Notes From The Editor

Trading volume is an often-overlooked aspect of market and equity movement that can give key insights into where prices may be headed. The most important thing to keep in mind is that when volume behind a price movement is higher, it's more likely to be sustained. A low-volume breakout, for example, is more likely to be a "head fake" than one that that isn't accompanied by much buying.

When hearing the media discuss equities, you'll typically hear volume referred to in terms of "most active" for the day - or the stocks that had the highest readings for the session. This list typically includes big-caps such as General Electric (GE) or Exxon Mobil (XOM), or tech behemoths like Intel (INTC) or Microsoft (MSFT).

One way to profit from the "most active" board is to use it as a filter. Does the list show any unusual names? If so, it's probably a company that just experienced a major news event, such as earnings. Make a note of these equities that had unusually strong volume, then watch them during the following session.

"Follow-through" sessions are of the utmost importance when news moves a stock. One-day volume spikes created by a news story look impressive, but often fade away after the initial reaction is absorbed by the market.

What really counts is how the stock behaves the next session. Does price action continue in the same direction? Does volume continue at a higher-than-average rate? If "yes" is the answer to both those questions, there's likely to be a sustained price movement.

Technically-minded traders have thought of all sorts of ways to incorporate volume into their analysis. The list runs from basic set-ups to advanced, complicated indicators. One of my favorite methods is to find volume trends.

Most charting software includes volume information in the form of vertical lines above or below the chart. These lines can often be connected to form trendlines. For instance, an equity whose volume is gradually rising every day will have a rising volume trendline.

These trendlines help to identify periods of rising or falling interest in a stock. It also helps to determine when a price trend might be nearing an end.

Imagine, for example, that stock XYZ has been moving higher for several days - while at the same time, volume has been trending lower. This "volume divergence" is a sign that buyers are becoming less enthusiastic about XYZ as it moves higher, and that a short-term top might be just around the corner.

Remember that volume isn't just some run-of-the-mill indicator - it's an integral part of a stock's movement. Price and volume go hand in hand. Learn more about their relationship, and you've added a valuable resource to your trading toolbox.

Have a great week,

Kent Barton
Senior Analyst

Quick List

    
Stock     11/08     11/08      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

WHD       30.20      0.28     30.62                  2.01/1.00      1.88
PDCE      25.54     -0.05     26.22     24.19        2.03/1.01      2.20
THC       29.70     -0.30     30.87     28.76        2.11/1.05      1.64
GBX       31.17     -0.45     31.77                  2.29/1.15      2.42

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 access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

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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Market Summary

US stocks chalked up a fifth-consecutive weekly gain on Friday after closing higher amid increased market optimism for a successful "phase one" trade deal between the USA and China. Light economic news headlined the past month's slight improvement in consumer sentiment, while earnings headlined Dow member Walt Disney's (DIS $138) intra-day share price performace following the company's better-than-expected results. Gold was lower, oil prices were mixed, treasury yields finished near even and the USD/dollar gained ground.

                        Nov 7, 2019            Nov 8, 2019    
                  --------------------   --------------------
Dow                    27,675  +182.24        27,681    +6.44
Nasdaq               8,434.52   +23.89         8,475   +40.80
S&P 500                 3,085    +8.40         3,093    +7.90

NYSE Volume                      4.24B                  3.55B
NYSE Advancers                    1363                   1559
NYSE Decliners                    1583                   1399

Nasdaq Volume                    2.43B                  1.99B
Nasdaq Advancers                  1651                   1662
Nasdaq Decliners                  1520                   1474

                                 New Highs/Lows

                   11/01  11/04  11/05  11/06  11/07  11/08
                 --------------------------------------------
NYSE New Highs       181    214    185    106    173    107
NYSE New Lows         24     11     27     33     41     44
Nasdaq New Highs     189    248    222     92    214     98
Nasdaq New Lows       47     45     37     76     91     97
   

TRADER'S TIP: "Minute-by-Minute"

Mature traders realize that there is no connection between the amount of time they watch their stock symbols during a session and the profits they make. Constantly over-monitoring a trade wastes time and is very distracting. Place your positions, set stops, and manage your trades on a regular schedule. Good trading habits allow you to be successful without being glued to your computer screen.

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 3093.08 November 8, 2019

52-Week High: 3097.77
52-Week Low: 2346.58
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3149.34
Resistance 2: 3117.46
Resistance 1: 3105.27
Pivot: 3085.58
Support 1: 3073.39
Support 2: 3053.70
Support 3: 3021.82


NASDAQ Composite - 8475.31 November 8, 2019

52-Week High: 8483.16
52-Week Low: 6190.11
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 8653.59
Resistance 2: 8549.76
Resistance 1: 8512.53
Pivot: 8445.93
Support 1: 8408.70
Support 2: 8342.10
Support 3: 8238.27
        
Dow Industrials - 27681.24 November 8, 2019

52-Week High: 27774.67
52-Week Low: 21712.53
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 28364.54
Resistance 2: 27991.93
Resistance 1: 27836.58
Pivot: 27619.32
Support 1: 27463.97
Support 2: 27246.71
Support 3: 26874.10
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, November 11, 2019:
11-Nov          None scheduled Veterans Day holiday

Tuesday, November 12, 2019:
12-Nov   6 am   NFIB small-business index

Wednesday, November 13, 2019:
13-Nov  8:30 am   Consumer price index
13-Nov  8:30 am   Core CPI
13-Nov  11 am   Jerome Powell testifies
13-Nov  11 am   Household debt
13-Nov   2 pm   Federal budget

Thursday, November 14, 2019:
14-Nov  8:30 am   Weekly jobless claims
14-Nov  8:30 am   Producer price index

Friday, November 15, 2019:
15-Nov  8:30 am   Retail sales
15-Nov  8:30 am   Retail sales ex--autos
15-Nov  8:30 am   Import prices ex-fuel
15-Nov  8:30 am   Empire state index
15-Nov  9:15 am   Industrial production
15-Nov  9:15 am   Capacity utilization
15-Nov  10 am   Business inventories



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

TRADER'S TIP: "Trading With Uncertainty"

Successful traders learn how to be comfortable with uncertainty. It's impossible to be sure that your trade will be profitable before you enter a position. Waiting for all the right "facts" to arrive usually results in missing out on the opportunity. Accept that you can't know in advance whether or not a trade will work. Risk is a constant companion when trading. You can't eliminate it, so learn how to recognize and manage it.

New traders want all the facts before they do a trade and by the time all the facts are out the trading opportunity is gone, then they enter the trade and wonder why it didn't work. If you're about to drive to town and you need every traffic light to turn green before you leave, you'll never get out of the driveway.

Stocks Covered in This Issue

ENERGY SECTOR

Cactus, Inc. (WHD: Energy/Oil & Gas Equipment & Services) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. WHD's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 30.62. Use a 2.01 trailing stop, which should work well with WHD's typical daily range. Tighten it to 1.00 on a 1.88 profit. WHD closed at 30.20 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.215B. Optionable.

PDC Energy, Inc. (PDCE: Energy/Oil & Gas E&P) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into PDCE. A move to the upside will trigger our BUY entry at 26.22, while a drop to 24.19 will trigger our SELL short entry. Follow your position with a 2.03 trailing stop. Tighten the stop to 1.01 once you have a 2.20 gain. PDCE closed Friday at 25.54. Earnings Report Date: N/A. Beta: 1.59. Market-Cap: 1.424B. Optionable.

HEALTHCARE SECTOR

Tenet Healthcare Corporation (THC: Healthcare/Medical Care) - 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 THC's case we will enter a BUY should it reach the 30.87 level, or a SELL short trade if it drops to 28.76. As usual a trailing stop is essential, 2.11 which should be tightened to 1.05 on a 1.64 gain. THC closed Friday at 29.70. Earnings Report Date: N/A. Beta: 1.83. Market-Cap: 3.072B. Optionable.

INDUSTRIALS SECTOR

The Greenbrier Companies, Inc. (GBX: Industrials/Railroads) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with GBX which met our setup criteria on Friday. The BUY trigger for this trade is at 31.77, and the trailing stop is sized at 2.29. Resize the stop to 1.15 upon collecting a 2.42 point gain. GBX closed Friday at 31.17. Earnings Report Date: Jan 7, 2020. Beta: 1.95. Market-Cap: 1.01B. 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  
---------------- -------     --------    -------     ------  -------   

Penns Woods Banc   PWOD    09/03/2019  10/01/2019   3-for-2   No
Equity Lifestyle   ELS     09/20/2019  10/16/2019   2-for-1   Yes
Middlefield Banc   MBCN    10/07/2019  11/12/2019   2-for-1   No
    

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

Morning Gap Strategies

Having trouble with those irritating morning gaps? You're not alone. Many of us spend hours working on new setups, only to watch them go up in smoke overnight. But there's no need to throw out all of your hard work just yet. You can do a quick analysis, adjust your trading strategy and get into a good position well after the crowd pulls the trigger on a gap play.

Many traders still place market orders before the open and walk away. Unfortunately, this is a sucker move that yields the worst fills imaginable. Take a few extra minutes to plan your gap entry, and you'll get much better prices. No, this isn't a daytrading column, although it will benefit anyone who plays in the intraday markets. It's for swing traders trying to fine-tune their entries and get positioned where they can take home the most money. Here are some strategies you can use.



Stand aside at the open, and use the third-bar swing to find the best gap entry. This is a dependable reversal or expansion move on the five- minute chart, occurring 11 or 12 minutes into the new trading day. This phenomenon is a relic of the old 15-minute quote delay. In past years, painting the tape before retail investors could access stock prices ensured a few extra pennies for market insiders. Because retailers were the last "paper" in the door, natural forces would then take over and trigger reversals or breakouts. Although real-time market access has grown substantially, this third-bar swing still shows its face on many days.



Let the stock draw the first three five-minute bars, and then use the high and low of this "three-bar range" as support and resistance levels. A buy signal issues when price exceeds the high of the three- bar range after an up gap. A sell signal issues when price exceeds the low of the three-bar range after a down gap. It's a simple technique that works like a charm in many cases. If you use this technique, though, a few caveats are in order to avoid whipsaws and other market traps. The most common is a first swing that lasts longer than three bars. If an obvious range builds in four, five or even six bars, use those to define your support and resistance levels. Also consider the higher noise level in five-minute charts. A breakout that extends only a tick or two can be easily reversed and trap you in a sudden loss. So let others take the bait at these levels, while you find pullbacks and narrow range bars for trade execution.



Gap location is more important than the gap itself. Does the opening bar push price into longer-term support or resistance? A strong up gap may force a stock through several resistance levels and plant it firmly on top of new support. Or it can push it straight into an impenetrable barrier, from which the path of least resistance is straight down.



Three-bar range support and resistance often need to complete a testing pattern before they will yield to higher or lower prices. This comes in the form of a small cup and handle, or an inverse cup-and-handle pattern. Simply stated, price reverses the first time it tries to exceed an old high or low, but succeeds on the subsequent try.

Price gaps generate other action levels as well. The most obvious is the support line in an up gap (or resistance line in a down gap). We'll call these "reverse break" lines. Violation of the reverse break can trigger price acceleration toward the gap fill line. These market mechanics make perfect sense: everyone who entered a position in the direction of the gap is losing money once price moves past the reverse break line.



The gap fill line marks support in an up gap and resistance in a down gap. In other words, the odds favor a reversal when price reaches it. Paradoxically, this is a terrible place for swing traders to enter new positions. The reverse break line will resist price from re-entering the three-bar range. In fact, price bouncing like a pinball from the fill line to the reverse break line and back to the fill line sets off a powerful trading signal in the opposite direction. It predicts the demise of the gap and a significant reversal.

The flip side of this reversal is a failure of a failure signal. In other words, price overcomes resistance at the reverse break line and retests the high of an up gap (or low of a down gap). The ability of price to retest these levels issues a strong signal to take positions in the direction of the gap.

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

Disclaimer

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