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May 28, 2022 - The RightLine Report
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NOTES FROM THE EDITOR
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Sometimes the best trade is the one you don't make.
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"QUICK LIST"
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Stock 05/27 05/27 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
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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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/. To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/ For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/ Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/
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MARKET SUMMARY
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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
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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
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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
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TRADER'S TIP:
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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
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average. For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ 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 https://www.prorightline.com/rlch/052722SPX.jpg--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" at this link: https://prorightline.com/index.php/economic-indicator-effects/
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TRADER'S TIP:
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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
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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 recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy. Link: https://prorightline.com/index.php/rightline-risk-control-system/ Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels. Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/ ***********************************
STOCK SPLIT SUMMARY
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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 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 For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ **********************************
TRADER'S CORNER
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"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." ======================================================================
Best of luck and have a Great Week!
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The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk. The publishers of The RightLine Report recommend that anyone trading securities should do so with caution, exercise prudent trading discipline and have a personal risk management strategy in place before doing so. It is possible at this or some subsequent date, the publishers and staff of The Pro Right Line Corp. may own, buy or sell securities presented. The Pro Right Line Corp. is not a financial advisory service. Its publishers, owners or investors, are not liable for any losses or damages, monetary or otherwise, that result from the content of The RightLine Report. Past RightLine Report performance may not be indicative of future performance. All subscriptions and/or use of the RightLine.net website are subject to RightLine's "Terms of Use" and "Subscriber Terms & Conditions" which are posted at www.rightline.net. Any REDISTRIBUTION of the above information, without The RightLine's written consent, is STRICTLY PROHIBITED. Copyright / The Pro Right Line Corporation - All Rights Reserved To Unsubscribe, send an email to cs@prorightline.com or call 800-737-4518. |