October 1, 2022 - The RightLine Report
Notes From The Editor
Proper risk management is the best way to ensure that your account won't take too big of a hit if a trade turns against you. If you've determined ahead of time how big your positions will be, as well as your stop-loss, you've already got a worst-case scenario for the trade.
Those who trade small-cap equities should also verify that the Average Daily Volume (ADV) is a bare minimum of 40,000 shares. Anything under that could spell trouble in terms of liquidity and unexpected price swings.
The fear of missing out on a better opportunity can be especially high if most of your trading capital is already tied up in other positions. It's very easy to justify not pulling the trigger when you tell yourself "there are better places to put my money."
With so many possible set-ups out there, you should only take the ones that fit with your personal goals and trading style. The way to make sure this happens is to verify that the equity has sufficient volatility for your timeframe. You can check both a stock's Beta (its volatility versus the S&P 500) and its recent trading range to get a good sense for what it might do once you jump onboard.
That said, here's an example of a quick checklist that a trader might run through before entering a trade. If all these conditions are met, it's simply a matter of sending the order and waiting to see how things play out. No more balking!
- Beta is more than 1.50
- Average Daily Volume is greater than 80,000 shares
- Average Trading Range over the past week has been more than 3% per day
- The risk/reward ratio is at least 1:2.5
- The proper number of shares have been calculated
- Stop-loss placement has been determined
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 09/30 09/30 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
TRMD 20.29 0.53 20.97 19.63 1.34/0.67 1.68
NOG 27.41 0.42 27.8 25.52 2.28/1.14 2.88
MRUS 20.03 0.23 19.28 1.8/0.9 2.68
IIIN 26.53 -0.25 25.67 2.01/1.01 2.1
KRNT 26.61 -0.64 25.79 2.58/1.29 3.1
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.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
US stocks were lower on Friday, sending the major stock averages down to the lowest levels of 2022. Quite a bit of economic data was released, including inflation readings that were higher than expected, personal income numbers that met expectations, and personal spending that was twice the forecasted level. Also, Chicago region manufacturing activity fell hard, and consumer sentiment was revised lower. In equity headlines, Micron Technology (MU $50) topped quarterly earnings estimates but gave weak guidance, NIKE (NKE $83) beat profit forecasts but revealed gross margins will be tightened due to increased inventories, and the share price of Carnival Corporation (CCL $7) dropped hard after the cruise line posted a larger net loss than expected and offered disappointing guidance for next quarter. Treasury yields were up, the USD/dollar and oil prices declined, gold finished the session near even.
Friday On The Week
-------------------- --------------------
Dow 28,725.51 -500.10 -864.9 -2.92%
Nasdaq 10,575.62 -161.89 -292.31 -2.69%
S&P 500 3,585.62 -54.85 -107.61 -2.91%
NYSE Volume 5.76B
NYSE Advancers 1,381
NYSE Decliners 1,816
Nasdaq Volume 4.7B
Nasdaq Advancers 1,913
Nasdaq Decliners 2,688
New Highs/Lows
09/23 09/26 09/27 09/28 09/29 09/30
--------------------------------------------
NYSE New Highs 8 11 15 12 8 4
NYSE New Lows 1,106 1,083 893 294 820 485
Nasdaq New Highs 23 24 31 31 19 38
Nasdaq New Lows 1,227 990 898 365 761 572
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Under and Over"
While it's easy to under-estimate how long it takes to learn how to trade well, it's almost impossible to OVER-estimate the value of the lessons learned along the way. Remember that there's no such thing as a bad experience - so long as you learn from it and assign it a high value.
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 - 3585.62 September 30, 2022
52-Week High: 4818.62
52-Week Low: 3584.13
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3940.71
Resistance 2: 3788.10
Resistance 1: 3686.86
Pivot: 3635.49
Support 1: 3534.25
Support 2: 3482.88
Support 3: 3330.27
NASDAQ Composite - 10575.62 September 30, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 11808.15
Resistance 2: 11278.98
Resistance 1: 10927.30
Pivot: 10749.81
Support 1: 10398.13
Support 2: 10220.64
Support 3: 9691.47
Dow Industrials - 28725.51 September 30, 2022
52-Week High: 36952.65
52-Week Low: 28715.85
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 31276.24
Resistance 2: 30180.31
Resistance 1: 29452.91
Pivot: 29084.38
Support 1: 28356.98
Support 2: 27988.45
Support 3: 26892.52
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, October 03, 2022: 03-Oct 9:45 am 03-Oct 10 am ISM manufacturing index 03-Oct 10 am Construction spending 03-Oct Varies Motor vehicle sales (SAAR) Tuesday, October 04, 2022: 04-Oct 10 am Job openings 04-Oct 10 am Quits 04-Oct 10 am Factory orders 04-Oct 10 am Core capital goods orders revision Wednesday, October 05, 2022: 05-Oct 8:15 am ADP employment report 05-Oct 8:30 am International trade balance 05-Oct 9:45 am 05-Oct 10 am ISM services index Thursday, October 06, 2022: 06-Oct 8:30 am Initial jobless claims 06-Oct 8:30 am Continuing jobless claims Friday, October 07, 2022: 07-Oct 8:30 am Nonfarm payrolls 07-Oct 8:30 am Unemployment rate 07-Oct 8:30 am Average hourly earnings 07-Oct 8:30 am Labor force participation rate, ages 25-54 07-Oct 10 am Wholesale inventories revision 07-Oct 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 Corner
TRADER'S TIP: "Makes You Wanna Trade"
"Imagine you risk 2% of your equity in any one trade. Allowing for the fact that your account size drops on each occasion, your initial equity would be down 50 percent after 34 consecutive losses. What are the chances of 34 consecutive losses? Well, if there is a 50-50 chance of profit on any one trade, then the chances of 34 consecutive losses would be 0.5 to the 34th power, or one in 17 billion. Makes you wanna trade doesn't it?"
~ Alpesh Patel, Trader & Author of the book, "Net-Trading"
Stocks Covered in This Issue
ENERGY SECTOR
TORM plc (TRMD: Energy/Oil & Gas Midstream) - SQUEEZE PLAY. A look at TRMD's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 20.97 and a SELL short trigger at 19.63. Once TRMD shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.34 and tighten to 0.67 on a 1.68 gain. TRMD closed Friday at 20.29. Earnings Report Date: N/A. Beta: 0.12. Market-Cap: 1.873B. Optionable.
Northern Oil and Gas, Inc. (NOG: Energy/Oil & Gas E&P) - SQUEEZE PLAY. Friday's trading action forced NOG's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction NOG will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 27.8 if NOG moves higher, and place your order to SELL short at 25.52 if price declines to that level. As usual follow your entry with a trailing stop, 2.28 should be sufficient. Reduce your stop to 1.14 on a 2.88 gain. NOG closed Friday at 27.41. Earnings Report Date: Nov 03, 2022. Beta: 2.09. Market-Cap: 2.163B. Optionable.
HEALTHCARE SECTOR
Merus N.V. (MRUS: Healthcare/Biotechnology) - BEARISH U-TURN. A quick look at the charts for MRUS show that despite the upward pressure caused by recent buying, the weekly downtrend is still in place. Friday's chart shows a potential return to that downtrend is in the works. This Bearish U-Turn set-up offers a potential entry point for a SHORT play. Set your trigger to SELL shares at 19.28, and follow your entry with a trailing stop of 1.8. Tighten the stop to 0.9 after reaching a 2.68 profit. MRUS ended the latest session at 20.03. Earnings Report Date: Oct 31, 2022. Beta: 0.89. Market-Cap: 918.94M. Optionable.
INDUSTRIALS SECTOR
Insteel Industries, Inc. (IIIN: Industrials/Metal Fabrication) - BEARISH U-TURN. This short setup turns common stock behavior into profits. Grounded in the tendency for down-trending stocks to bounce briefly and then return to the familiar down-trend, the Bearish U-Turn points traders to weak stocks when conditions are calling for more downward price action. IIIN's behavior on Friday near moving average support signals a potential SELL short entry at 25.67, followed by a 2.01 trailing stop which can be tightened to 1.01 upon earning 2.1. IIIN closed Friday at 26.53. Earnings Report Date: Oct 20, 2022. Beta: 1.17. Market-Cap: 517.489M. Optionable.
Kornit Digital Ltd. (KRNT: Industrials/Specialty Industrial Machinery) - 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 KRNT which met our setup requirements on Friday. The SELL short trigger for this trade is set at 25.79, and the trailing stop is sized at 2.58. Reset the stop to 1.29 upon getting a 3.1 point gain. KRNT closed Friday at 26.61. Earnings Report Date: Nov 08, 2022. Beta: 1.73. Market-Cap: 1.325B. 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 Trader's Corner
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
---------------- ------- -------- ------- ------ -------
Nasdaq Inc NDAQ 7/20/2022 8/29/2022 3-for-1 Yes
Tesla TSLA 8/5/2022 8/25/2022 3-for-1 Yes
Palo Alto Net PANW 8/23/22 9/14/22 3-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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Proactive Trading
Every trading plan should include proactive features to make sure that the trader behind the plan isn't over-reacting to market noise - a term used to describe any news or price and volume fluctuations, which do not provide meaningful information about the market's direction. We've all seen stocks go up on "negative" news and down on "positive news." This flies in the face of common sense, which says there should always be a relationship between the news as we perceive it and price movement. However, the market is a fickle machine, and often moves in the opposite direction most people would expect.
As daunting as it may seem sometimes, filtering out the "noise" is a relatively simple task, but it requires that we know how to recognize the scrambled message in the market's daily broadcast. Keep in mind that the message isn't hidden in some secret, mysterious way, but that it merely gets lost in the glut of information generated by the industry. The US stock market is the largest in the world, and everyone associated with it has an agenda. Institutional traders, market makers, analysts, retail investors, and the news media all have a vested interest, and those who are the most vocal or control the broadest audience don't necessarily provide the best information when it comes to YOUR profits.
Unlike most traders and investors who just react to the loudest market voice in a knee jerk fashion, proactive traders anticipate possible market direction and devise a plan of action for each - up, down, or sideways. Proactive trading revolves around having a detailed, predetermined plan, which includes elements that prompt us to take intelligent action at the proper time. To do this successfully we need to know what the market is saying.
You've probably heard experienced traders say it's best to "let the market tell you what to do, then react to it." This sort of reaction is positive. It involves reading and anticipating the market's potential price movement at pivotal levels, then responding to the initial phase of the move without bias for any particular direction. It's neither bearish nor bullish, and doesn't allow trader "denial" or team loyalty to blind us to market reality.
One common approach to filtering noise is to use technical indicators to analyze the markets. However, almost all technical indicators are based on historical price and volume data, so regardless of which ones we use, the very nature of these tools encourages most traders to be reactive instead of pro-active. While there is certainly a positive benefit derived from using indicators, we should be careful that they don't cause us to become too reactive when trading.
No matter what strategy you prefer to trade, consider using moving averages innovatively as part of your trading plan. Even though they do qualify as "lagging" indicators, they can be used in a number of ways to help us anticipate opportunity. Since moving averages have such a close relationship to price movement, future price will eventually come in contact with the moving average. Because this contact is inevitable, traders can project what price is likely to do at the point of contact.
Usually price backs away in the short term after contact with a selected moving average, and many times the moving average serves as a pivotal reversal point for longer-term reversals as well. On daily charts you can usually see relationships between price and the 13, 22, 50, and 100 bar exponential moving averages along with the 200 simple moving average. The best way to find the optimum moving average for your preferred trading time frame is to put a number of different moving averages on the screen and look for those with the most consistent price relationships. In other words, locate the moving averages where price reacts to them as support and resistance.
Take note that just because price is approaching an important moving average level, a change in direction isn't automatic. It just means that buyers and sellers are likely to enter at these levels, which increases the odds of either a reversal, or accelerated price movement in the original direction if a turnaround doesn't occur.
Bottom Line: While this sort of moving average technical analysis isn't intended to be a complete strategy, it does provide a solid framework to help predetermine likely price action and gives us plenty of time for planning ahead. Just remember that using our tools to trade proactively allows us to anticipate and respond to likely market action instead of blindly reacting to it!
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
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
Click Here To Unsubscribe