May 26, 2022 - The RightLine Report
Notes From The Editor
How To Play The Bounce
A high success rate and low risk entry requirements have made "the bounce" an extremely popular play. However, most traders don't get maximum benefit from these common reversal patterns. Let's take a quick look at a couple of key elements that will improve our profits when used in bounces and other trades that we enter.
A "bounce" occurs whenever price drops to a support level such as a previous pivot point or moving average, then reverses and proceeds higher. Obviously the amount of price movement after the reversal needs to be large enough to provide a reasonable profit. So how can we know for sure that a bounce is underway, and when is the best time to enter?
To help answer these questions I'd like to point out that there have to be two basic components in place before I'm willing to take a trade. The first is a Setup, and the second is a Trigger. The Set-up is a specific condition or set of conditions that are necessary before I will consider entering a position, and the Trigger is the specific signal that tells me exactly when to enter.
The conditions for Setups vary depending on the type of trade and the chosen timeframe. Here is an example of a simplified Set-up that might be used for a bounce play on a daily chart. Though it doesn't include all of the criteria that I normally look for, it should give you an idea of what may qualify as a Setup: "Price drops from previous level to within 1-percent of the 22 EMA, then reverses to close above the session low by at least 25 percent of the intraday range."
Just as with a Setup, the criteria for a Trigger will vary depending on the type of trade and the time frame. Here's an example of a simple Trigger for the described bounce Setup: "Buy shares when price rises 0.15 above the high of the Set-up session."
Be Specific ... While each trader may prefer to use their own set of conditions for the Setup and Trigger, it's very important that the rules for both are very precise. This allows us to track the effectiveness of our rules and make adjustments whenever needed - an important process when adapting to ever changing markets. Here are a few guidelines that I follow:
- A bounce setup should be specific enough to leave no doubt that a rebound is likely to occur.
- Regardless of the specifics for each Set-up and Trigger, the Trigger will always confirm the price direction that is indicated by the Set- up. This obligates price to clearly move in the intended direction before a position is entered, usually beyond a resistance level such as the high or opening price.
- Only change or revise the rules after careful review.
- Always stick with the rules when trading,
Bottom Line: Different traders use different Setups and Triggers. The important thing to remember is that every trade needs both - at least in my plan!
Trade well,
~Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 05/26 05/26 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
AMCX 38.94 -1.00 40.03 3.11/1.56 3.46
PHI 37.82 0.50 38.78 2.43/1.22 1.76
OUT 20.16 0.56 20.61 19.2 1.41/0.71 2.54
SQSP 20.34 0.07 21.31 19.35 1.96/0.98 4.12
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
US stocks were solidly higher on Thursday despite market concerns regarding the outcome of the Fed Bank's agressive monetary policy tightening campaign to lower chronic inflation. In equities, Dollar General (DG $222) and Dollar Tree (DLTR $163) both topped earnings projections and raised their guidance, while NVIDIA (NVDA $179) also beat forecasts but lowered its revenue outlook. In economic news, first quarter GDP was unexpectedly revised to a larger contraction than reported earlier, unemployment claims declined and pending home sales dropped more than expected. Gold and oil prices rallied, the USD/dollar slipped and treasuries were mixed.
May 25, 2022 May 26, 2022
-------------------- --------------------
Dow 32,120.28 191.66 32,637.19 516.91
Nasdaq 11,434.74 170.29 11,740.65 305.91
S&P 500 3,978.73 37.25 4,057.84 79.11
NYSE Volume 4.82B 4.75B
NYSE Advancers 2,580 2,734
NYSE Decliners 704 568
Nasdaq Volume 4.49B 4.69B
Nasdaq Advancers 3,202 3,509
Nasdaq Decliners 1,418 1,208
New Highs/Lows
05/19 05/20 05/23 05/24 05/25 05/26
--------------------------------------------
NYSE New Highs 9 15 36 23 47 87
NYSE New Lows 323 364 143 282 82 40
Nasdaq New Highs 8 16 30 24 35 32
Nasdaq New Lows 358 478 216 526 307 165
Stocks Covered Today Stock Splits
TRADER'S TIP: "At Home on The Range"
The price "range" tells us how eager buyers are to own a stock. This eagerness is demonstrated when the daily range expands beyond the normal trading range due to buyers' willingness to purchase a stock at higher and higher prices during the day. Looking at range from a bullish perspective, it's always good to see range expansion as a stock sets new highs, and range contraction during the expected pullbacks. The opposite is true if you are a bear . . .
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 - 4057.84 May 26, 2022
52-Week High: 4818.62
52-Week Low: 3810.32
Daily Trend: UP
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
NASDAQ Composite - 11740.65 May 26, 2022
52-Week High: 16212.23
52-Week Low: 11035.69
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13365.06
Resistance 2: 12412.32
Resistance 1: 11883.47
Pivot: 11459.58
Support 1: 10930.73
Support 2: 10506.84
Support 3: 9554.10
Dow Industrials - 32637.19 May 26, 2022
52-Week High: 36952.65
52-Week Low: 30635.76
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35635.69
Resistance 2: 33582.31
Resistance 1: 32422.10
Pivot: 31528.93
Support 1: 30368.72
Support 2: 29475.55
Support 3: 27422.17
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): 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) Monday, May 30, 2022: 23-May None scheduled Tuesday, May 31, 2022: 24-May 9:45 am 24-May 9:45 am 24-May 10 am New home sales (SAAR) Wednesday, June 01, 2022: 25-May 8:30 am Durable goods orders 25-May 8:30 am Core capital equipment orders 25-May 2 pm FOMC minutes 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: "Efficient Execution"
How well do you execute your trading plan? You can judge your effectiveness by how skillfully you move in and out of the market each time you act on an entry or exit signal. Preparation and practice is necessary to avoid delays or mistakes at the point of action. It is helpful to write down the exact required steps in advance, so you will know exactly what to do before you need to do it.
When the time arrives, don't wait; always be decisive. Keep records of your results so you can correct any glitches that may arise. This disciplined approach keeps you focused on a repetitive process to prevent execution errors and produce favorable results over time.
Stocks Covered in This Issue
COMMUNICATION SERVICES SECTOR
AMC Networks Inc. (AMCX: Communication Services/Entertainment) - BULLISH BOUNCE. The charts for AMCX show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Thursday, resulting in the early stages of a rebound that started near moving average support. The resulting Bullish Bounce set-up offers a potential entry point for a long play. Set your trigger to BUY shares at 40.03, and follow your entry with a trailing stop of 3.11. Tighten it to 1.56 when a 3.46 profit is reached. AMCX ended the latest session at 38.94. Earnings Report Date: Aug 04, 2022. Beta: 0.97. Market-Cap: 1.671B. Optionable.
PLDT Inc. (PHI: Communication Services/Telecom Services) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Thursday PHI seemed intent on initiating a rebound. With moving average support nearby, PHI 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 38.78. Manage risk with a 2.43 stop. Tighten your stop to 1.22 when you have a 1.76 profit. PHI ended the day at 37.82. Earnings Report Date: N/A. Beta: 0.01. Market-Cap: 8.169B. Not Optionable.
REAL ESTATE SECTOR
Outfront Media Inc. (OUT: Real Estate/REIT-Specialty) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in OUT'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 20.61 and a SELL order at 19.2. Regardless of which order is triggered, cancel the other one and follow your entry with a 1.41 trailing stop. Tighten the stop to 0.71 once you have a 2.54 gain. OUT closed Thursday at 20.16. Earnings Report Date: Aug 03, 2022. Beta: 1.71. Market-Cap: 3.306B. Optionable.
TECHNOLOGY SECTOR
Squarespace, Inc. (SQSP: Technology/Software-Infrastructure) - 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. SQSP 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 21.31 and a SELL short trigger at 19.35. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.96 which can be tightened to 0.98 on a 4.12 gain. SQSP closed Thursday at 20.34. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.846B. 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
---------------- ------- -------- ------- ------ -------
Amazon AMZN 3/9/2022 6/6/2022 20-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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