May 3, 2022 - The RightLine Report
Notes From The Editor
How to Use Moving Averages - Part II
Predicting support and resistance levels is a foundational component of technical analysis. Recently we discussed how moving averages can be employed to do this. One column, however, isn't enough to do this topic justice. Let's take a closer look!
The "major" moving averages that we recommend monitoring are the 13, 22, 50, 100, and 200 EMAs (Exponential Moving Average). Generally speaking, the longer the time frame of the moving average, the more significance it has. This is especially true of the 50 and 200 EMAs, which are closely watched by most chart- reading market participants.
The 13 and 22 EMAs are more open to "customization," depending on a trader's timeframe. These two moving averages are particularly useful for swing trading; you'll see them constantly referred to in RightLine set-ups. They've proven time and time again to have a correlation with price reversals.
It's not uncommon for traders with a shorter timeframe to employ a shorter period, such as the 10 EMA or even 5 EMA. While the exact number might seem arbitrary, a savvy trader won't settle on a EMA until they've back-tested it. If a stock or index has displayed a reliable correlation with a moving average in the past, it may be worth watching.
Channel trading is a great way to use moving averages to your advantage. Often times you'll run across a stock that's bouncing between two Mas - for instance, the 22 and the 50. With one acting as support and the other as resistance, a handy road map is provided for entry and exit points. By combining this strategy with trailing stops, you can even position yourself to profit if one of those levels is broken.
One point of confusion for some traders is whether to use simple moving averages (SMAs) or exponential moving averages (EMAs). The latter tend to be more reliable, since they give more weight to recent price action. Daytraders, however, often find that SMAs are more useful for short-term signals. SMAs are also used more frequently to track the 100 and 200 period moving averages.
One of the most reliable reversal points is created when a moving average coincides with a trendline or horizontal support/resistance level. The value of moving averages can also be increased by combining them with other indicators. A stochastic buy signal, for example, might occur just after a moving average bounce. This would be a good indication of near-term upside.
The best way to learn about moving averages is to watch how stocks behave. Each equity or index has a different relationship with its Mas. The more reliable that relationship is, the easier it is to gauge set-ups and profit targets.
Here's to profits!
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits
Quick List
Stock 05/03 05/03 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
GOOS 22.56 0.05 23.15 21.57 1.58/0.79 2.1
DMLP 26.07 1.13 26.41 1.89/0.95 1.84
SAVA 21.08 0.28 / 0
WNC 14.76 0.26 15.03 1.15/0.58 1.16
HUBB 195.08 0.68 199.51 12.64/6.32 8.18
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
Market Summary
The major US stock indices were higher on Tuesday despite inflation challenges and market expectations for an agressive Federal Reserve monetary policy tightening cycle in the months ahead. In economic news, the number of available jobs increased, as the number of workers quitting their jobs reached a new high. In equities, Expedia (EXPE $150) announced a quarterly loss in line with expectations, yet presented positive guidance, while Clorox Company (CLX $148) topped forecasts and lowered forward guidance due to higher costs. Oil prices and the USD/dollar were lower, treasuries were mixed and gold finished the session higher.
May 2, 2022 May 3, 2022
-------------------- --------------------
Dow 33,061.50 84.29 33,128.79 67.29
Nasdaq 12,536.02 201.38 12,563.76 27.74
S&P 500 4,155.38 23.45 4,175.48 20.10
NYSE Volume 5.19B 4.63B
NYSE Advancers 1,428 2,084
NYSE Decliners 1,898 1,235
Nasdaq Volume 4.93B 4.57B
Nasdaq Advancers 2,749 2,603
Nasdaq Decliners 2,019 2,061
New Highs/Lows
04/26 04/27 04/28 04/29 05/02 05/03
--------------------------------------------
NYSE New Highs 9 17 22 24 13 27
NYSE New Lows 392 591 523 332 628 279
Nasdaq New Highs 38 32 43 35 28 37
Nasdaq New Lows 781 866 830 538 736 288
Stocks Covered Today Stock Splits
TRADER'S TIP: "Inside the RSI"
Simply stated, the RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses on a scale from 0 to 100. It is usually considered bullish for the underlying stock when the RSI rises above 30, and bearish when it falls below 70. A powerful way to use the RSI is to look for a divergence. An indication of an impending price reversal takes place when a stock or market reaches a new high, yet the RSI doesn't reach its previous high. A "failure swing" is said to confirm the impending reversal whenever the RSI drops below its most recent "valley."
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 - 4175.48 May 3, 2022
52-Week High: 4818.62
52-Week Low: 4056.88
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4492.19
Resistance 2: 4346.64
Resistance 1: 4239.28
Pivot: 4201.09
Support 1: 4093.73
Support 2: 4055.54
Support 3: 3909.99
NASDAQ Composite - 12563.76 May 3, 2022
52-Week High: 16212.23
52-Week Low: 12202.41
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13945.36
Resistance 2: 13249.65
Resistance 1: 12792.14
Pivot: 12553.94
Support 1: 12096.43
Support 2: 11858.23
Support 3: 11162.52
Dow Industrials - 33128.79 May 3, 2022
52-Week High: 36952.65
52-Week Low: 32272.64
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35717.84
Resistance 2: 34524.98
Resistance 1: 33751.09
Pivot: 33332.12
Support 1: 32558.23
Support 2: 32139.26
Support 3: 30946.40
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, May 02, 2022: 02-May 9:45 am 02-May 10 am ISM manufacturing index 02-May 10 am Construction spending Tuesday, May 03, 2022: 03-May 10 am Job openings 03-May 10 am Quits 03-May 10 am Factory orders 03-May Varies Motor vehicle sales (SAAR) Wednesday, May 04, 2022: 04-May 8:15 am ADP employment report 04-May 8:30 am International trade balance 04-May 9:45 am 04-May 10 am ISM services index 04-May 2 pm FOMC statement 04-May 2:30 pm Fed Chair Jerome Powell news conference Thursday, May 05, 2022: 05-May 8:30 am Initial jobless claims 05-May 8:30 am Continuing jobless claims 05-May 8:30 am Productivity (SAAR) 05-May 8:30 am Unit labor costs (SAAR) Friday, May 06, 2022: 06-May 8:30 am Nonfarm payrolls 06-May 8:30 am Unemployment rates 06-May 8:30 am Average hourly earnings 06-May 8:30 am Labor force participation rate, 25-54 06-May 3 pm Consumer credit 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: "What's Your Focus?"
Although most traders give the "enter" side of the trading equation a high priority, the "exit" side is far more important. Inexperienced market players often watch their positions go up, then slide all the way back down. It's easy to forget that paper profits only become "real" when they are converted to cash. Profitable exit strategies require active management, and deserve much more attention than entries.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Canada Goose Holdings Inc. (GOOS: Consumer Cyclical/Apparel Manufacturing) - SQUEEZE PLAY. Trader indecision has put GOOS squarely in the center of a Bull versus Bear standoff. This tight spot should soon give way to a clear winner in the short-term, and we want to be in position for the move. To do that we've set a BUY entry at 23.15 and a SELL short entry at 21.57. Now it's up to GOOS to show us which entry will be filled. Once the trade is underway place a 1.58 trailing stop, which can be tightened to 0.79 after you achieve a 2.1 profit. GOOS closed on Tuesday at 22.56. Earnings Report Date: May 11, 2022. Beta: 1.37. Market-Cap: 2.416B. Optionable.
ENERGY SECTOR
Dorchester Minerals, L.P. (DMLP: Energy/Oil & Gas E&P) - BULLISH BOUNCE. Entering a position in the early stages of a bounce is great way to get on board an up-trending stock. The "Bullish Bounce" setup identifies probable candidates by evaluating the trading action that takes place near support levels. DMLP's behavior on Tuesday could very well be a sign that a new bounce is underway. Place a BUY trigger at 26.41. In the event your trigger is met, also place a 1.89 trailing stop which can be trimmed down to 0.95 when you have a 1.84 profit. DMLP closed Tuesday at 26.07. Earnings Report Date: May 04, 2022. Beta: 1.16. Market-Cap: 979.054M. Optionable.
HEALTHCARE SECTOR
Cassava Sciences, Inc. (SAVA: Healthcare/Biotechnology) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In SAVA's case we will enter a BUY should it reach the level, or a SELL short trade if it drops to . As usual a trailing stop is essential, which should be tightened to on a 0 gain. SAVA closed Tuesday at 21.08. Earnings Report Date: May 03, 2022. Beta: 0.57. Market-Cap: 843.672M. Optionable.
INDUSTRIALS SECTOR
Wabash National Corporation (WNC: Industrials/Farm & Heavy Construction Machinery) - BULLISH BOUNCE. Another bullish bouncer, WNC appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Tuesday's positive price action near Moving Average support says it's time to BUY shares if WNC reaches our entry trigger set at 15.03. Also place a 1.15 trailing stop which can be narrowed to 0.58 when you reach a 1.16 profit. WNC closed Tuesday at 14.76. Earnings Report Date: Jul 26, 2022. Beta: 1.57. Market-Cap: 723.721M. Optionable.
Hubbell Incorporated (HUBB: Industrials/Electrical Equipment & Parts) - BULLISH BOUNCE. Positive price behavior near moving average support on Tuesday qualifies HUBB for a Bullish Bounce setup. After several sessions of declining prices, HUBB should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if HUBB moves up to our entry trigger set at 199.51. You can also enter a 12.64 trailing stop, to be replaced with a 6.32 trailing stop when you obtain a 8.18 profit. HUBB closed Tuesday at 195.08. Earnings Report Date: Jul 25, 2022. Beta: 1.26. Market-Cap: 10.468B. 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
---------------- ------- -------- ------- ------ -------
ACM Research ACMR 3/4/2022 3/24/2022 3-for-1 Yes
PAM Transport PTSI 3/9/2022 3/30/2022 2-for-1 Yes
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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