March 3, 2022 - The RightLine Report
Notes From The Editor
One of the most oft-repeated pieces of stock market advice is to "trade what you see, not what you think." This axiom seems to suggest two things: don't trade on emotion, and base your decisions on observations rather than expectations. After several losing trades, I learned early in my trading career that these words should be taken to heart.
Keeping emotions in check is especially important in strong Bull or Bear markets. Greed, hope, and fear are contagious and can spread like wildfire when the crowd reaches extremes. Take the dot-com boom just before Y2K, when tech stocks were climbing into the stratosphere.
Back then, traders would rush in with buy orders based on the simple expectation of higher prices. Neither the fundamentals (which showed extremely high valuations) nor the technicals (which were blatantly overbought) played a role in their decisions. The cycle of frenzied buying finally spun out of control, and traders who ignored signs of a market downturn suffered major hits to their accounts.
The same dynamic is repeated every day on a smaller scale. I've seen this first-hand on many occasions, watching stocks poised to break out. Typically when they finally cross over resistance, many traders will jump onboard on the expectation of an upward surge. However, the overall technical picture doesn't always support this outlook; volume can be weak on the breakout, the oscillators may already be overbought, and the stock can lag behind the broader market. Within a few minutes the upward spike can reverse into a "head-fake" pullback, and traders who buy the breakout may end up holding losing positions.
The beauty of technical analysis is that it forces you to trade based on what is happening. If certain conditions aren't met, the order is never placed. But with the "trade what you see" approach, is there any room for instinct and "gut-feeling"? You bet!
Webster's defines "intuition" as "instinctive knowing, without the use of rational processes." Trading involves interpreting countless pieces of information. Things like relative strength, oscillator movement, price action, and market news all factor into buy/sell decisions. The gut-feeling that sometimes arises when making a trading decision can be thought of as your brain's overall reaction after processing all that information.
Sometimes a trade set-up looks good but just doesn't "feel right." When this happens, double check to see that you're using a solid risk management strategy that includes position sizing and stop placement. This will ensure that the gut-feeling doesn't stem from a fear of taking an unacceptable loss. If the instinct still remains, it may be your subconscious mind telling you that there's something amiss with the set-up.
When in doubt, go with your gut! The great thing about the market is that there's always another trading opportunity just around the bend.
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits
Quick List
Stock 03/03 03/03 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
BBW 20.48 -0.13 21.17 19.5 1.67/0.84 2
LANC 162.82 0.23 166.66 9.72/4.86 8.25
CRT 14.98 0.15 15.36 0.99/0.5 1.02
CDXS 20.23 0.31 20.56 18.89 1.67/0.84 2.66
TCMD 20.34 0.31 20.9 19.34 1.56/0.78 1.44
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
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Stocks Covered Today Stock Splits
Market Summary
The major US stock averages were solidly lower on Thursday as the markets remain cautious in the midst of heightened geopolitical tension due to the Russian invasion of Ukraine. Energy and commodity prices have surged higher and could intensify the already fiery inflation rate. A robust economic calendar highlighted disappointing service sector growth in February, a lower number of initial unemployment claims than expected, and surprisingly higher factory orders than were forecast. In equities, Best Buy (BBY $110) announced mixed earnings results and presented weak guidance for the current year, yet the stock price moved higher. Gold and the USD/dollar were also higher, oil prices declined a bit after the recent surge, and treasuries were mixed.
Mar 2, 2022 Mar 3, 2022
-------------------- --------------------
Dow 33,891.35 596.40 33,794.66 -96.69
Nasdaq 13,752.02 219.56 13,537.94 -214.07
S&P 500 4,386.54 80.28 4,363.49 -23.05
NYSE Volume 5.37B 5.08B
NYSE Advancers 2,440 1,384
NYSE Decliners 908 1,919
Nasdaq Volume 5.22B 5.07B
Nasdaq Advancers 3,091 1,510
Nasdaq Decliners 1,579 3,179
New Highs/Lows
02/24 02/25 02/28 03/01 03/02 03/03
--------------------------------------------
NYSE New Highs 22 44 68 109 127 104
NYSE New Lows 792 73 104 133 99 126
Nasdaq New Highs 29 47 62 67 77 59
Nasdaq New Lows 1,344 135 185 229 215 315
Stocks Covered Today Stock Splits
TRADER'S TIP: "No Retro-Trading Allowed"
No one sells at the "top" all of the time, so don't fret over selling a stock that goes up even higher after you get out. Trust your planned exit strategy and never punish yourself for selling "too early." There's always another trade around the corner.
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 - 4363.49 March 3, 2022
52-Week High: 4818.62
52-Week Low: 3723.34
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4858.00
Resistance 2: 4577.99
Resistance 1: 4481.32
Pivot: 4297.98
Support 1: 4201.31
Support 2: 4017.97
Support 3: 3737.96
NASDAQ Composite - 13537.94 March 3, 2022
52-Week High: 16212.23
52-Week Low: 12397.05
Daily Trend: UP
Weekly trend: DOWN
Dow Industrials - 33794.66 March 3, 2022
52-Week High: 36952.65
52-Week Low: 30547.53
Daily Trend: UP
Weekly trend: DOWN
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, February 28, 2022: 28-Feb 8:30 am Trade in goods, advance report 28-Feb 9:45 am Chicago PMI Tuesday, March 01, 2022: 01-Mar 9:45 am Markit manufacturing PMI (final) 01-Mar 10 am ISM manufacturing index 01-Mar 10 am Construction spending Wednesday, March 02, 2022: 02-Mar 8:15 am ADP employment report 02-Mar 2 pm Beige Book Thursday, March 03, 2022: 03-Mar 8:30 am Initial jobless claims 03-Mar 8:30 am Continuing jobless claims 03-Mar 8:30 am Productivity revision (SAAR) 03-Mar 8:30 am Unit labor costs revision (SAAR) 03-Mar 9:45 am Markit services PMI (final) 03-Mar 10 am ISM services index 03-Mar 10 am Factory orders 03-Mar 10 am Core capital equipment orders (revision) Friday, March 04, 2022: 04-Mar 8:30 am Nonfarm payrolls 04-Mar 8:30 am Unemployment rate 04-Mar 8:30 am Average hourly earnings 04-Mar 8:30 am Labor force participation rate, prime working age 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 TIP: "Okay - Where's The Bounce?"
RightLine analysts look at a myriad of charts and technical indicators in order to determine the best stocks and entry points. When our research indicates that a "bounce" play has a high probability and potential for profit, our next job is to determine the level at which the bounce is likely to occur. Be aware that a bounce can be "up" from support (similar to a ball bouncing up from the floor), or "down" from resistance (similar to a ball bouncing down from the ceiling). Frequently, the "floor" or "ceiling" from which a bounce will occur is one of our closely watched DMA (Daily Moving Average) lines.
Remember, however, that DMAs are dynamic, and constantly move based on each new day's pricing data! With that in mind, when we say to "Buy on a bounce up from support near the 22 DMA (30.50)" what must be taken into consideration is that the DMA may be moving higher. Consequently, when shares pull back three or four trading days later, the bounce will still occur at the 22 DMA - but that DMA may now be up to 32.50! Just make sure you do a quick double- check of where the DMA is located before blindly jumping into a trade - or missing a good entry!
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Build-A-Bear Workshop, Inc. (BBW: Consumer Cyclical/Specialty Retail) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in BBW's narrowest trading range of the past seven sessions. With neither group able to take complete control on Thursday, 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 21.17 and a SELL order at 19.5. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.67 trailing stop. Tighten the stop to 0.84 once you have a 2 gain. BBW closed Thursday at 20.48. Earnings Report Date: Mar 08, 2022. Beta: 1.98. Market-Cap: 334.393M. Optionable.
CONSUMER DEFENSIVE SECTOR
Lancaster Colony Corporation (LANC: Consumer Defensive/Packaged Foods) - BULLISH BOUNCE. LANC's positive weekly uptrend is still intact despite recent selling that has driven share prices lower. Price action on Thursday shows that traders are aware of the moving average support zone now in play, and they are ready to consider buying again. A shift up from this point will attract even more buyers. The new buying should move LANC back in step with the bullish weekly trend, so our BUY entry trigger is set at 166.66. Once you hold a position, trail a stop of 9.72. Tighten it to 4.86 on a 8.25 gain. LANC closed at 162.82 on Thursday. Earnings Report Date: May 02, 2022. Beta: 0.26. Market-Cap: 4.483B. Optionable.
ENERGY SECTOR
Cross Timbers Royalty Trust (CRT: Energy/Oil & Gas E&P) - BULLISH BOUNCE. Positive price behavior near moving average support on Thursday qualifies CRT for a Bullish Bounce setup. After several sessions of declining prices, CRT should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if CRT moves up to our entry trigger set at 15.36. You can also enter a 0.99 trailing stop, to be replaced with a 0.5 trailing stop when you obtain a 1.02 profit. CRT closed Thursday at 14.98. Earnings Report Date: N/A. Beta: 0.78. Market-Cap: 89.88M. Not Optionable.
HEALTHCARE SECTOR
Codexis, Inc. (CDXS: Healthcare/Biotechnology) - 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 CDXS's case we will enter a BUY should it reach the 20.56 level, or a SELL short trade if it drops to 18.89. As usual a trailing stop is essential, 1.67 which should be tightened to 0.84 on a 2.66 gain. CDXS closed Thursday at 20.23. Earnings Report Date: May 04, 2022. Beta: 1.74. Market-Cap: 1.318B. Optionable.
Tactile Systems Technology, Inc. (TCMD: Healthcare/Medical Devices) - SQUEEZE PLAY. Trader indecision has put TCMD 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 20.9 and a SELL short entry at 19.34. Now it's up to TCMD to show us which entry will be filled. Once the trade is underway place a 1.56 trailing stop, which can be tightened to 0.78 after you achieve a 1.44 profit. TCMD closed on Thursday at 20.34. Earnings Report Date: Apr 06, 2022. Beta: 1.38. Market-Cap: 404.455M. 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
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
---------------- ------- -------- ------- ------ -------
ePlus PLUS 11/9/2021 12/14/2021 2-for-1 Yes
NAPCO Security NSSC 12/8/2021 1/5/2022 2-for-1 Yes
AeroCentury Corp ACY 12/17/2021 1/10/2022 5-for-1 No
Merchants Bancorp MBIN 11/17/2021 1/18/2022 2-for-1 No
SMART Global Hold SGH 1/4/2022 2/2/2022 2-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.
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.
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