 gain. Earnings Report Date: May 06, 2024. Beta: 0.70. Market-Cap: 1.453B. Optionable.
Cassava Sciences, Inc. (SAVA: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's trading session left SAVA 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 23.59 and your SELL short trigger at 22.14. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.45 trailing stop. Once you have a 2.08 profit, reduce the stop to 0.73. Earnings Report Date: Apr 29, 2024. Beta: -0.39. Market-Cap: 971.449M. Optionable.
IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy.
Link: https://prorightline.com/index.php/rightline-risk-control-system/
Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels.
Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/
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STOCK SPLIT SUMMARY
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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 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.
For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/
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TRADER'S CORNER
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Gap Adjusted Entries
The "Gap Adjusted Entry" is a technique we use to reset our entries when a stock gaps open beyond or through the recommended RightLine entry price. For those who aren't familiar with the term, a "gap open" is simply the difference between the price of a stock at the open compared to the previous day's close - either up or down.
~ How It Works
Here's how the Gap Adjusted Entry works. Let's say that a stock closes at $30, and we plan to buy it IF it reaches $32. However, the next morning it gaps higher - beyond our entry price of $32, and opens at $33. We can then apply the gap open tactic. Instead of entering immediately at $33, we wait until the stock has traded for thirty minutes. We then check the highest price that the stock traded at during that thirty minutes, and re-set our entry point to just above that level.
~ How Much To Adjust
The amount to adjust the entry is usually 0.25 for stocks priced up to $50, 0.50 for stocks from $50.01 to $100, and 1.00 for stocks over $100. Once the price is reached, we enter our trade.
It's as simple as that. If the stock has "real" buying behind it, prices will first gap up at the open, dip down as day-traders grab a quick profit, then turn around and move higher. By waiting until the first thirty minutes of trading is past, we avoid buying at what is very often the high of the day.
~ Example of a Buy Entry - (Long)
Take a look at the example below. The original entry price is set at $32.46. On March 28 GIVN closes at $32.20 - beneath the planned entry level. The next morning GIVN gaps open above the planned entry level. This is where the Gap Adjusted Entry technique comes in. The high for the first 30 minutes of trading on March 29 is $33.77, so the original planned entry is adjusted to just above that level. The new Gap Adjusted Entry is set at $34.02. Later in the session price moves up to the new entry level, triggering the trade.
~ A Common Misinterpretation
On several occasions we've received feedback from traders who have applied the Gap Adjusted Entry incorrectly. To help clarify what NOT to do, let's review a common error.
Here's the mistake. Buyers noted the high of the first 30 minutes and then immediately placed a bid to buy at 1/4 point higher then the high of the day - even though the stock had dropped and was currently trading much lower. This meant that their open order was filled immediately at the higher price, WAY over the current bid and ask price. You can bet that some seller was very pleased!
There is an easy way to avoid this - just wait to see if the stock continues to go higher BEFORE placing the order. If you are unable to wait for the market to move higher, just enter a "buy stop order" using the Gap Adjusted Entry price. A "buy stop order" is held by your broker until the stock price rises to your specified stop price, at which point it is executed at the market price.
~ Gap Adjusted Entries for Shorting
For traders who like to sell short, the Gap Open Tactic can also be used effectively when stocks gap lower. Simply wait 30-minutes, then adjust the entry level to just BELOW the suggested short entry price. Subtract the same adjustment amount that we used with long positions - 0.25 for stocks priced up to $50, 0.50 for stocks from $50.01 to $100, and 1.00 for stocks over $100.
~ Example of a Short Sale Entry - (Short)
Take a look at the chart of IGT below. In this example the original entry price - a short - is set at $46.14. On April 21 IGT closes at $46.57 - beneath the planned entry level. The next morning IGT gaps open below the planned entry level. This is where the Gap Adjusted Entry technique comes in. The low for the first 30 minutes of trading on April 22 is $44.09, so the original planned entry is adjusted to just beneath that level. The new Gap Adjusted Entry is set at $43.84. Later in the session price moves down to the new short entry level, triggering the trade.
~ Summary
RightLine traders have found that the Gap Adjusted Entry method helps avoid being "top picked" on long entries - buying into a reversal near the session high. It also reduces the likelihood of being "bottom picked" when going short. Like any system, method, tactic or strategy, the Gap Adjusted Entry doesn't work all of the time. However, it does offer traders and investors an intelligent alternative when your original entry is lost in the gap.
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Best of luck and have a Great Week!
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