Notes From The Editor

Planning Your Exit Strategy

All effective Exit Strategies accomplish three objectives:

1) Minimizes any losses that may occur soon after entering a position

2) Maximizes your initial profits

3) Minimizes the amount of accumulated profit you give back

While there are dozens of different ways to reach these goals, an Exit Plan ultimately results in one specific number - the Exit Price.

Since price action results from the combined decisions of all buyers or sellers in a particular stock, we'll use a price action based Exit Plan as an example of how to accomplish the objectives.

1) Minimize Your Initial Losses - Deciding where to set the initial Exit Price can be a challenge. On the one hand you need to allow enough room for normal daily price fluctuations, yet not so much room that your losses hurt deeply if the trade goes against you early.

One simple way to arrive at this is to use the stock's ATR - Average True Range - for one bar of your chosen time frame. Once you know the amount of price movement that can reasonably be expected to occur, you can set your Exit Price beyond the ATR by a calculated amount.

This prevents normal price action from kicking you out of a trade, while a strong move against your position - and into your Exit Price - takes you out before serious damage can occur. Your initial Exit Price is called a "Stop," because it stops negative price action from injuring your trading capital.

2) Maximize Your Initial Profits - As price begins to move in your expected direction, the trade becomes less vulnerable to any negatives. Price momentum then starts to influence the trade positively. Since you want to secure any profits as soon as possible, move your Exit Price - your Stop - in the same direction as the positive price move. Move your Stop by exactly the same amount as the move itself.

For instance, if price moves favorably by $1.25, move your Exit Price in the same direction by $1.25. As you probably know, this procedure is called "trailing a Stop." Continue to move the Exit Price - the Trailing Stop - in the direction of the winning trade.

Do this on a regular basis that is related to your chosen time frame. Intra-day traders using 30-minute bars will do it every half-hour. Daily traders will move their Trailing Stops once a day - RightLine suggests doing it after the normal market session ends. Longer time frames require less frequent adjustments.

3) Minimize The Amount Of Profit You Give Back - One way to accomplish this goal is to include an element to your Exit Strategy that reduces the amount you are willing to risk once you reach a certain amount of profit.

You can do this by setting a profit goal. Once that goal is reached, move your Trailing Stop 25% to 50% closer to the current price than your normal "trailing" amount. Although this increases the likelihood that the Stop will be triggered, it allows for sudden positive moves while limiting the amount of profit you ultimately give back.

Below is a link to a chart example of an Exit Strategy. It may appear a bit busy at first glance, so just follow the red numbers. You will quickly understand how it works.

https://prorightline.com/reports/Things/Exit-Strategy-480.gif

This Exit Strategy example uses price action as measured by the Average True Range. You can develop exit plans based on other concepts too. For instance, you might use a specific profit target taken at a certain percentage of gains, or changes in volatility. The list of possible Exit methods is long.

Placing Stops on all positions forces traders to plan ahead. This means deciding in advance exactly the amount of loss to take if the trade doesn't turn out as intended. Most traders spend the majority of their time focusing on "when to get in." However, at least twice as much attention should be placed on "when to get out."

Bottom Line ... "Always know when to get out before you get in."

Trade well!

- Thomas Sutton, Editor

Quick List

    
Stock     11/03     11/03      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

LGND      51.81     -1.49               50.13        4.54/2.27      3.32
RXST      22.95      0.65     23.64     21.91        1.73/0.87      2.04
SLNO      23.77     -0.24     24.39     22.81        1.58/0.79      4.12
ENV       37.49      0.49               36.21        2.52/1.26      2.96
CLS       24.83      0.69     25.47     23.82        1.65/0.83      1.96
                                                             /         0

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 S&P 500 had its most robust week in over a year as a disappointing employment report raised optimism that the Federal Reserve might halt its rate hikes. US stocks surged broadly higher on Friday following a jobs report that fell short of expectations, reinforcing the belief among investors that the Federal Reserve, in its quest to combat inflation, may not need to raise interest rates any further. The S&P 500 Index (SPX) achieved an almost 6% gain for the week, marking its most substantial weekly advance in a year.

On the same day, the Labor Department reported that the economy had added 150,000 nonfarm payrolls in October. This figure represents a significant decline from the average monthly increase of 217,000 witnessed earlier in the year and ranks as the second-lowest total since December 2020. Analysts had anticipated a figure closer to 180,000.

This jobs report follows shortly after the Federal Reserve concluded its monthly meeting by maintaining its rates as anticipated. It appears that investors have reached a near consensus that the Fed's cycle of rate increases may have come to an end. The 10-year Treasury yield (TNX) briefly dipped below 4.50% on Friday, marking its lowest point in almost six weeks after having climbed as high as 5.0% in the preceding weeks.

Having posted negative returns in the past three consecutive months, the S&P 500 embarked on a strong November. Although we firmly believe that long-term equity market performance is driven by the economic environment and fundamentals, it is worth noting the historically positive trends in stock returns during November and December. Since 1945, the S&P 500 has, on average, returned 1.4% in November and 1.5% in December, both figures exceeding the average monthly return of 0.7%. Furthermore, returns have been positive in 66% of Novembers and 75% of Decembers. Although there is no assurance that historical patterns will repeat themselves in the current year, these statistics offer a degree of optimism for the final months of 2023.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 34,061.32   222.24     +1643.73     5.07%
Nasdaq              13,478.28   184.09      +835.27     6.61%
S&P 500              4,358.34    40.56      +240.97     5.85%

NYSE Volume                      4.58B                       
NYSE Advancers                   2,416                       
NYSE Decliners                     486                       

Nasdaq Volume                    4.93B                       
Nasdaq Advancers                 3,355                       
Nasdaq Decliners                   957                       

                                 New Highs/Lows

                   10/27  10/30  10/31  11/01  11/02  11/03
                 --------------------------------------------
NYSE New Highs        20     15     15     29     66     82
NYSE New Lows        369    238    119    138     55     18
Nasdaq New Highs      20     25     18     26     43     63
Nasdaq New Lows      615    421    302    328    161     91
   

TRADER'S TIP: "The Market Trend: A Friend That's Too Big To Push Around"

"The manipulation of the primary trend is not possible. When large amounts of money are at stake, the temptation to manipulate is bound to be present. Speculators, specialists or anyone else involved in the markets could manipulate the prices, but it is not possible to manipulate the primary trend. Intraday, day-to-day and possibly even secondary movements could be prone to manipulation. These short movements, from a few hours to a few weeks, could be subject to manipulation by large institutions, speculators, breaking news or rumors. Individual shares could be manipulated, but manipulations usually end the same way: the security continues the primary trend. But it would be virtually impossible to manipulate the market as a whole. The market is simply too big for this to occur."

~ William Hamilton, the Dow theory

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 - 4358.34 November 3, 2023

52-Week High: 4607.07
52-Week Low: 3698.15
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4769.66
Resistance 2: 4528.98
Resistance 1: 4443.66
Pivot: 4288.30
Support 1: 4202.98
Support 2: 4047.62
Support 3: 3806.93

NASDAQ Composite - 13478.28 November 3, 2023

52-Week High: 14446.55
52-Week Low: 10207.47
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 14887.48
Resistance 2: 14058.76
Resistance 1: 13768.52
Pivot: 13230.04
Support 1: 12939.80
Support 2: 12401.32
Support 3: 11572.59
        
Dow Industrials - 34061.32 November 3, 2023

52-Week High: 35679.13
52-Week Low: 31429.82
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 36839.67
Resistance 2: 35213.58
Resistance 1: 34637.45
Pivot: 33587.49
Support 1: 33011.36
Support 2: 31961.40
Support 3: 30335.31
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, NOV. 13					
10:00 am	Consumer sentiment (prelim)	
2:00 pm	Monthly U.S. federal budget	
			
TUESDAY, NOV. 14					
6:00 am	NFIB optimism index	
8:30 am	Consumer price index	
8"30 am	Core CPI	
8:30 am	CPI year over year				
8:30 am	Core CPI year over year				

WEDNESDAY, NOV. 15					
8:30 am	Producer price index			
8"30 am	Core PPI	
8:30 am	PPI year over year				
8:30 am	Core PPI year over year				
8:30 am	U.S. retail sales	
8:30 am	Retail sales minus autos	
8:30 am	Empire State manufacturing survey	
10:00 am	Business inventories	
			
THURSDAY, NOV. 16					
8:30 am	Initial jobless claims				
8:30 am	Import price index	
8:30 am	Import price index minus fuel	
8:30 am	Philadelphia Fed manufacturing survey	
9:15 am	Industrial production	
9:15 am	Capacity utilization				
10:00 am	Home builder confidence index	

FRIDAY, NOV. 17					
8:30 am	Housing starts
	
For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Trends & Countertrends"

Individual stocks and the larger market rarely move in a straight line. Even in the strongest trends there will always be countertrends resulting in a "two steps forward and one step back" scenario. Some traders become over anxious during the countertrends, and abandon good positions prematurely. Keep in mind that every favorable price surge deserves a planning session to determine how much profit you're willing to risk when the inevitable countertrends challenge your staying power.

Stocks Covered in This Issue

HEALTHCARE SECTOR

Ligand Pharmaceuticals Incorporated (LGND: Healthcare/Biotechnology) - BEARISH U-TURN. The weight of LGND's declining weekly trend was lightened recently when shares began to move upward. However, like a swimmer against the tide LGND encountered strong resistance on Thursday. Price action indicates a likely return to the previous downtrend, so plan to short LGND upon reaching our SELL trigger at 50.13. Set a 4.54 trailing stop which can be tightened to 2.27 after you have a 3.32 gain. LGND ended the latest session at 51.81. Earnings Report Date: Nov 08, 2023. Beta: 0.79. Market-Cap: 899.178M. Optionable.

RxSight, Inc. (RXST: Healthcare/Medical Devices) - 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. RXST found itself in this condition on Thursday 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 23.64 and a SELL short trigger at 21.91. When RXST moves outside of Thursday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 1.73 trailing stop. After you've got a 2.04 profit, tighten the stop to 0.87. RXST closed at 22.95 on Thursday. Earnings Report Date: Nov 09, 2023. Beta: 0.73. Market-Cap: 818.023M. Optionable.

Soleno Therapeutics, Inc. (SLNO: Healthcare/Biotechnology) - SQUEEZE PLAY. SLNO shareholders know what it feels like to be squeezed. Thursday'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. SLNO closed Thursday at 23.77. The plan is to enter in the right direction by placing a BUY trigger at 24.39 and a SELL short trigger at 22.81. Once SLNO establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.58. After you've collected a 4.12 profit, tighten the stop to 0.79. Earnings Report Date: Nov 07, 2023. Beta: -1.58. Market-Cap: 724.45M. Not Optionable.

TECHNOLOGY SECTOR

Envestnet, Inc. (ENV: Technology/Software - Application) - BEARISH U-TURN. Despite the fact that Bears have shown the ability to force ENV into a painful downtrend, recent bullish action has provided shareholders with some welcome relief. However, the upward reprieve may now be about to end. Thursday's intra-day price reaction near Moving Average resistance signals an increased probability that ENV will head lower in the near term. ENV now sits at 37.49. Prepare to sell shares SHORT if the weakening price reaches our trigger at 36.21. Place a 2.52 trailing stop after you enter, then reduce it to 1.26 when you've gained 2.96. Earnings Report Date: Nov 08, 2023. Beta: 1.28. Market-Cap: 2.044B. Optionable.

Celestica Inc. (CLS: Technology/Electronic Components) - SQUEEZE PLAY. The ticker for Thursday's session shows CLS is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 25.47 and a SELL short trigger at 23.82. When CLS starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.65 trailing stop. Upon reaching a 1.96 profit, resize the stop to 0.83. Earnings Report Date: Jan 23, 2024. Beta: 2.24. Market-Cap: 2.964B. Optionable.

SECTOR

(: /) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Thursday seemed intent on initiating a rebound. With moving average support nearby, 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 . Manage risk with a stop. Tighten your stop to when you have a 0 profit. ended the day at . Earnings Report Date: . Beta: . Market-Cap: . 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.

Disclaimer

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