March 28, 2020 - The RightLine Report
Notes From The Editor
Many traders spend an undue amount of energy worrying about what the market will do next. In fact, forecasting market direction is probably Wall Street's number one vice.
Like most vices, it offers little reward for the time invested. No one is completely immune to the lure of the crystal ball, but fortunately there's a simple solution to this common obsession.
Here's the strategy. Instead of worrying about what the market will do, let's spend our time planning what WE will do in response to the "one thing" that the market always does ... MOVE!
Our job as traders distills down to a very basic task. The primary objective is to capture price movement. While trying to predict price direction may seem like the logical first step in capturing movement, it actually overcomplicates the process.
Studies show that it is virtually if not literally impossible to consistently predict price movement. Attempting or expecting to do it usually leads to an unwise investment in time and energy.
When it comes to the stock market the most important quality is an action - price movement. After all it's in price movement that we find profits.
There are only three specific ways that the market can move ... up, down, or sideways. Instead of trying to predict which of these three will occur next, it's much easier to use a trading style that captures movement regardless of direction.
There are a number of methods that work well with this approach, but we won't go into the details of specific setup and entry requirements in this article. However, we can start to lay the foundation for understanding this strategy by asking ourselves two simple questions within the context of the three possible ways the market can move - "What" and "When."
What and When should always be considered in advance of entering any position to arrive at specific entry and exit instructions for these possible scenarios:
Entries:
a) price goes up
b) price goes down
c) price moves sideways
Exits:
a) the trade moves in your favor
b) the trade moves against you
c) the trade doesn't move at all
"What & When." As far as these two are concerned, details DO matter. It isn't a good idea to approximate, or wait until you "get there" to decide what to do. Plan ahead, put it in writing, and always include the specific conditions and/or price levels for entries and exits.
When using a trailing stop method to lock in gains, make certain that you plan in advance exactly when the trailing stop will be adjusted. And as a consistent rule always ask "What & When" BEFORE you put money in the market.
Enjoy the weekend!
~ Thomas Sutton, Editor
Stocks Covered Today ... Stock Splits ... Trader's Corner
Quick List
Stock 03/27 03/27 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
KBR 20.23 -1.03 21.40 19.10 2.30/1.15 3.58
CORR 20.12 -2.96 22.68 19.34 3.34/1.67 6.08
LDP 20.06 -0.84 20.71 19.09 1.62/0.81 2.14
DDT 20.25 -0.74 21.00 19.40 1.60/0.80 1.74
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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Stocks Covered Today ... Stock Splits ... Trader's Corner
Market Summary
Stocks closed lower on Friday after a three-day upsurge that saw the Dow post the largest rally since the Depression. Economic news included a rise in both personal income and spending for February, while consumer sentiment dropped to a multi-year low in March. In equities, KB Home (KBH $19) and Lululemon Athletica (LULU $190) joined a growing list of companies who have announced earnings but postponed issuing guidance due to coronavirus uncertainty. LULU met expectations, while KBH beat forecasts on top and bottom lines. Gold, the USD/dollar, treasury yields and oil prices all declined.
Friday On The Week
-------------------- --------------------
Dow 21,637 -915.39 +2463 12.85%
Nasdaq 7,502.38 -295.16 +622.86 9.05%
S&P 500 2,541 -88.60 +236 10.24%
NYSE Volume 6.28B
NYSE Advancers 655
NYSE Decliners 2355
Nasdaq Volume 4.01B
Nasdaq Advancers 846
Nasdaq Decliners 2484
New Highs/Lows
03/20 03/23 03/24 03/25 03/26 03/27
--------------------------------------------
NYSE New Highs 1 2 1 3 4 3
NYSE New Lows 299 805 87 54 21 43
Nasdaq New Highs 8 7 8 5 5 12
Nasdaq New Lows 336 783 115 72 31 46
Stocks Covered Today ... Stock Splits ... Trader's Corner
TRADER'S TIP: "Finding the Daily Trend"
Though it sounds simple, the trend can be an elusive rascal that is subject to many definitions. One thing is for certain - determining "the trend" requires an associated reference point, such as time frame or number of bars. To locate short-term trends on a daily chart, consider using the 10-EMA (Exponential Moving Average). If the slope is up, you can safely assume that the daily trend is too. If it's down, a downtrend is likely underway.
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 - 2541.47 March 27, 2020
52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3347.08
Resistance 2: 2901.93
Resistance 1: 2721.70
Pivot: 2456.78
Support 1: 2276.55
Support 2: 2011.63
Support 3: 1566.48
NASDAQ Composite - 7502.38 March 27, 2020
52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 9671.33
Resistance 2: 8492.93
Resistance 1: 7997.66
Pivot: 7314.54
Support 1: 6819.26
Support 2: 6136.14
Support 3: 4957.74
Dow Industrials - 21636.78 March 27, 2020
52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 29577.98
Resistance 2: 25196.57
Resistance 1: 23416.67
Pivot: 20815.16
Support 1: 19035.26
Support 2: 16433.75
Support 3: 12052.34
Stocks Covered Today ... Stock Splits ... Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, March 30, 2020: 30-Mar 10 am Pending home sales index Tuesday, March 31, 2020: 31-Mar 9 am Case-Shiller home price index 31-Mar 9:45 am Chicago PMI 31-Mar 10 am Consumer confidence index Wednesday, April 01, 2020: 01-Apr 8:15 am ADP employment report 01-Apr 9:45 am Markit manufacturing PMI 01-Apr 10 am ISM manufacturing index 01-Apr 10 am Construction spending 01-Apr Varies Motor vehicle sales 01-Apr Thursday, April 02, 2020: 02-Apr 8:30 am Weekly jobless claims 02-Apr 8:30 am Trade deficit 02-Apr 10 am Factory orders Friday, April 3, 2020: 03-Apr 8:30 am Nonfarm payrolls 03-Apr 8:30 am Unemployment rate 03-Apr 8:30 am Average hourly earnings 03-Apr 9:45 am Markit services PMI 03-Apr 10 am ISM nonmanufacturing index
For a chart of typical Up or Down market reactions to specific major US economic reports
go to:
Economic Indicator Effects
Stocks Covered Today ... Stock Splits ... Trader's Corner
TRADER'S TIP: "Setting a Profit Target"
When projecting the potential risk vs. reward for a trade, you will want to establish a profit target. While there are numerous ways to determine a profit objective, or "target," one of the best methods is to use a previous price peak as the general area where you will set your target. This becomes your potential reward, while the initial stop level is your risk. As a rule of thumb you should only enter trades with a minimum 1- to-2 risk/reward ratio - ideally you want trades with a 1-to-3 or higher risk/reward ratio.
Stocks Covered in This Issue
INDUSTRIALS SECTOR
KBR, Inc. (KBR: Industrials/Engineering & Construction) - 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. KBR 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 21.40 and a SELL short trigger at 19.10. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 2.30 which can be tightened to 1.15 on a 3.58 gain. KBR closed Friday at 20.23. Earnings Report Date: Apr 28, 2020. Beta: 1.40. Market-Cap: 2.871B. Optionable.
REAL ESTATE SECTOR
CorEnergy Infrastructure Trust, Inc. (CORR: Real Estate/REIT-Diversified) - SQUEEZE PLAY. Trader indecision has put CORR squarely in the center of a Bull versus Bear standoff. This tight spot should soon give way to a clear winner in the short-term, and we want to be in position for the move. To do that we've set a BUY entry at 22.68 and a SELL short entry at 19.34. Now it's up to CORR to show us which entry will be filled. Once the trade is underway place a 3.34 trailing stop, which can be tightened to 1.67 after you achieve a 6.08 profit. CORR closed on Friday at 20.12. Earnings Report Date: Apr 28, 2020. Beta: 1.58. Market-Cap: 274.668M. Optionable.
N/A SECTOR
Cohen & Steers Limited Duration Preferred and Income Fund, Inc. (LDP: N/A/N/A) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In LDP's case we will enter a BUY should it reach the 20.71 level, or a SELL short trade if it drops to 19.09. As usual a trailing stop is essential, 1.62 which should be tightened to 0.81 on a 2.14 gain. LDP closed Friday at 20.06. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 574.334M. Not Optionable.
Dillards Capital Trust I CAP SECS 7.5% (DDT: N/A/N/A) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in DDT'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 21.00 and a SELL order at 19.40. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.60 trailing stop. Tighten the stop to 0.80 once you have a 1.74 gain. DDT closed Friday at 20.25. Earnings Report Date: N/A. Beta: N/A. Market-Cap: N/A. 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.
Stocks Covered Today ... Stock Splits ... Trader's Corner
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.
Stocks Covered Today ... Stock Splits ... Trader's Corner
Trader's Corner
Trading Tactic: The New High Dip
The New High Dip tactic takes advantage of reoccurring market behavior that often takes place after a stock has just set a new 52-week high. It consists of buying the first pullback or "dip" after a stock moves above previous resistance and sets a new high. What makes this tactic so effective is the consistency of human nature - the driving force behind all price movement. Here's how it works:
After the initial flurry of buying that occurs when a stock breaks out to a new high, prices will usually pull back for a breather. This retreat is often a good place to buy, and usually provides a safe entry on a stock that has obviously shown strength already.
Several emotional dynamics are behind this tactic. One group of traders missed the first breakout move, and is hoping for another chance to get in before prices race off to even more new highs. They buy into the pullback and in doing so contribute their part to slowing the decline with their cash investment. They feel that they've made a wise choice and patiently wait for the shares to bounce.
Another group is already in the stock with profits, having bought into the stock before the breakout. This group is looking for a chance to add to their positions and will take advantage of the retreat to get in at a good price.
The last group of traders - just like the second group - bought into the stock before the breakout. But instead of holding on as prices began to retreat, they sold near the high and pocketed some profits for their efforts. Now they are waiting for a rebound to give them a chance to get back in and ride the "profit highway" once again.
The best place to enter a buy order is usually near the original breakout level. Sometimes a significant moving average will also line up to strengthen the support at the breakout level. The dip back to the support in that zone will usually result in a short-term bounce.
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Each of the previously mentioned groups of buyers will help the stock rebound from the support level and often resume the advance to new highs.
While the market dynamics at work increase the odds that the upward trend will continue, there are a few things that can interrupt the stock's upward progress.
If the broader market falls hard enough and long enough, trader's moods can change and more selling will occur, stopping the stock from rebounding. Negative news about the company or industry can also have an impact and keep the stock from heading higher.
To protect your trading account, always use protective stops to prevent unplanned losses. Remember that no tactic will work 100-percent of the time, but sound risk management will ensure that any losses are minimal.
Just make sure that the reason for the stock's decline after reaching a new 52-week high appears to be the result of normal profit taking and not some significant negative event.
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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