May 27, 2023 - The RightLine Report
Notes From The Editor
"How To Turn Short-Term Wins Into Long-Term Winners"
Every veteran trader is fully aware of the consequences of keeping a losing position that should have been stopped out with a small loss. Despite knowing that hanging on to a dud is a really bad idea, the temptation to convert these short-term losers into long-term "investments" is painfully real. Believe me, I know ...
Fortunately there is a little known yet extremely positive counterpart to this tendency. Instead of holding onto losers longer than you should, this new method inverts the process. The result is that your winners run longer. This simple "Up-Shift" tactic can transform small short-term GAINERS into even bigger longer-term winners. Here it is ..
"How To Up-Shift" Your Trades
1) Enter buy positions near qualified support levels in a short time frame. In this example we'll use hourly charts.
2) Place your safety stops at support levels below your entry price.
3) Manage each trade in the short-term time frame with trailing stops until the position becomes profitable, or is sold with a minor loss.
4) Allow the profits in the wins to grow to a comfortable margin.
5) Chart the developing trend lines in the next higher time frame. In this example we'll shift to daily charts. Place your stops at a reasonable distance below the trend lines. Use these up-trend lines as support levels to manage the trades until stopped out.
This Five-Step process allows you to "Up-Shift" the trade from a shorter time frame to a longer time frame. The good news is that you still maintain the low-risk quality of the shorter-term trade.
In effect, steps One through Four are similar to planting seeds. They either grow, or are quickly eliminated based on their own performance. Step Five transfers each successful trade from one time horizon up to the next. There is limited risk due to the built in profit cushion.
The process constantly regenerates itself. Each small loss is immediately replaced with a new "seed" trade. The winners continue to grow from one time horizon to the next. Eventually they are harvested by a trailing stop, which is regularly adjusted to work within the current time frame.
You can see how easily the Up-Shift concept can be adapted to short selling too. The most important consequence of using this strategy for both longs and shorts is that you are always in the market when the big moves occur.
Trade well!
Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 05/26 05/26 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
UPST 24.87 1.14 25.64 22.79 2.85/1.43 2.26
RAPT 20.35 0.30 20.75 1.38/0.69 2.2
BCYC 24.22 0.42 24.87 2.18/1.09 2.62
VKTX 21.31 0.40 21.98 19.98 2/1 2.72
ZI 23.48 0.40 23.95 1.55/0.78 1.68
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
US stocks experienced a solid rally on Friday, recording the largest weekly gain since March. The optimism surrounding a potential debt-ceiling agreement by Sunday was dashed as talks came to a halt midday Friday, with Republican negotiators attributing the impasse to the White House's resistance to spending cuts. We anticipate that the debt-ceiling issue will ultimately be resolved, albeit possibly at the eleventh hour, as has been the case in previous years. In equities, Deere's shares surged after the farm equipment manufacturer reported better-than-expected earnings and raised its guidance for the full year. Conversely, Foot Locker experienced a decline in its stock price as the company lowered its sales and profit forecast. As the first-quarter earnings season nears its conclusion, with 95% of S&P 500 companies having reported, every sector except for utilities has surpassed sales and earnings growth estimates. A key topic driving market sentiment this week has been the Federal Reserve's policy debate. Barring any major surprises in upcoming inflation and jobs data prior to the June meeting, we believe the Fed is preparing to adopt a more cautious stance. After implementing aggressive rate hikes that lifted rates from near-zero to slightly above 5%, monetary policy is too restrictive. Odds are good that the Fed Bank will soon end the current rate hiking approach and temporarily move to the sidelines.
Friday On The Week
-------------------- --------------------
Dow 33,093.34 328.69 -333.29 -1%
Nasdaq 12,975.69 277.59 +317.79 2.51%
S&P 500 4,205.45 54.17 +13.47 0.32%
NYSE Volume 3.72B
NYSE Advancers 2,056
NYSE Decliners 917
Nasdaq Volume 4.44B
Nasdaq Advancers 2,867
Nasdaq Decliners 1,558
New Highs/Lows
05/19 05/22 05/23 05/24 05/25 05/26
--------------------------------------------
NYSE New Highs 75 49 26 17 33 47
NYSE New Lows 45 35 31 85 144 75
Nasdaq New Highs 108 112 91 42 72 124
Nasdaq New Lows 98 97 77 122 192 142
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Holding Their Ground"
Buying stocks isn't the first thing that comes to mind on days when the market is slammed with a big sell-off. However, these sessions can be very helpful for bullish traders. Stocks that show relative strength for the day - either posting a gain or only suffering a small decline - are often strong performers after the market stabilizes. This is especially true of equities that hold firm without any specific news story keeping them afloat; the relative strength reveals underlying technical strength and a solid commitment by investors.
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 - 4205.45 May 26, 2023
52-Week High: 4325.28
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4391.88
Resistance 2: 4282.99
Resistance 1: 4244.21
Pivot: 4174.09
Support 1: 4135.32
Support 2: 4065.20
Support 3: 3956.31
NASDAQ Composite - 12975.69 May 26, 2023
52-Week High: 13181.09
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 13969.93
Resistance 2: 13383.87
Resistance 1: 13179.78
Pivot: 12797.81
Support 1: 12593.72
Support 2: 12211.75
Support 3: 11625.69
Dow Industrials - 33093.34 May 26, 2023
52-Week High: 34712.28
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 34915.54
Resistance 2: 33989.80
Resistance 1: 33541.57
Pivot: 33064.06
Support 1: 32615.83
Support 2: 32138.32
Support 3: 31212.58
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, May 29, 2023: 29-May Memorial Day, all markets closed Tuesday, May 30, 2023: 30-May 9:00 am S&P Case-Shiller home price index (20 cities) 30-May 1:00 pm Richmond Fed President Tom Barkin speaks 30-May 10:00 am Consumer confidence Wednesday, May 31, 2023: 31-May 8:15 am ADP employment 31-May 9:45 am Chicago Business Barometer 31-May 10:00 am Job openings 31-May 12:30 pm Philadelphia Fed President Patrick Harker speaks 31-May 2:00 pm Federal Reserve Beige Book Thursday, June 01, 2023: 01-Jun 8:30 am Initial jobless claims 01-Jun 8:30 am Continuing jobless claims 01-Jun 8:30 am U.S. productivity 01-Jun 10:00 am ISM manufacturing 01-Jun 10:00 am Construction spending 01-Jun 1:00 pm Philadelphia Fed President Patrick Harker speaks Friday, June 02, 2023: 02-Jun 8:30 am U.S. employment report 02-Jun 8:30 am U.S. unemployment rate 02-Jun 8:30 am U.S. hourly wages 02-Jun 8:30 am Hourly wages year over year 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: "Tax Deduction Reminder"
Your subscription to the RightLine Report may be tax deductible as an investment expense under IRS Sections 67 and 212, to the extent that miscellaneous itemized deductions exceed 2% of your adjusted gross income. It is also fully tax deductible as a business expense by most corporations under Section 162 of the IRS Code.
Stocks Covered in This Issue
FINANCIAL SERVICES SECTOR
Upstart Holdings, Inc. (UPST: Financial Services/Credit Services) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. UPST found itself in this condition on Friday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 25.64 and a SELL short trigger at 22.79. When UPST moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2.85 trailing stop. After you've got a 2.26 profit, tighten the stop to 1.43. UPST closed at 24.87 on Friday. Earnings Report Date: Aug 07, 2023. Beta: 1.46. Market-Cap: 2.056B. Optionable.
HEALTHCARE SECTOR
RAPT Therapeutics, Inc. (RAPT: Healthcare/Biotechnology) - BULLISH BOUNCE. Up-trending stocks like RAPT have a tendency to bounce their way skyward rather than travel higher in a straight line. After touching down to a moving average support level on Friday, RAPT is poised to lift off again. To take advantage of this setup, prepare to BUY shares at 20.75 if positive price action occurs. As always, follow your entry with a trailing stop. A 1.38 trailer should work well with RAPT. Tighten it to 0.69 on a 2.2 gainer. Earnings Report Date: Aug 09, 2023. Beta: 0.37. Market-Cap: 698.921M. Optionable.
Bicycle Therapeutics plc (BCYC: Healthcare/Biotechnology) - BULLISH BOUNCE. BCYC has charted an upward weekly trend until recently when sellers showed up to push prices lower. On Friday the selling ran into solid support. A potential bounce up from this level should attract buyers and likely return BCYC to the previously established uptrend. The Bullish Bounce set-up is the basis for our BUY entry, so be ready to go long on a rise to our trigger at 24.87. Set a trailing stop of 2.18, tightening to 1.09 on a 2.62 profit. BCYC closed at 24.22 on Friday. Earnings Report Date: Aug 02, 2023. Beta: 0.74. Market-Cap: 727.654M. Optionable.
Viking Therapeutics, Inc. (VKTX: Healthcare/Biotechnology) - SQUEEZE PLAY. VKTX traders on both sides of the fence are now locked in a head-to-head shootout. Friday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 21.98 and a SELL short trigger at 19.98. When one of the orders is filled, cancel the remaining order and enter a 2 trailing stop. When you've reached a 2.72 paper profit, tighten the stop to 1. VKTX closed at 21.31 on Friday. Earnings Report Date: Jul 25, 2023. Beta: 0.77. Market-Cap: 2.128B. Optionable.
TECHNOLOGY SECTOR
ZoomInfo Technologies Inc. (ZI: Technology/Software-Application) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, ZI fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 23.48, plan to buy shares at 23.95 and use a 1.55 trailing stop. Tighten the stop to 0.78 on a 1.68 gain. Earnings Report Date: Jul 31, 2023. Beta: 0.95. Market-Cap: 10.756B. 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
"Hammer Time"
Technicians throughout the world have adopted the Japanese practice of candlestick charting. In fact, many have abandoned Western bars in favor of this visual tool that generates detailed information from short-term price movement. Of all candlestick patterns, single bar hammers and dojis provide the most versatile immediate feedback. Western technical analysis rarely offers such dependable single bar signals.
These formations print when a significant battle between bulls and bears ends in a draw. Two characteristics generate their predictive power:
1. High to low range greater than average.
2. Closing tick equal to or near opening tick.
Dojis represent perfect opening-closing balance as price finishes exactly where it started. Hammers need only close so that the central body of the candlestick is less than one-third the length of the bar's total range. But the body must sit near one end of the bar's action. Dojis and hammers predict immediate reversals within the time frames they are created. Their significance directly relates to their position within the overall chart pattern. When appearing on high volume near significant highs or lows, they may represent price extremes signifying an important change in trend. If printed within an ongoing congestion pattern, they often reflect market makers or specialists "cleaning out" stops in one direction so they can move the market in the opposite direction.
Retracement science assists traders in predicting events subsequent to one of these important candles. Shifting down one time frame from the bar reveals the length of the short-term trend being reversed by the long finger. Very often, dojis and hammers represent first rise/first failure setups within the smaller time frame. This further predicts where the reversal momentum will fade for a test of the candle.
Following a doji or hammer reversal, a test of the candle high or low often takes place within 3 to 5 bars. When the test fails, expect price to thrust sharply forward, especially when overbought/oversold indicators show no divergence. When the test succeeds, shift down one time frame again and trade the setup according to double bottom/double top strategy. Specifically look for price to surge on the breakout past the high/low of the initial reversal generated by the candle.
Hundreds of stocks printed long-legged dojis and hammers during the dramatic October 1998 reversal day. DELL never returned to test its low following a death-defying leap into the abyss. Pay close attention to gap support or resistance created by the bar following the candle event.
>
Price returns to test ALTR's new high doji and reverses. Reviewing this chart on a 5-min intraday interval reveals a classic double top scenario. Aggressive traders often enter short sales at doji tops, recognizing their hidden power.
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This 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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