March 9, 2024 - The RightLine Report
Notes From The Editor
In previous RightLine Reports we have featured veteran trader Brett Steenbarger's thoughts on Perfectionism, The Ego, and Over-Confidence. Brett is a licensed psychologist and a twenty year veteran trader who writes extensively about the mental aspects of trading the markets.
Brett believes that one of the best ways to prevent negative trading habits is to become an observer of our own behaviors. Below you'll find Brett's summary from his article "The Three Vices of Trading."
The Three Vices: Summary
Clearly, the three vices - Perfectionism, The Ego and Over-Confidence - are not completely independent of one another. There can be significant overlap for traders.
For example, a trader might take a position out of overconfidence, then hold onto it out of ego-related stubbornness and pride. Whether the vice is perfectionism, ego, or overconfidence, the basic problem is the same: Making the trade about oneself, rather than about the markets.
If you are thinking about yourself - how much you'll make or lose, how well or poorly you've done, how much you're a success or a loser, how much better you could have done - you can't be fully focused on the markets.
It's not about you. It's about the setups and the ability to read them. And to read them, you must be one with them, immersed in them, so that you feel them, not just observe them. You can't feel the markets and become lost in feelings of anger, frustration, elation, guilt, depression, impatience, or impulsive need.
The greatest vice in trading is to take it personally, to become so focused on the outcome of trading that you lose sight of the process. If you are fulfilled outside of trading, your other needs will not infiltrate your decision-making and sabotage your entries, exits, and money management.
If you build yourself physically, socially, spiritually, and professionally, you will find that the markets won't need to bear the burden of carrying your identity. At that point, you'll be able to say (in your best Woodie voice):
"We Don't Need No Stinkin' Vices!"
~ Brett N. Steenbarger, Ph.D
Note: Brett is a former Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and the author of "The Psychology of Trading."
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 03/08 03/08 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
COCO 25.07 0.25 25.54 23.85 1.69/0.85 1.32
AKRO 31.18 0.30 32.99 29.66 3.33/1.67 3.66
RNA 21.46 1.43 21.83 19.72 2.11/1.06 1.66
FLYW 26.97 0.62 27.37 1.81/0.91 1.42
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 Trader's Corner
Market Summary
A mixed but ultimately positive jobs report initially propelled major equity indexes to new all-time highs early Friday. However, the morning's vigor waned in the afternoon, driven by weakness in the "Magnificent 7" mega-cap stocks, particularly NVIDIA. NVIDIA, which had seen an impressive 80% surge year-to-date, experienced a 5.5% drop, indicating profit-taking following its exceptional rally.
Shifting focus to the economic data, the February report showcased robust job creation alongside moderating wage growth, aligning with market expectations. Consequently, government bond yields dipped modestly across the curve, with markets now fully pricing in a rate cut in June and anticipating a total of four cuts for the year.
The solid job gains and tempered wage growth present a positive combination for markets, reinforcing the narrative of a soft landing where economic growth remains robust while inflation cools. Job growth was primarily driven by the services sectors, including healthcare, leisure and hospitality, and the government. Notably, wage growth moderated more than anticipated. This gradual downshift in the labor market supports ongoing economic expansion, while also normalizing the previous imbalance between labor supply and demand, likely facilitating inflation easing and eventual Fed rate cuts this year.
With the February jobs report behind, attention now shifts to Tuesday's inflation report to solidify expectations for a Fed pivot to rate cuts. Fed Chair Powell has reiterated patience while hinting at growing confidence in policy loosening as progress on inflation continues. Despite potential bumps in the final stretch toward 2% inflation, further moderation is anticipated in the coming months, driven by factors like lower housing costs and subdued wage growth. Additionally, the recent uptick in productivity suggests that low unemployment can be sustained without stoking inflationary pressures.
As conditions align for the first rate cut, expected in June, the market may experience choppier waters ahead, but as long as economic indicators remain favorable, any pullbacks are likely to be short-lived.
Friday On The Week
-------------------- --------------------
Dow 38,760.49 -30.86 -326.89 -0.84%
Nasdaq 16,085.11 -188.26 -189.83 -1.17%
S&P 500 5,129.57 -27.79 -7.51 -0.15%
NYSE Volume 4.21B
NYSE Advancers 1,549
NYSE Decliners 1,244
Nasdaq Volume 5.42B
Nasdaq Advancers 2,073
Nasdaq Decliners 2,167
New Highs/Lows
03/01 03/04 03/05 03/06 03/07 03/08
--------------------------------------------
NYSE New Highs 270 288 166 217 296 288
NYSE New Lows 25 36 37 31 20 15
Nasdaq New Highs 368 368 133 221 331 354
Nasdaq New Lows 87 115 114 116 90 83
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Market Mischief: Headfakes & Whipsaws"
Headfakes and whipsaws are terms used to describe market action with sharp price movement and abrupt reversals. This type of "yo-yo" action can cause a trader's stop to be triggered soon after a position is entered. Headfakes and whipsaws often result when market makers and other "deep pockets" push prices in one direction in an attempt to convince traders that the move is legit, then abruptly reverse the move.
Headfakes, whipsaws, and other false breakouts are a normal part of trading, so condition yourself not to let them frustrate you. Even the best-looking trade will blow up sometimes, yet it really doesn't matter because the loss is contained when you apply solid risk control. Just remember that we're playing a game of odds where the "edge" in our trading plan provides profits over time.
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".
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, MAR 11 None scheduled TUESDAY, MAR 12 6:00 am NFIB optimism index 8:30 am Consumer price index 8:30 am Core CPI 8:30 am CPI year over year 8:30 am Core CPI year over year 2:00 pm Monthly U.S. federal budget WEDNESDAY, MAR 13 None scheduled THURSDAY, MAR 14 8:30 am U.S. retail sales 8:30 am Retail sales minus autos 8:30 am Producer price index 8:30 am Core PPI 8:30 am PPI year over year 8:30 am Core PPI year over year 8:30 am Initial jobless claims 10:00 am Business inventories FRIDAY, MAR 15 8:30 am Empire State manufacturing survey 8:30 am Import price index 8:30 am Import price index minus fuel 9:15 am Industrial production 9:15 am Capacity utilization 10:00 am Consumer sentiment (prelim) 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: "Check the Charts, Not the Chatters"
When it comes to market reversals, traders usually listen to the wrong sources. They often follow the news media when they would be much better off viewing the technical picture. Avoid the mind numbing chatter of self-appointed experts. These guys and gals are normally there to make money for themselves - not for you.
Stocks Covered in This Issue
CONSUMER DEFENSIVE SECTOR
The Vita Coco Company, Inc. (COCO: Consumer Defensive/Beverages - Non-Alcoholic) - SQUEEZE PLAY. Friday's trading session left COCO 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 25.54 and your SELL short trigger at 23.85. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.69 trailing stop. Once you have a 1.32 profit, reduce the stop to 0.85. Earnings Report Date: May 01, 2024. Beta: 0.18. Market-Cap: 1.426B. Optionable.
HEALTHCARE SECTOR
Akero Therapeutics, Inc. (AKRO: Healthcare/Biotechnology) - SQUEEZE PLAY. AKRO shareholders know what it feels like to be squeezed. Friday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. AKRO closed Friday at 31.18. The plan is to enter in the right direction by placing a BUY trigger at 32.99 and a SELL short trigger at 29.66. Once AKRO establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 3.33. After you've collected a 3.66 profit, tighten the stop to 1.67. Earnings Report Date: May 13, 2024. Beta: -0.37. Market-Cap: 1.755B. Optionable.
Avidity Biosciences, Inc. (RNA: Healthcare/Biotechnology) - SQUEEZE PLAY. The ticker for Friday's session shows RNA is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 21.83 and a SELL short trigger at 19.72. When RNA starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 2.11 trailing stop. Upon reaching a 1.66 profit, resize the stop to 1.06. Earnings Report Date: May 07, 2024. Beta: 0.71. Market-Cap: 1.711B. Optionable.
TECHNOLOGY SECTOR
Flywire Corporation (FLYW: Technology/Software - Infrastructure) - BULLISH BOUNCE. Another bullish bouncer, FLYW appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Friday's positive price action near Moving Average support says it's time to BUY shares if FLYW reaches our entry trigger set at 27.37. Also place a 1.81 trailing stop which can be narrowed to 0.91 when you reach a 1.42 profit. FLYW closed Friday at 26.97. Earnings Report Date: N/A. Beta: 1.06. Market-Cap: 3.313B. 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
---------------- ------- -------- ------- ------ -------
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.
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
Morning Gap Strategies
Having trouble with those irritating morning gaps? You're not alone. Many of us spend hours working on new setups, only to watch them go up in smoke overnight. But there's no need to throw out all of your hard work just yet. You can do a quick analysis, adjust your trading strategy and get into a good position well after the crowd pulls the trigger on a gap play.
Many traders still place market orders before the open and walk away. Unfortunately, this is a sucker move that yields the worst fills imaginable. Take a few extra minutes to plan your gap entry, and you'll get much better prices. No, this isn't a daytrading column, although it will benefit anyone who plays in the intraday markets. It's for swing traders trying to fine-tune their entries and get positioned where they can take home the most money. Here are some strategies you can use.
Stand aside at the open, and use the third-bar swing to find the best gap entry. This is a dependable reversal or expansion move on the five- minute chart, occurring 11 or 12 minutes into the new trading day. This phenomenon is a relic of the old 15-minute quote delay. In past years, painting the tape before retail investors could access stock prices ensured a few extra pennies for market insiders. Because retailers were the last "paper" in the door, natural forces would then take over and trigger reversals or breakouts. Although real-time market access has grown substantially, this third-bar swing still shows its face on many days.
Let the stock draw the first three five-minute bars, and then use the high and low of this "three-bar range" as support and resistance levels. A buy signal issues when price exceeds the high of the three- bar range after an up gap. A sell signal issues when price exceeds the low of the three-bar range after a down gap. It's a simple technique that works like a charm in many cases. If you use this technique, though, a few caveats are in order to avoid whipsaws and other market traps. The most common is a first swing that lasts longer than three bars. If an obvious range builds in four, five or even six bars, use those to define your support and resistance levels. Also consider the higher noise level in five-minute charts. A breakout that extends only a tick or two can be easily reversed and trap you in a sudden loss. So let others take the bait at these levels, while you find pullbacks and narrow range bars for trade execution.
Gap location is more important than the gap itself. Does the opening bar push price into longer-term support or resistance? A strong up gap may force a stock through several resistance levels and plant it firmly on top of new support. Or it can push it straight into an impenetrable barrier, from which the path of least resistance is straight down.
Three-bar range support and resistance often need to complete a testing pattern before they will yield to higher or lower prices. This comes in the form of a small cup and handle, or an inverse cup-and-handle pattern. Simply stated, price reverses the first time it tries to exceed an old high or low, but succeeds on the subsequent try.
Price gaps generate other action levels as well. The most obvious is the support line in an up gap (or resistance line in a down gap). We'll call these "reverse break" lines. Violation of the reverse break can trigger price acceleration toward the gap fill line. These market mechanics make perfect sense: everyone who entered a position in the direction of the gap is losing money once price moves past the reverse break line.
The gap fill line marks support in an up gap and resistance in a down gap. In other words, the odds favor a reversal when price reaches it. Paradoxically, this is a terrible place for swing traders to enter new positions. The reverse break line will resist price from re-entering the three-bar range. In fact, price bouncing like a pinball from the fill line to the reverse break line and back to the fill line sets off a powerful trading signal in the opposite direction. It predicts the demise of the gap and a significant reversal.
The flip side of this reversal is a failure of a failure signal. In other words, price overcomes resistance at the reverse break line and retests the high of an up gap (or low of a down gap). The ability of price to retest these levels issues a strong signal to take positions in the direction of the gap.
This special guest article was written by Alan Farley, trader and author of "The Master Swing Trader."
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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