Notes From The Editor

Sometimes the best trade is the one you don't make.

This concept is something you don't hear very often in the equity world. Brokerages promote constant trading as a way of generating higher commissions. The endless hype and buzz of the media creates a sense of urgency and a fear of missing the next big trade. It's the same sort of fear that motivates consumers to immediately jump on what they perceive to be a good deal before it goes away.

What the brokerages and media lack, in this case, is perspective. In a constantly-changing market environment teeming with a huge variety of stocks, there's never a shortage of potential trade set-ups. As attentive observers on the sidelines, we have the luxury of waiting to jump in the game until just the right moment.

While there's no guarantee that you will emerge victorious, your odds will be improved by only taking the best entry points. And during those times when you're on the sidelines, your trading account is completely protected.

Fear should NEVER be the motivating factor behind a trade. All of us have experienced the frustration that comes with seeing a stock soar after you decided not to snap up some shares. That's a perfectly natural emotion - and perfectly harmless, as long as the frustration doesn't produce a habit of over-trading.

Over-trading guarantees that you'll never miss a big profit because you hesitated at the last minute. The problem is that you'll also be hit with losses from trades taken under less-than-ideal conditions.

When a stock you've watched makes a big move without you on board, remind yourself that there will be another compelling set-up right down the pike. Warren Buffet's words of wisdom, quoted here before, are relevant:

"The stock market is a no-called-strike game. You don't have to swing at everything - you can wait for your pitch."

Have a great week!

Kent Barton
Senior Analyst

Quick List

    
Stock     05/27     05/27      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

GOOS      20.43      0.47     20.77     19.41        1.36/0.68      2.56
MRK       93.02      0.70     94.33                  5.35/2.68      4.28
CASS      34.10      0.15               32.76        2.02/1.01      2.46
FLYW      20.00      0.42     20.54     18.98        1.56/0.78      5.22
PUBM      20.88      0.72     21.47     19.75        1.72/0.86      3.52

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.

Market Summary

The major US stock indices were higher on Friday as they recorded a weekly gain, the first for the S&P 500 since April 1st and the first for the Dow in nine weeks. Economic headlines included an increase in both personal income and spending, yet also included signs of a decline in inflation. In addition, consumer sentiment fell to a new decade low. In equities, Gap (GPS $12) announced a larger loss than expected and issued lackluster guidance, Costco Wholesale (COST $471) topped revenue forecasts but disappointed with its profit margins, while Ulta Beauty (ULTA $425) beat forcasts and raised its outlook. The USD/dollar declined, oil prices, gold and treasuries were higher, putting downward pressure on yields.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 33,212.96   575.77     +1951.06     6.24%
Nasdaq              12,131.13   390.48      +776.51     6.84%
S&P 500              4,158.24   100.40      +256.88     6.58%

NYSE Volume                      4.42B                       
NYSE Advancers                   2,861                       
NYSE Decliners                     468                       

Nasdaq Volume                    4.79B                       
Nasdaq Advancers                 3,787                       
Nasdaq Decliners                   920                       

                                 New Highs/Lows

                   05/20  05/23  05/24  05/25  05/26  05/27
                 --------------------------------------------
NYSE New Highs        15     36     23     47     87     88
NYSE New Lows        364    143    282     82     40     36
Nasdaq New Highs      16     30     24     35     32     49
Nasdaq New Lows      478    216    526    307    165    113
   

TRADER'S TIP: "Drawdown"

A drawdown is a reduction in account value due to a series of trading losses or from a decrease in the price of investments. It is usually stated either in percentage or dollar terms, and is measured from peak to valley. For example, if a trading account with an initial amount of $10,000 rose in value to $40,000, then dropped to $30,000, then increased again to $50,000, the account would have a maximum drawdown of $10,000 (which occurred when the account dropped from $40,000 to 30,000) even though the account was never in a negative position from the beginning.

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 - 4158.24 May 27, 2022

52-Week High: 4818.62
52-Week Low: 3810.32
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4630.67
Resistance 2: 4347.31
Resistance 1: 4252.77
Pivot: 4063.95
Support 1: 3969.41
Support 2: 3780.59
Support 3: 3497.23

NASDAQ Composite - 12131.13 May 27, 2022

52-Week High: 16212.23
52-Week Low: 11035.69
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13863.45
Resistance 2: 12824.26
Resistance 1: 12477.69
Pivot: 11785.08
Support 1: 11438.51
Support 2: 10745.90
Support 3: 9706.72
        
Dow Industrials - 33212.96 May 27, 2022

52-Week High: 36952.65
52-Week Low: 30635.76
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 36293.44
Resistance 2: 34445.42
Resistance 1: 33829.19
Pivot: 32597.39
Support 1: 31981.16
Support 2: 30749.36
Support 3: 28901.33
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, May 30, 2022:
30-May          None scheduled -- Memorial Day holiday

Tuesday, May 31, 2022:
31-May   9 am   
31-May   9 am   FHFA national home price index (year-over-year)
31-May  9:45 am   Chicago PMI
31-May  10 am   Consumer confidence index

Wednesday, June 01, 2022:
01-Jun  9:45 am   
01-Jun  10 am   ISM manufacturing index
01-Jun  10 am   Job openings
01-Jun  10 am   Quits
01-Jun  10 am   Construction spending
01-Jun   2 pm   Beige book
01-Jun  Varies   Motor vehicle sales (SAAR)

Thursday, June 02, 2022:
02-Jun  8:30 am   ADP employment report
02-Jun  8:30 am   Initial jobless claims
02-Jun  8:30 am   Continuing jobless claims
02-Jun  8:30 am   Productivity revision (SAAR)
02-Jun  8:30 am   Unit labor costs revision (SAAR)
02-Jun  10 am   Factory orders
02-Jun  10 am   Core capital goods orders revision

Friday, June 03, 2022:
03-Jun  8:30 am   Nonfarm payrolls
03-Jun  8:30 am   Unemployment rate
03-Jun  8:30 am   Average hourly earnings
03-Jun  8:30 am   Labor-force participation, ages 25-54
03-Jun  9:45 am   
03-Jun  10 am   ISM services index


For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Just When We Think It's Safe . . ."

Remember that just when we start getting "too comfortable" with a stock's trend - be it up or down - it might be a good time to review the "other" side of the trade. For example, once we've identified a clear up trending pattern, and played it for a bounce a few times, that's precisely when we ought to start looking for a failure of support and an opportunity to short. Trends don't last forever, and we don't want to get lulled into a single-sided trading mentality.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Canada Goose Holdings Inc. (GOOS: Consumer Cyclical/Apparel Manufacturing) - 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. GOOS 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 20.77 and a SELL short trigger at 19.41. When GOOS 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 1.36 trailing stop. After you've got a 2.56 profit, tighten the stop to 0.68. GOOS closed at 20.43 on Friday. Earnings Report Date: Aug 09, 2022. Beta: 1.44. Market-Cap: 2.147B. Optionable.

HEALTHCARE SECTOR

Merck & Co., Inc. (MRK: Healthcare/Drug Manufacturers-General) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Friday's session to close at 93.02. Anticipate the rebound to continue, and be ready to buy MRK at 94.33. Follow your entry with a trailing stop of 5.35 which can be tightened to 2.68 on a 4.28 profit. Earnings Report Date: Jul 28, 2022. Beta: 0.37. Market-Cap: 235.23B. Optionable.

INDUSTRIALS SECTOR

Cass Information Systems, Inc. (CASS: Industrials/Specialty Business Services) - BEARISH U-TURN. Sometimes traders hear about a stock that's in trouble and then short it without any thought to timing the entry. This method often results in less profits even when the trade moves in the desired direction. The Bearish U-Turn setup provides a smoother entry than just jumping in. It also reduces risk by placing both the entry trigger and exit stop near the top of the reversal. We'll use this approach with CASS which met our setup requirements on Friday. The SELL short trigger for this trade is set at 32.76, and the trailing stop is sized at 2.02. Reset the stop to 1.01 upon getting a 2.46 point gain. CASS closed Friday at 34.10. Earnings Report Date: Jul 20, 2022. Beta: 0.62. Market-Cap: 465.56M. Optionable.

TECHNOLOGY SECTOR

Flywire Corporation (FLYW: Technology/Information Technology Services) - SQUEEZE PLAY. FLYW 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 20.54 and a SELL short trigger at 18.98. When one of the orders is filled, cancel the remaining order and enter a 1.56 trailing stop. When you've reached a 5.22 paper profit, tighten the stop to 0.78. FLYW closed at 20.00 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.025B. Optionable.

PubMatic, Inc. (PUBM: Technology/Software-Application) - SQUEEZE PLAY. PUBM shareholders know what it feels like to be squeezed. Friday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. PUBM closed Friday at 20.88. The plan is to enter in the right direction by placing a BUY trigger at 21.47 and a SELL short trigger at 19.75. Once PUBM establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.72. After you've collected a 3.52 profit, tighten the stop to 0.86. Earnings Report Date: Aug 08, 2022. Beta: N/A. Market-Cap: 1.036B. 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.

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.

Trader's Corner

"The Profitable Trader"

Let's look at the differences between profitable and unprofitable traders. Is it a question of experience, or are some folks just born with the talent to play the markets successfully? How does risk tie in with profitability? Are profitable traders more willing to make riskier trades?

Author Mark Douglas talks about three stages in becoming a profitable trader. First you learn how to find promising trade setups. Second, you learn how to enter and exit those positions at the right time. Third, get to a point where you build equity on a consistent basis. The secret to this third step is really no secret at all. You master the discipline required to follow your methodology, plan or system.

Traders need to make an important choice early in their careers. They can decide to follow a specific method that forces them out of the market during unfavorable conditions. Or they can master a broad range of skills, and then apply the right one at the right time. Neither approach is right or wrong, but both require paying close attention to the profit-and-loss feedback.

Most unprofitable traders rely on a poorly matched execution style, or a good one they haven't mastered yet. Very often they fail to recognize critical errors in their methodology because it was learned in a book, or through inappropriate conditioning, i.e., making money on bad decisions. Realize that profitable traders know all the weak points in their strategies and exercise damage control at all times.

You can't understand your methodology until you analyze your profits and losses. Identify its weaknesses quickly, and then decide if it really works at all. You may discover that your whole approach to the market isn't right for your lifestyle, emotional nature or long-term goals. For example, you could be a scalper with the disposition of an investor, or a daytrader who hates risk. Bad things will happen when your system doesn't match your personality.

Traders hate to think about discipline. After all, it's not as sexy as just becoming a market gunslinger. But the bottom line is that most of us don't follow our own rules. This is ironic, because the folks who ignore the reasons they lose money are the same ones who spend thousands of dollars attending trading seminars. Personal discipline is the one thing you can't learn sitting in an audience.

Discipline and money management go a long way toward becoming a profitable trader. But let's be realistic. However you trade, you must be confident in the positive expectancy of your style or methodology. This poorly understood concept refers to how much profit you can reasonably expect to make vs. each dollar risked on a trade. Gamblers know this equation as the player's edge in a casino. The problem is that most of us don't understand our strategy well enough to determine whether or not it has a positive expectancy.

System traders use backtesting to gauge the positive expectancy of their systems. Retail traders choose entry and exit without this methodology, so they need to compensate through extensive record- keeping and analysis of each trade result. Even so, they could be fooling themselves into believing they have an edge in their pursuit of profitability.

The sell side of the positive expectancy equation is more important than where you buy. Research suggests that a very profitable system can be built using random trade entry. Yes, you heard that right. It's possible to make money in the same way as a chimp who throws darts at a dartboard. But the hairy primate still has the same problem as the losing trader: He doesn't know when to take money off the table.

Positive expectancy requires a robust exit strategy. But you already knew that, didn't you? Volumes have been written about money management techniques, such as cutting your losses, riding your winners and trading adequate reward/risk. But somehow, losing traders continue to outnumber profitable ones by a very wide margin.

One aspect of positive expectancy is more difficult to manage than any pure numbers game. All trading styles experience drawdowns, and profitable ones are no exception. Traders routinely abandon profitable methods because they hate to lose money. They stop following perfectly good rules because they aren't getting the instant gratification they want from the markets.

If this all sounds like a big loop from the top of our discussion, it's meant to be that way. Losing traders get stuck in a vicious cycle. They want to profit from the market so they come up with a strategy to make money. They trade the strategy until it frustrates them to the point they abandon it and go looking for another strategy. In the process, they never take the time to find out whether or not it had positive expectancy in the first place. In other words, they don't let their methodology mature enough to watch its real potency bear fruit.

Which brings us back to discipline. Sure, it's boring to plan the trade and trade the plan. But it's the only way to break this losing cycle and get on the road to consistent profitability.


NOTE: This special guest article was written by Alan Farley, 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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