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May 21, 2022 - The RightLine Report
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NOTES FROM THE EDITOR
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Trading, or Investing?
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"QUICK LIST"
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Stock 05/20 05/20 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
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W 51.42 1.69 52.66 46.5 6.16/3.08 17.14
MORF 22.44 0.11 23.16 20.91 2.25/1.13 5.8
EMBC 27.75 0.56 28.37 26.38 1.99/1 3.52
RXDX 29.56 0.53 30.24 27.83 2.41/1.21 4.94
POWL 25.08 0.09 25.57 23.89 1.68/0.84 1.94
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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The major US stock indices were mixed on Friday, ending a volatile week that saw negative earnings reports from key retailers that increased market worries about inflation. The S&P 500 recorded a seventh consecutive weekly loss, as Ross Stores (ROST $72) was added to a growing list of retailers that have missed quarterly earnings estimates and lowered guidance. In other earnings headlines, Deere & Company (DE $313) and Applied Materials (AMAT $106) both announced disappointing numbers due to inflation and supply chain challenges. Oil prices and the USD/dollar were higher, gold was even, and treasuries moved upward, applying downward pressure on yields. A light economic calendar offered no significant releases. Friday On The Week
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Dow 31,261.90 8.77 -934.76 -2.9%
Nasdaq 11,354.62 -33.88 -450.38 -3.82%
S&P 500 3,901.36 0.57 -122.53 -3.05%
NYSE Volume 5.22B
NYSE Advancers 1,535
NYSE Decliners 1,730
Nasdaq Volume 5.51B
Nasdaq Advancers 2,112
Nasdaq Decliners 2,511
New Highs/Lows
05/13 05/16 05/17 05/18 05/19 05/20
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NYSE New Highs 12 32 50 24 9 15
NYSE New Lows 202 188 171 346 323 364
Nasdaq New Highs 13 21 26 17 8 16
Nasdaq New Lows 316 335 202 348 358 478
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TRADER'S TIP:
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TRADER'S TIP: "SPY and S&P 500: Volume" Obtaining a reliable volume reading on the broader market can be more of a challenge than you would expect. Most data providers don't report the S&P 500 total volume in real time on the daily and weekly charts. You can usually find it on intraday time frames, but having to total it all up is a real annoyance. One way to get around the problem is to look at the Spyders (symbol SPY), which does report real time figures for both daily and weekly volume. Although SPY volume isn't the same as the S&P 500, it provides an easy way to determine if trading volume is higher or lower than average. As a rule of thumb, when SPY volume is above or below average, so is S&P 500 volume. Not only do the SPY numbers usually show up quicker on the charts, but they also represent the activities of a large group of professional traders who use Spyders to take advantage of the S&P 500 movement. Large volume in the SPY indicates something important is going on, even when it doesn't show up in the other indices. **************************
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/ S&P 500 - 3901.36 May 20, 2022 52-Week High: 4818.62 52-Week Low: 3810.32 Daily Trend: DOWN Weekly trend: DOWN Weekly Pivot Levels Resistance 3: 4494.93 Resistance 2: 4214.53 Resistance 1: 4057.94 Pivot: 3934.13 Support 1: 3777.54 Support 2: 3653.73 Support 3: 3373.33 https://www.prorightline.com/rlch/052022SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, May 23, 2022: 23-May None scheduled Tuesday, May 24, 2022: 24-May 9:45 am 24-May 9:45 am 24-May 10 am New home sales (SAAR) Wednesday, May 25, 2022: 25-May 8:30 am Durable goods orders 25-May 8:30 am Core capital equipment orders 25-May 2 pm FOMC minutes Thursday, May 26, 2022: 26-May 8:30 am Initial jobless claims 26-May 8:30 am Continuing jobless claims 26-May 8:30 am Real gross domestic product revision (SAAR) 26-May 8:30 am Real final sales to domestic purchasers revision (SAAR) 26-May 8:30 am Real gross domestic income (SAAR) 26-May 10 am Pending home sales index Friday, May 27, 2022: 27-May 8:30 am PCE inflation 27-May 8:30 am Core PCE inflation 27-May 8:30 am PCE inflation (year-over-year) 27-May 8:30 am Core PCE inflation 27-May 8:30 am Real disposable income 27-May 8:30 am Real consumer spending 27-May 8:30 am Nominal personal income 27-May 8:30 am Nominal consumer spending 27-May 8:30 am Advance trade in goods 27-May 10 am UMich consumer sentiment index (final) 27-May 10 am 5-year inflation expectations (final) 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: "Skepticism Getting In The Way Of Opportunity?" There is a joke about an economics professor who is walking in New York with a friend. His friend notices a $100 bill on the sidewalk and points to the bill and says, "Look professor, a $100 bill." The professor replies, "No, that can not be so. If that was a $100 bill somebody would have picked it up already." ***********************************
STOCKS COVERED IN THIS ISSUE
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CONSUMER CYCLICAL SECTOR Wayfair Inc. (W: Consumer Cyclical/Internet Retail) - SQUEEZE PLAY. A look at W'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 52.66 and a SELL short trigger at 46.5. Once W shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 6.16 and tighten to 3.08 on a 17.14 gain. W closed Friday at 51.42. Earnings Report Date: Aug 03, 2022. Beta: 2.88. Market-Cap: 5.412B. Optionable. HEALTHCARE SECTOR Morphic Holding, Inc. (MORF: Healthcare/Biotechnology) - SQUEEZE PLAY. MORF 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 23.16 and a SELL short entry at 20.91. Once your trade is filled, enter a 2.25 trailing stop. Tighten it to 1.13 after a 5.8 gain. MORF closed on Friday at 22.44. Earnings Report Date: Aug 02, 2022. Beta: 1.45. Market-Cap: 858.765M. Optionable. Embecta Corp. (EMBC: Healthcare/Drug Manufacturers-Specialty & Generic) - SQUEEZE PLAY. Traders are feeling the pressure as EMBC'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 28.37 and a SELL short entry at 26.38. EMBC's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.99 trailing stop. Tighten it to 1 after you get a 3.52 gain. EMBC closed Friday at 27.75. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.604B. Optionable. Prometheus Biosciences, Inc. (RXDX: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in RXDX, 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 30.24 and a SELL short entry at 27.83. Let RXDX's price action determine your long or short entry. Once the order is filled, place a 2.41 trailing stop, and tighten it to 1.21 upon getting a 4.94 gain. RXDX closed Friday at 29.56. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.159B. Optionable. INDUSTRIALS SECTOR Powell Industries, Inc. (POWL: Industrials/Electrical Equipment & Parts) - SQUEEZE PLAY. Friday's trading session left POWL 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 25.57 and your SELL short trigger at 23.89. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 1.68 trailing stop. Once you have a 1.94 profit, reduce the stop to 0.84. Earnings Report Date: Aug 01, 2022. Beta: 1.21. Market-Cap: 295.457M. 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/ ***********************************
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 ---------------- ------- -------- ------- ------ ------- ACM Research ACMR 3/4/2022 3/24/2022 3-for-1 Yes PAM Transport PTSI 3/9/2022 3/30/2022 2-for-1 Yes Amazon AMZN 3/9/2022 6/6/2022 20-for-1 Yes For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ **********************************
TRADER'S CORNER
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"The History, Science & Art of Technical Analysis" The very first chartists in the United States appeared at the turn of the century. They included Charles Dow, the author of the famous stock market theory, and William Hamilton who succeeded Dow as the editor of the Wall Street Journal. After the famous stock market "crash" of 1929, Hamilton advocated the use of charting in an editorial entitled "The Turn of The Tide" and then proceeded to lay out the principles of Dow's stock market theory in a book titled The Stock Market Barometer. The decade of the 1930's was the Golden Age of charting. Many innovative researchers published their work during that period including Richard D. Wyckoff, a trader who started in 1888 as a 15- year-old stock runner, W.D. Gann who began his career as a stockbroker in 1906, and R.N.Elliott, widely known for the "Elliott Wave Theory." Their work went into two distinct directions. Researchers such as Wyckoff saw charts as a graphic record of market supply and demand, while others including Gann and Elliott searched for a perfect order in the markets. In 1948, Edwards and McGee published a book called Technical Analysis of Stock Trends. They popularized the use of chart formations such as triangles, rectangles, head and shoulders, as well as support, resistance and trend lines. Things have changed a great deal since then. In the 40s, daily volume of an active stock on the NYSE was only several hundred shares. Today it's not uncommon to see an active stock trade tens of millions of shares each day. Bears were firmly in control of the stock market in the "good old days", but as years passed, the balance of power shifted to favor bulls. However, with bears back in the cockpit the past couple of years, some of the market tendencies that were evident back then are reappearing on the charts. Early technical analysts noted that stock market tops were sharp and fast, while bottoms took a long time to develop. That was true in the de-flationary era of the 30s and 40s, but from the 50s until mid 2000 bottoms tended to form quickly while tops took longer. The beginnings of technical analysis go back much further than the early nineteen hundreds. Japanese rice traders began using candlestick charts some two centuries before the first chartists appeared in America. Before you envision lots of dripping wax and flaming wicks, the term candlestick was adopted because of the similar appearance between candles and the symbols used to represent price that were drawn on each chart. The Japanese focus is on the relationship between opening and closing prices and on patterns that include several candles. They consider highs and lows relatively unimportant. Unfortunately, most candlestick chartist's fail to use many tools of Western analysts. They ignore volume and have no trend lines. This now appears to be changing as modern analysts combine Western technical indictors with classical candlestick patterns. A classic case of east meets west. OK, that's enough history for now. Let's take a quick look at two subjects, which help determine the success or failure of technical analysis in action. Is it Science or Art? "It would be possible to describe everything scientifically, but it would make no sense; it would be without meaning, as if you described a Beethoven symphony as a variation of wave pressure." ~Albert Einstein It may come as a surprise to find that technical analysis combines the dual categories of science and art. Although the subjects appear to be at opposite ends of the spectrum, joining them together creates a dual perspective that provides remarkable market insight. The resulting combination can be compared to night-vision goggles that let you see what others can't - like trend lines. This advantage gives you an edge and helps shift the odds into your favor. Science 101 The scientific aspect of technical analysis presents itself in many forms. There are literally dozens of separate indicators and unlimited ways of applying them. A lot of research went into developing these components, and even more to determine effectiveness and reliability. Studies have shown that the wide array of technical indicators and methods exhibit different degrees of success depending on how, when and under what condition they are applied. Art - So what is it, a Picasso or a Rembrandt? The artistic qualities of technical analysis become obvious the instant you look at a visual display on a computer screen. Colorful charts graphically reveal elements of technical analysis as different indicators are painted in patterns and lines. Talk about abstract art! One look and you feel like it should be hanging in a metropolitan art museum. Less obvious than the graphic display but just as important is the impact of artistic interpretation. OK, so how should we interpret this painting? Although the price bars are determined by actual stock prices, the placement of each line, the number of bars included in each moving average and whether any technical indicators are used depends on the preference of the individual. It may look good, but no matter how pretty the picture, it is far more important that the final choice of technical tools and patterns can be used by the trader to produce profits. - Summary It turns out that technical analysis is a hybrid of art and science that has evolved over the centuries. Due to the complex choices that have to be made, many newcomers will never recognize the tremendous value of TA, and will remain unaware of the powerful forces at work behind the scenes. For those who desire a long-term relationship with the markets, the time and energy spent to learn how to use this powerful technology will be well rewarded! ======================================================================
Best of luck and have a Great Week!
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