Notes From The Editor

The best traders are flexible. They know how to admit when they are wrong, get out of their losing positions quickly, and move ahead to the next trade. Though all traders aspire to be flexible, truth is many of us limit ourselves in ways we aren't even aware of.

For example, a large percentage of traders still don't use shorting as a way to increase profit opportunities. Short-sellers have gotten a lot of bad press over the years, causing many traders to falsely assume that shorting should be avoided. In the real world, declining markets are very similar to rising markets in at least one respect. Both types of markets present a trend that should be considered when making intelligent trade decisions. Of course that requires flexibility on our part.

The long term upside bias of the stock market has convinced many traders that shorting just isn't a smart thing to do. However, trading isn't the typical type of investing. Traders generally don't hold stocks long enough for long-term trends to impact their positions. Traders take advantage of shorter-term trends and price swings, while investors count on very long-term trends and economic cycles to produce profits.

Short-term market dynamics differ from long-term in an important way. While the market has historically trended higher in the past 100+ years, it hasn't moved in a straight line. Instead, prices have risen and fallen in a repeating cycle, a cycle that has trended higher over the long haul.

In some way all short-term traders take advantage of the inevitable declines. Most do this by waiting for the pullbacks to end before buying shares. Others watch for signs that the upward leg of the cycle is complete, and then enter short trades to profit from the fall.

Doing both of these allows us to significantly increase the number and quality of trading opportunities available. By keeping an open mind, we begin to understand the dynamics of short selling in relation to the constant rotation of up and down trends that occur in every time frame.

While the art of shorting does carry unique restrictions and risks, it certainly isn't the dangerous act it's often made out to be. Using effective short-selling techniques actually lowers overall risk by letting you make money in down trending markets. From personal experience, shorting is a powerful skill to be considered by anyone who is serious about trading stocks.

Stay flexible!

~ Thomas Sutton, Editor

Quick List

    
Stock     05/04     05/04      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

CHD      106.11      0.23    107.72                  6.95/3.48     5.15
SCCO     115.41      2.39    117.27                  7.48/3.74     6.50
HZO       25.81      0.56               24.89        2.01/1.01     2.20
SG        22.10      0.76     22.97     21.14        1.83/0.92     2.12
ACMR      27.00      0.49     28.18     26.04        2.14/1.07     2.40

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

US equity markets surged over 1% on Friday, with the Nasdaq leading the gains, as the 10-year Treasury yield saw a sharp decline following a disappointing jobs report. Both payroll gains and wage growth slowed, reinforcing Chair Powell's recent statement that the Fed isn't considering rate hikes despite persistent inflationary pressures.

Apple's shares soared over 7% after surpassing modest earnings expectations for the quarter and announcing a record $110 billion stock buyback program. Consequently, the dollar weakened against major currencies as investors started factoring in the possibility of two Fed rate cuts for the year. Meanwhile, WTI oil closed the week below $80/barrel, registering its most significant weekly decline since February.

The U.S. economy added 175,000 jobs last month, falling short of expectations and marking the smallest increase in six months, while the unemployment rate edged up to 3.9% from 3.8%. Nearly half of the payroll gains stemmed from the healthcare and private education sectors, whereas construction and public sector hiring decelerated. Notably, average hourly earnings grew by only 0.2% from the previous month, compared to the 0.4% average in the first three months of the year. On an annual basis, wage growth slowed to 3.9%, down from 4% for the first time since June 2021, signaling a positive development for the Fed's inflation target.

Overall, while the labor market remains robust, the pace of job growth is moderating, which could alleviate some inflationary pressures and pave the way for the Fed to implement its first rate cut later this year.

Following this week's FOMC meeting, markets were relieved by the Fed's stance on avoiding rate hikes for the time being, with Chair Powell emphasizing the policy's adaptability to various scenarios. The latest jobs report further supports this stance. However, as inflation progress stalls, policymakers aim to maintain higher rates for an extended period. While the Fed may have a predisposition to cut rates this year, it will likely require several months and improved inflation metrics to bolster confidence in the inflation outlook.

Despite upward pressure on equity valuations from rising bond yields, corporate earnings have consistently exceeded expectations, providing a supportive backdrop. Around 80% of S&P 500 companies have reported earnings so far, with an impressive 79% surpassing analyst forecasts by nearly 9% on average. Mega-cap tech firms have particularly stood out for their robust earnings performance, while broader market growth is also gaining momentum. Corporate profits for the S&P 500 are expected to grow by over 10% for the full year, representing a significant acceleration from the previous year and sustaining the upward trajectory of stocks.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                  38675.68   450.02      +436.02     1.14%
Nasdaq                6156.33   315.37     -9771.57   -61.35%
S&P 500               5127.79    63.59       +27.83     0.55%

NYSE Volume                      3.92B                       
NYSE Advancers                   2,134                       
NYSE Decliners                     690                       

Nasdaq Volume                    4.88B                       
Nasdaq Advancers                 2,807                       
Nasdaq Decliners                 1,406                       

                                 New Highs/Lows

                   04/26  04/29  04/30  05/01  05/02  05/03
                 --------------------------------------------
NYSE New Highs        79     79     64     56     80    123
NYSE New Lows         22      9     36     36     26     18
Nasdaq New Highs      58     86     56     63     81    131
Nasdaq New Lows       92     71    123    113    101     79
   

TRADER'S TIP: "Before You Enter"

Before entering a trade, carefully plan "what you will do" and "when you will do it" once you have entered the position. Actually, this aspect of trading is much more important than finding the "perfect" entry. Always include an exit plan for three possible scenarios: the trade moves favorably, unfavorably, or doesn't move at all. Pay attention to details, and be sure to include the specific exit price when planning stop-losses. When using the trailing stop method to lock in gains, make certain that you decide in advance at what point the trailing stop will be adjusted.

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".

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, May 6					
12:50 pm	Richmond Fed President Tom Barkin speaks				
1:00 pm	New York Fed President Williams speaks
				
TUESDAY, MAY 7					
11:30 am	Minneapolis Fed President Kashkari speaks				
3:00 pm	Consumer credit	

WEDNESDAY, MAY 8					
10:00 am	Wholesale inventories	
11:00 am	Fed Vice Chair Philip Jefferson speaks				
11:45 am	Boston Fed President Susan Collins speaks				
1:30 pm	Fed Gov. Cook speaks	
			
THURSDAY, MAY 9					
8:30 am	Initial jobless claims	
2:00 pm	San Francisco Fed President Mary Daly speaks
				
FRIDAY, MAY 10					
9:00 am	Fed Governor Michelle Bowman speaks				
10:00 am	Consumer sentiment (prelim)	
12:45 pm	Chicago Fed President Austan Goolsbee speaks				
1:30 pm	Fed Vice Chair for Supervision Michael Barr speaks				
2:00 pm	Monthly U.S. federal budget

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

TRADER'S TIP: "Right or Wrong"

Traders who follow trading plans that include risk management are never actually "wrong." If price moves against a position, we just execute the planned stop and move on. Experienced traders don't look at this as being "right" or "wrong" - it's just part of the job of trading.

Stocks Covered in This Issue

N/A SECTOR

Church & Dwight Co., Inc. (CHD) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday CHD seemed intent on initiating a rebound. With moving average support nearby, CHD 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 107.72. Manage risk with a 6.95 stop. Tighten your stop to 3.48 when you have a 5.15 profit. CHD ended the day at 106.11. Earnings Report Date: Jul 26, 2024. Beta: 0.52. Market-Cap: 25.881B. Not Optionable.

Southern Copper Corporation (SCCO) - 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 115.41. Anticipate the rebound to continue, and be ready to buy SCCO at 117.27. Follow your entry with a trailing stop of 7.48 which can be tightened to 3.74 on a 6.50 profit. Earnings Report Date: Jul 25, 2024. Beta: 1.32. Market-Cap: 89.225B. Not Optionable.

MarineMax, Inc. (HZO) - BEARISH U-TURN. The weight of HZO's declining weekly trend was lightened recently when shares began to move upward. However, like a swimmer against the tide HZO encountered strong resistance on Friday. Price action indicates a likely return to the previous downtrend, so plan to short HZO upon reaching our SELL trigger at 24.89. Set a 2.01 trailing stop which can be tightened to 1.01 after you have a 2.20 gain. HZO ended the latest session at 25.81. Earnings Report Date: Jul 25, 2024. Beta: 1.72. Market-Cap: 575.599M. Not Optionable.

Sweetgreen, Inc. (SG) - 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 SG's case we will enter a BUY should it reach the 22.97 level, or a SELL short trade if it drops to 21.14. As usual a trailing stop is essential, 1.83 which should be tightened to 0.92 on a 2.12 gain. SG closed Friday at 22.10. Earnings Report Date: May 9, 2024. Beta: 2.22. Market-Cap: 2.502B. Not Optionable.

ACM Research, Inc. (ACMR) - SQUEEZE PLAY. Trader indecision has put ACMR 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 28.18 and a SELL short entry at 26.04. Now it's up to ACMR to show us which entry will be filled. Once the trade is underway place a 2.14 trailing stop, which can be tightened to 1.07 after you achieve a 2.40 profit. ACMR closed on Friday at 27.00. Earnings Report Date: May 8, 2024. Beta: 1.38. Market-Cap: 1.674B. Not 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  
---------------- -------     --------    -------     ------  -------   

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.

Trader's Corner

"Loose Lips Sink Ships" By Chuck LeBeau

In browsing around the web I often encounter discussions of the merits of a particular trade and opinions about the direction of a market. I know that the traders who voice these opinions have good intentions and much of the discussions could be helpful to the person receiving the information. However the provider of the opinion must be very careful that he doesn't start believing too strongly in his position because he has made the mistake of going public with it.

This is an important psychological issue that I seldom see discussed. Taking losses is always difficult and the reluctance to promptly acknowledge that we are on the wrong side of the market is probably the single most costly error a trader can make. Even under the best of conditions we hate to take losses. Publicly advocating a particular trade or the direction of a market just makes being wrong all the more painful and harder to accept. If we make it a policy to go around advocating the merits of our trades it will only make it harder to recognize when we are wrong.

Many years ago when I was a young futures broker at E. F. Hutton and Company, the firm decided that it would be a good idea to send our commodity research analysts on the road whenever they came up with a well researched idea that appeared to have great potential. Let's assume for a minute that our sugar analyst has decided that sugar is going to make a big move to the upside over the next six months. After publishing his research he would be sent from city to city where he would speak at meetings for brokers and clients suggesting why everyone should be buying sugar.

At first the analyst road shows seemed like a great idea. The clients received the benefit of hearing about a well-researched idea straight from the analyst himself and also had the opportunity to ask questions and engage the analyst in a discussion of the details of the sugar market. The clients enjoyed the meetings and a lot of new commodity business was generated as a result.

However, it turns out that the objectivity of the analysts was completely lost after the story had been told and the bullish scenario presented a dozen times or more. The analyst felt obligated to the firm and to the clients. The firm had spent a lot of money to send the analyst on the road and to host these meeting all over the country. As a result of the meetings the clients now knew the analysts by name and his personal and professional reputation was clearly on the line. This analyst was now committed and he was going to be bullish on sugar regardless of what happened in the market or what new information came to light.

From the point of the tours onward the analyst would only look for information to support his opinion. To ever admit that he was wrong would be such public humiliation that the analyst would tend to ignore any contrary information and would stick to his original position through thick and thin. We eventually learned that the talented Hutton research analysts did a much better job when they were free to change their minds as new facts were revealed without the pressure and responsibility generated by their repeated espousing of a particular position on a specific trade.

Discretionary traders should learn from this example and avoid discussing their open positions or their opinion about the direction of a market. It will only distort their objectivity and make it harder to take a loss promptly when that is the best course of action. Losses that only we know about are tough enough but losses that everyone knows about become much harder to stomach and we tend to postpone our exits in hope that the market will eventually turn around and prove us right.

Remember that the best discretionary traders are usually very neutral about their positions and tend to take their guidance from the price action and the flow of new information. Its OK to listen to others talk about their positions, but don't make it a habit of discussing your open trades. It will only cost you money - especially if you repeat your opinions often enough that you might actually start believing what you are saying.

**************************************************

This article was taken from an earlier work written by author and trading veteran Chuck LeBeau. It was originally titled "Discretionary Traders - Don't Talk About Your Open Positions." Chuck is the co- author of "Computer Analysis of the Futures Market" (McGraw-Hill 1992).

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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