May 23, 2023 - The RightLine Report
Notes From The Editor
Setups and Triggers - "The Charts Tell The Story"
Trading is a game of probabilities. Every experienced trader knows that when it comes to the market, there are very few things that can be depended on with absolute certainty. However, even though the market's tendencies and traits are not completely reliable, they do present powerful and often repeatable opportunities.
For example, the market's fondness for bouncing at significant support levels such as the 22, 50, 100, and 200 EXPMA -- Exponential Moving Average -- is well documented. The 50 period monthly and the 200 period weekly moving averages aren't as well known, yet they are also significant support and resistance levels.
Experience reveals the realities that trade set-ups don't always produce the desired results. However there are still two very important lessons to be learned from the story told by the charts -- even when a trade setup doesn't follow through as anticipated.
The first lesson has to do with the relationship between trade Set-ups and Triggers. For example a bounce setup should be specific enough to leave no doubt that a rebound is likely to occur. "Likely" doesn't mean "definitely." That's why the Trigger is so important in any type of trade setup.
The Trigger should always confirm the price direction that is indicated by the Set-up. Price must clearly move in the intended direction before a position is entered -- usually beyond a resistance level such as the high or opening price of the Set-up day. Sometimes price action provides a Set-up based on reversal conditions that signal a potential bounce.
However, there are times when the price action does NOT confirm that the bounce is genuine. Instead of continuing higher above the previous session high, prices stall, then drop back, perhaps below the low of the day. Whenever the Trigger does not confirm an entry into a bounce Set-up, the trade should not be entered.
Which brings us to the second lesson of the story. Just as stocks that break out above previous resistance have a very good chance of going even higher, those that fall beneath support have an increased chance of heading even lower.
Bounce trades that fail to materialize will often produce excellent short setups. Once the low of a previous session gives way, the moving average providing support will also often cave in. Once that happens, prices will normally plunge even lower as a significant technical rule comes into play ... "What once was support becomes resistance."
Bottom Line: Regardless of the specifics for each trade Set-up and Trigger, the Trigger should always confirm the price direction that is indicated by the Set-up. When price doesn't reach the trigger, stay out of the trade and be on the lookout for a break-down of support. This is where you will find some of the best shorting opportunities.
Trade well,
Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 05/23 05/23 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
TXRH 110.85 -1.24 113.96 7.25/3.63 4.32
VRNA 21.61 0.28 22.29 20.61 1.68/0.84 2.06
ARVN 23.77 -0.37 24.83 22.89 1.94/0.97 3.26
OC 108.12 -1.62 111 6.76/3.38 5.06
FLNC 22.89 0.07 23.84 21.61 2.23/1.12 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" 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
US stocks were lower on Tuesday as the S&P 500 Index dropped to its lowest level in a week due to apparent lack of progress on the debt-ceiling negotiations. To this point the White House and Congress have failed to forge a resolution that would raise the debt ceiling and avert a default that would roil global markets. The market is communicating its concern about a potential default through rising Treasury yields, with the 2-year note hitting its highest level since mid-March. Recent hawkish comments from Federal Reserve leaders also have the market on edge. The technology sector, which has generally done well in recent days, was one of the weaker performers Tuesday. Chemical companies, miners, and other players in the materials sector were also lower. Energy was one of the few gainers, as crude oil futures rose a two-week high of near $74 a barrel. The US dollar index edged to a two-month high early in the day before paring gains.
May 22, 2023 May 23, 2023
-------------------- --------------------
Dow 33,286.58 -140.05 33,055.51 -231.07
Nasdaq 12,720.78 62.88 12,560.25 -160.53
S&P 500 4,192.63 0.65 4,145.58 -47.05
NYSE Volume 3.73B 4.16B
NYSE Advancers 1,791 1,153
NYSE Decliners 1,193 1,806
Nasdaq Volume 4.29B 4.36B
Nasdaq Advancers 2,804 1,964
Nasdaq Decliners 1,627 2,480
New Highs/Lows
05/16 05/17 05/18 05/19 05/22 05/23
--------------------------------------------
NYSE New Highs 36 56 82 75 49 26
NYSE New Lows 107 80 45 45 35 31
Nasdaq New Highs 69 85 115 108 112 91
Nasdaq New Lows 199 144 104 98 97 77
Stocks Covered Today Stock Splits
TRADER'S TIP: "Earnings Conference Calls"
Since the SEC implemented the Fair Disclosure laws, most companies have begun allowing individual shareholders to listen in on earnings conference calls that were previously limited to analysts only. If you are tracking a stock as it approaches its scheduled earnings announcement, always look for the related conference call and mark it on your calendar.
The behavior of the stock during the call can telegraph early reaction to management's explanation of earnings related events. If you can't find any mention of the call, give the firm's Investor Relations department a ring and ask when or if a call will be held.
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 - 4145.58 May 23, 2023
52-Week High: 4325.28
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4377.68
Resistance 2: 4274.63
Resistance 1: 4233.30
Pivot: 4171.58
Support 1: 4130.25
Support 2: 4068.53
Support 3: 3965.48
NASDAQ Composite - 12560.25 May 23, 2023
52-Week High: 13181.09
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 13487.75
Resistance 2: 13019.37
Resistance 1: 12838.63
Pivot: 12550.99
Support 1: 12370.25
Support 2: 12082.61
Support 3: 11614.23
Dow Industrials - 33055.51 May 23, 2023
52-Week High: 34712.28
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 34655.32
Resistance 2: 34008.61
Resistance 1: 33717.62
Pivot: 33361.90
Support 1: 33070.91
Support 2: 32715.19
Support 3: 32068.48
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, May 22, 2023: 22-May MONDAY, MAY 22 22-May None scheduled 22-May TUESDAY, MAY 23 Tuesday, May 23, 2023: 23-May 8:30 am 23-May 8:30 am 23-May 10:00 am New home sales 23-May WEDNESDAY, MAY 24 Wednesday, May 24, 2023: 24-May 2:00 pm Minutes of Fed's May FOMC meeting 24-May THURSDAY, MAY 25 Thursday, May 25, 2023: 25-May 8:30 am GDP (first revision) 25-May 8:30 am Corporate profits 25-May 8:30 am Initial jobless claims 25-May 8:30 am Continuing jobless claims 25-May 10:00 am Pending home sales 25-May FRIDAY, MAY 26 Friday, May 26, 2023: 26-May 8:30 am Durable-goods orders 26-May 8:30 am Durable-goods minus transportation 26-May 8:30 am Personal income (nominal) 26-May 8:30 am Personal spending (nominal) 26-May 8:30 am PCE index 26-May 8:30 am Core PCE index 26-May 8:30 am PCE (year-over-year) 26-May 8:30 am Core PCE (year-over-year) 26-May 8:30 am Advanced U.S. trade balance in goods 26-May 8:30 am Advanced retail inventories 26-May 8:30 am Advanced wholesale inventories 26-May 10:00 am Consumer sentiment (final) 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: "Earnings Season - Playing the Pre-Earnings Run"
Every few months there are companies that pre-announce BETTER-than- expected upcoming earnings. Consequently their stock tends to ramp up as the announcement date approaches. Traders can take advantage of these pre-earnings runs by looking at earnings history and a company's record for beating Wall Street estimates.
Combine this with current sentiments on the specific sector as well as recent news on "sympathy stocks," and this type of information provides some insight as to where pre-earnings runs may develop. Just remember that very often a key part of playing the run is to exit prior to the actual announcement, locking in profits BEFORE the Street has a chance to react to the numbers. Oftentimes, shares turn sharply lower immediately following the announcement - regardless of the numbers - as traders rush to take profits.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Texas Roadhouse, Inc. (TXRH: Consumer Cyclical/Restaurants) - NEW HIGH DIP. TXRH's upward price momentum produced a brand new 52-week high just a few sessions ago. Shares have been sliding downhill since reaching that point, but the bounce that took place during Tuesday's trading could be telling us the short-term decline is over. We need to confirm that sellers are exiting, so we'll wait for TXRH to move a bit higher before buying this stock. Set your BUY trigger at 113.96, and then enter a trailing stop of 7.25. Tighten the stop to 3.63 when you accumulate a 4.32-point gain. TXRH finished the Tuesday session at 110.85. Earnings Report Date: Jul 26, 2023. Beta: 0.96. Market-Cap: 7.427B. Optionable.
HEALTHCARE SECTOR
Verona Pharma plc (VRNA: Healthcare/Biotechnology) - SQUEEZE PLAY. VRNA is caught in a dilemma. The stock's compressed price range on Tuesday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. VRNA is now at 21.61. We can capture price action either way by placing a BUY trigger at 22.29 and a SELL short trigger at 20.61. Once VRNA reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.68. When you acquire a 2.06 profit, tighten the stop to 0.84. Earnings Report Date: N/A. Beta: 0.18. Market-Cap: 1.717B. Optionable.
Arvinas, Inc. (ARVN: 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 ARVN's case we will enter a BUY should it reach the 24.83 level, or a SELL short trade if it drops to 22.89. As usual a trailing stop is essential, 1.94 which should be tightened to 0.97 on a 3.26 gain. ARVN closed Tuesday at 23.77. Earnings Report Date: Aug 02, 2023. Beta: 1.75. Market-Cap: 1.269B. Optionable.
INDUSTRIALS SECTOR
Owens Corning (OC: Industrials/Building Products & Equipment) - NEW HIGH DIP. Stocks in the early stages of a bounce tend to move higher. This is especially true when a strong performer in an established uptrend dips to a well-known support level. OC fits this model perfectly. After setting a new 52-week high a few days back, the stock dipped for several sessions due to profit taking. Now the price action is signaling there is a reversal underway. Plan to buy this dip if the bounce lifts OC to our entry level BUY trigger at 111. Set a trailing stop of 6.76 and tighten to 3.38 on a 5.06 gain. OC closed Tuesday at 108.12. Earnings Report Date: Jul 25, 2023. Beta: 1.41. Market-Cap: 9.743B. Optionable.
UTILITIES SECTOR
Fluence Energy, Inc. (FLNC: Utilities/Utilities-Renewable) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into FLNC. A move to the upside will trigger our BUY entry at 23.84, while a drop to 21.61 will trigger our SELL short entry. Follow your position with a 2.23 trailing stop. Tighten the stop to 1.12 once you have a 2.08 gain. FLNC closed Tuesday at 22.89. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 4.018B. 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
---------------- ------- -------- ------- ------ -------
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.
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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