May 25, 2023 - The RightLine Report
Notes From The Editor
Trading Tactic ... The New Low Rise.
The New Low Rise is a shorting tactic designed to find low-risk entries into stocks that are in strong downtrends. Basically the opposite of the New High Dip tactic, this profitable maneuver consists of short- selling the first rally or "rise" after a stock makes a new low. Here's how it works.
After the initial panic selling that occurs when a stock breaks down to new lows, prices will almost always bounce back up in a brief rally. This rebound is due to buying by short sellers covering their profitable trades, and "bargain hunters" picking up shares in hope of catching the bottom. This first rise is almost always a good place to enter a short position. The temporary rise provides safe entry into a stock that is obviously showing extreme weakness.
As with most of our tactics, human emotions are behind the high success rate of this technique. One group of short-sellers missed the first break down and is hoping for another chance to get in before prices collapse to even lower levels. They sell-short into the rise and in doing so play a role in slowing any price advance underway. They're convinced they've made a wise choice by shorting in harmony with the downtrend and expectantly wait for shares to drop even further.
Another group is already in with profits, having shorted the stock long before the recent breakdown to new lows. They are looking for a chance to add to their positions and will take advantage of the rise to short more shares at a good price.
The last group consists of traders who, just like the second group, sell shares short just before the break down. But instead of holding on as prices began to rise, they sold near the new low and pocketed some profits. Now they are waiting for the reversal to get back in short and ride the declining shares down once again.
Each of these groups of sellers help the stock find a new resistance level - often a familiar moving average - and then resume the downward movement to new lows again.
There are a few things that can keep the stock from falling lower and lower. If the overall market rallies hard enough and long enough, investors' moods can change. This sometimes creates enough buying to keep prices from falling. Positive news, such as analyst upgrades or strong support for the sector can also keep the stock from dropping lower.
To protect your trading account, always use stops to prevent losses. Since no tactic works 100-percent of the time, use sound risk management to ensure that any losses are minimal.
Trade Well!
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 05/25 05/25 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
SPHR 24.87 0.31 25.26 23.51 1.75/0.88 4.02
NMIH 24.58 -0.03 25.02 1.32/0.66 1.06
IMVT 21.07 -0.13 21.76 19.96 1.8/0.9 1.66
MLI 76.30 1.37 77.32 4.64/2.32 3.52
UBER 37.95 -0.01 39.09 2.7/1.35 2.4
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
Questions? Send us an email using our Contact Form.
Stocks Covered Today Stock Splits
Market Summary
The US markets closed with mixed results on Thursday, as the Nasdaq's upward momentum was primarily driven by a surge in Nvidia shares, fueled by the company's optimistic second-quarter revenue forecast that surpassed expectations by over 50%. This boost in revenue was attributed, in part, to the growing demand for artificial intelligence (AI) technologies. Outside of the technology sectors, market attention remained focused on the ongoing US debt-ceiling negotiations, which appear to be at a stalemate. Despite reassurances from both parties that a default is not on the table, meaningful progress has been elusive in recent days. Nevertheless, the prevailing viewpoint suggests that a last-minute resolution is likely, with spending limits serving as the primary point of contention in the negotiations. Cyclical sectors, particularly energy, struggled during the trading session, with WTI crude oil prices experiencing a decline of over 3%, bringing the year-to-date losses to approximately 10%. Year to date the S&P 500 index has posted a gain of over 8%.
May 24, 2023 May 25, 2023
-------------------- --------------------
Dow 32,799.92 -255.59 32,764.65 -35.27
Nasdaq 12,484.16 -76.08 12,698.09 213.93
S&P 500 4,115.24 -30.34 4,151.28 36.04
NYSE Volume 3.75B 4.15B
NYSE Advancers 689 1,032
NYSE Decliners 2,260 1,936
Nasdaq Volume 4.1B 4.67B
Nasdaq Advancers 1,337 1,459
Nasdaq Decliners 3,116 2,995
New Highs/Lows
05/18 05/19 05/22 05/23 05/24 05/25
--------------------------------------------
NYSE New Highs 82 75 49 26 17 33
NYSE New Lows 45 45 35 31 85 144
Nasdaq New Highs 115 108 112 91 42 72
Nasdaq New Lows 104 98 97 77 122 192
Stocks Covered Today Stock Splits
TRADER'S TIP: "Human Sentiment: A Strange Animal"
As helpful as sentiment surveys may appear on the surface, they are basically just a collection of opinions that often show little correlation with actual market movement. Some "contrarians" use the results as technical indicators. They are convinced that it's a bad thing when too many of the folks surveyed are Bulls, and a good thing when too many of those surveyed are Bears.
While this may be an oversimplification of how sentiment indicators are supposed to work, one thing is for certain - extreme bullish or bearish sentiment can last for a very long time without the expected contrary consequences in the market place. Though market sentiment surveys may have some value in a general sense, we have yet to see them seriously applied in a specific trading strategy. Of course this is our "opinion." If you know of a proven way to use sentiment reports successfully in short term trading, please let us know.
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 - 4151.28 May 25, 2023
52-Week High: 4325.28
52-Week Low: 3491.58
Daily Trend: DOWN
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 - 12698.09 May 25, 2023
52-Week High: 13181.09
52-Week Low: 10088.83
Daily Trend: DOWN
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 - 32764.65 May 25, 2023
52-Week High: 34712.28
52-Week Low: 28660.94
Daily Trend: DOWN
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): 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: "Focus: Money or Education?"
There is a tremendous difference between focusing on money and focusing on using your trading as an exercise to identify what you need to learn. The first will cause you to focus on what the markets are giving you or are taking away from you. The second perspective causes you to focus your attention on your ability to give yourself money. With the first perspective, you are placing some of the responsibility onto the markets to do something for you. With the second perspective, you assume all the responsibility.
Stocks Covered in This Issue
COMMUNICATION SERVICES SECTOR
Sphere Entertainment Co. (SPHR: Communication Services/Entertainment) - 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. SPHR traders reached this state of stand-off on Thursday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 25.26 and a SELL short trigger at 23.51. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.75 which can be tightened to 0.88 on a 4.02 gain. SPHR closed Thursday at 24.87. Earnings Report Date: Aug 17, 2023. Beta: 1.24. Market-Cap: 859.477M. Optionable.
FINANCIAL SERVICES SECTOR
NMI Holdings, Inc. (NMIH: Financial Services/Insurance-Specialty) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Thursday NMIH seemed intent on initiating a rebound. With moving average support nearby, NMIH is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 25.02. Manage risk with a 1.32 stop. Tighten your stop to 0.66 when you have a 1.06 profit. NMIH ended the day at 24.58. Earnings Report Date: Jul 31, 2023. Beta: 1.27. Market-Cap: 2.047B. Optionable.
HEALTHCARE SECTOR
Immunovant, Inc. (IMVT: Healthcare/Biotechnology) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in IMVT'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 21.76 and a SELL order at 19.96. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.8 trailing stop. Tighten the stop to 0.9 once you have a 1.66 gain. IMVT closed Thursday at 21.07. Earnings Report Date: Aug 03, 2023. Beta: N/A. Market-Cap: 2.748B. Optionable.
INDUSTRIALS SECTOR
Mueller Industries, Inc. (MLI: Industrials/Metal Fabrication) - NEW HIGH DIP. It's no secret that strong stocks tend to get even stronger. MLI's recent 52-week high is a clear indication that the ongoing uptrend is still healthy, though traders have taken some profits off the table during the past few sessions. Thursday's bounce from support confirms the stock's intention to move even higher. This New High Dip setup takes advantage of the tendency for strong stocks to bounce skyward after pulling back from new highs. Prepare to BUY shares in MLI should price reach the 77.32 level. Enter a trailing stop of 4.64 as soon as your order is filled, then tighten the stop to 2.32 on a 3.52 gain. Earnings Report Date: Jul 17, 2023. Beta: 1.10. Market-Cap: 4.349B. Optionable.
TECHNOLOGY SECTOR
Uber Technologies, Inc. (UBER: Technology/Software-Application) - NEW HIGH DIP. After setting a recent new 52-week high, UBER shares have since fallen from that peak as traders put some profits in the bank. Thursday's intra-day bounce may very signal that the recent decline is over. Prepare for a continuation of this turnaround and "buy-the-dip" if UBER reaches our BUY trigger set at 39.09. Follow your entry with a trailing stop of 2.7, and tighten to 1.35 on a 2.4 gain. UBER closed Thursday at 37.95. Earnings Report Date: Jul 31, 2023. Beta: 1.20. Market-Cap: 76.804B. 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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