October 22, 2022 - The RightLine Report
Notes From The Editor
Trading as a Business
Do you trade for a living, or do you trade to supplement the income you get from a regular job? Most swing traders fall into the second category, while the first is usually made up of daytraders.
But in either case, trading is something that's inherently entrepreneurial. You're a) working for yourself, b) risking capital to make money, and c) trying to achieve a steady flow of income. Essentially, it's a business.
This approach is a big shift from the perspective that many traders have. They tend to think of the whole endeavor as something more akin to gambling - a novel way to earn an extra bit of dough every week. The way I see it, the business perspective is far more useful. It makes sense in the context of the stock market, and helps you position yourself to reach your goals.
Every business is forced to pay taxes, and it's no different with trading. There are certain rules that dictate how much you must fork over to Uncle Sam, depending on how often you trade and other factors. A little research in this area can yield some helpful, money-saving information.
Profitable businesses also have reliable, efficient internal systems. To put it another way, they apply good habits and business practices consistently to improve their chances of success. Traders can use the same methodical approach to their advantage. This means consistent use of risk management and stop-loss methods, a non-emotional, calculated approach to entering trades, and good record-keeping.
Every successful firm knows that professionalism and profits go hand-in-hand. Organize everything about your trading for maximum efficiency. Keep your desk area uncluttered. Clear your mind of other details when it's time to trade and focus on the task at hand. Act like a pro!
Businesses also need to be acutely aware of the marketplace, their own strengths and shortcomings, and any future trends that might have an impact on their ability to make money. With that in mind, next week I'll introduce you to a common business planning tool that's just as useful in the trading world.
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 10/21 10/21 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
LOVE 21.11 0.31 21.52 19.68 1.84/0.92 2.7
TBBK 24.16 0.26 24.7 1.75/0.88 1.52
AVTE 20.28 0.10 20.58 2.76/1.38 3.84
ISEE 21.44 0.29 21.95 2/1 2.56
TVTX 22.53 0.18 22.97 21.34 1.63/0.82 2.34
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 sharply higher on Friday as earnings season moved forward under a light economic calendar. The bullish price action came on the heels of a Wall Street Journal report that said some Fed officials are concerned about the downside of an over-tight monetary policy. In equities, Dow components Verizon Communications (VZ $35 and American Express Company (AXP $140) both topped profit expectations, while social media company Snap reported adjusted earnings, but warned that lower ad revenues are ahead. Treasury yields were mixed, oil prices and gold advanced higher, the USD/dollar declined.
Friday On The Week
-------------------- --------------------
Dow 31,082.56 748.97 +1447.73 4.89%
Nasdaq 10,859.72 244.87 +538.33 5.22%
S&P 500 3,752.75 86.97 +169.68 4.74%
NYSE Volume 5.08B
NYSE Advancers 2,261
NYSE Decliners 941
Nasdaq Volume 4.72B
Nasdaq Advancers 3,107
Nasdaq Decliners 1,521
New Highs/Lows
10/14 10/17 10/18 10/19 10/20 10/21
--------------------------------------------
NYSE New Highs 29 43 40 33 37 40
NYSE New Lows 218 120 115 310 412 548
Nasdaq New Highs 61 70 76 53 72 69
Nasdaq New Lows 336 208 157 326 372 454
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Prevent Overtrading - Be Selective"
Traders will sometimes say to themselves - "Here I am with money in my trading account, so I'm going to trade SOMETHING today!" Unfortunately what they do next usually qualifies as "over trading." Remember that patience is a major key to success in this business, so always be selective about the trades you take.
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 - 3752.75 October 21, 2022
52-Week High: 4818.62
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3966.34
Resistance 2: 3842.20
Resistance 1: 3797.47
Pivot: 3718.06
Support 1: 3673.33
Support 2: 3593.92
Support 3: 3469.78
NASDAQ Composite - 10859.72 October 21, 2022
52-Week High: 16212.23
52-Week Low: 10088.83
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 11652.78
Resistance 2: 11222.24
Resistance 1: 11040.98
Pivot: 10791.70
Support 1: 10610.44
Support 2: 10361.16
Support 3: 9930.62
Dow Industrials - 31082.56 October 21, 2022
52-Week High: 36952.65
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 32976.44
Resistance 2: 31854.80
Resistance 1: 31468.67
Pivot: 30733.15
Support 1: 30347.02
Support 2: 29611.49
Support 3: 28489.84
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, October 24, 2022: 24-Oct 8:30 am Chicago Fed national activity index 24-Oct 9:45 am 24-Oct 9:45 am Tuesday, October 25, 2022: 25-Oct 9 am 25-Oct 9 am FHFA U.S. home price index (SAAR) 25-Oct 10 am Consumer confidence index Wednesday, October 26, 2022: 26-Oct 8:30 am Trade in goods (advance) 26-Oct 10 am New home sales (SAAR) Thursday, October 27, 2022: 27-Oct 8:30 am Real gross domestic product, first estimate (SAAR) 27-Oct 8:30 am Real final sales to domestic purchasers, first estimate (SAAR) 27-Oct 8:30 am Initial jobless claims 27-Oct 8:30 am Continuing jobless claims 27-Oct 8:30 am Durable goods orders 27-Oct 8:30 am Core capital equipment orders Friday, October 28, 2022: 28-Oct 8:30 am Employment cost index (SAAR) 28-Oct 8:30 am PCE price index (SAAR) 28-Oct 8:30 am Core PCE price index (SAAR) 28-Oct 8:30 am PCE price index (12-month change) 28-Oct 8:30 am Core PCE price index (12-month change) 28-Oct 8:30 am Real disposable income (SAAR) 28-Oct 8:30 am Real consumer spending 28-Oct 10 am UMich consumer sentiment index (late) 28-Oct 10 am UMich consumer 5-year inflation expectations (late) 28-Oct 10 am Pending home sales index 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: "One Good Move Deserves Another"
In most cases the further and faster the market moves in one direction, the faster and more intense the reversal will be when the market has used up its energy.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
The Lovesac Company (LOVE: Consumer Cyclical/Furnishings, Fixtures & Appliances) - SQUEEZE PLAY. Friday's trading action forced LOVE'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 LOVE 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 21.52 if LOVE moves higher, and place your order to SELL short at 19.68 if price declines to that level. As usual follow your entry with a trailing stop, 1.84 should be sufficient. Reduce your stop to 0.92 on a 2.7 gain. LOVE closed Friday at 21.11. Earnings Report Date: Dec 06, 2022. Beta: 2.46. Market-Cap: 327.169M. Optionable.
FINANCIAL SERVICES SECTOR
The Bancorp, Inc. (TBBK: Financial Services/Banks-Regional) - 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. TBBK's behavior on Friday could very well be a sign that a new bounce is underway. Place a BUY trigger at 24.7. In the event your trigger is met, also place a 1.75 trailing stop which can be trimmed down to 0.88 when you have a 1.52 profit. TBBK closed Friday at 24.16. Earnings Report Date: Oct 27, 2022. Beta: 1.42. Market-Cap: 1.413B. Optionable.
HEALTHCARE SECTOR
Aerovate Therapeutics, Inc. (AVTE: Healthcare/Biotechnology) - 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. AVTE's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 20.58. Use a 2.76 trailing stop, which should work well with AVTE's typical daily range. Tighten it to 1.38 on a 3.84 profit. AVTE closed at 20.28 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 495.807M. Not Optionable.
IVERIC bio, Inc. (ISEE: Healthcare/Biotechnology) - 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 ISEE which met our setup criteria on Friday. The BUY trigger for this trade is at 21.95, and the trailing stop is sized at 2. Resize the stop to 1 upon collecting a 2.56 point gain. ISEE closed Friday at 21.44. Earnings Report Date: Nov 07, 2022. Beta: 1.01. Market-Cap: 2.56B. Optionable.
Travere Therapeutics, Inc. (TVTX: Healthcare/Biotechnology) - SQUEEZE PLAY. TVTX is caught in a dilemma. The stock's compressed price range on Friday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. TVTX is now at 22.53. We can capture price action either way by placing a BUY trigger at 22.97 and a SELL short trigger at 21.34. Once TVTX reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.63. When you acquire a 2.34 profit, tighten the stop to 0.82. Earnings Report Date: Oct 27, 2022. Beta: 0.60. Market-Cap: 1.447B. 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
---------------- ------- -------- ------- ------ -------
Copart CPRT 11/4/2022 11/4/2022 2-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
"Thoughts On Trading"
Quotes and Quips from RightLine founder Roger Perry
The Art Of Trading ...
"Trading can be as much art as science. Approaching the market with one and not the other may produce less than desirable results. One of the most important assets I have as a trader is my feel for the market and my gut instinct. These aren't necessarily gifts, but skills that were developed through trial and error over time. Repeated analysis of the results we get from our trading tactics and actions in varied sets of circumstances is critical to developing that "gut feeling" that successful traders possess.
Usually this means observing the same event or set of occurrences repeatedly and making conclusions about what works based on the unique elements of that specific environment in that particular slice of time. Those who haven't learned or accepted the fact that trading is art and science, and that the art part is messaged by introspection in retrospect will have a more difficult time becoming a successful trader. It's part of the process."
Support, Resistance, And Trailing Stops ...
"Many traders like to trade stocks that trade in trading ranges, between support and resistance. These can be great plays for short- term traders who go long at support and short on resistance. A stop is set based on the daily range and continually adjusted upward (trailing stop) until it approached resistance where the stop would be tightened. Either then go short if the stock fails to break out, or wait for the next bounce off support. Setting stops based on the previous day's low works well for stocks with low volatility. It is a short-term approach for those that don't like to set large stops.
Once your trade becomes profitable, we like to set our stop at break even. Then when a profitable position rises we increase the stop or lessen the "trail" and work towards an intermediate investment horizon if it's appropriate. The goal is to stay in the profitable trade. The fine line between setting a stop too tight and just right is one that can only be learned with experience and trial and error. Your individual perception of risk, fear and greed are traits that you can't learn out of a book. They belong to you and only you know whey they come into play."
Developing As A Trader ...
"Trading is a process and not an event. We constantly are adding information with each new experience, both good and bad. Planning our trade involves a host of factors. Some critical, others not. However, we must follow some disciplined approach in order to make minor course corrections. If we are constantly jumping from one system to another, we are not ever able to refine our approach.
Refinement is the key to success. We must consider our risk assessment on a trade and on our selves. Then we have to decide the kind of market we are in. Next, we need to make an assessment of how a stock's sector is performing. The trade holding horizon which helps us to decide our position size as well as our stop loss limit. We always employ risk management to refine our position size and risk limits.
It seems like a lot and it is! However, as time progresses the assessment can take seconds but be worth gold. It keeps us from staying with an approach after it ceases to be successful. It helps us to lean into conditions we find favorable. However, the bottom line is it preserves our capital so that our trading education can continue indefinitely."
On Indicators ...
"In the past I've often said that no indicator should be used in isolation. Rather, indicators should be used to substantiate and validate moves, whether it is on an individual stock or the market as a whole. If the market indices are in an upward trend AND the new highs/lows and advance/declines are following the same upward trend - this would indicate that the trend has some validity.
However, if the market is in an upward trend and the new highs/lows and advance/declines are diverging (not following) the same upward trend, is this good or bad? It depends. Remember, indicators tend to substantiate and follow rather then predict movement. They are looking at the past, not the future. In the above case, a divergence in several essential indicators would indicate that a cautionary stance would be prudent lest the diverging indicator (the market index) takes a turn downward."
On Shorting ...
"As I've said before, shorting is not as intuitive as is going long. It has more risk and is harder to do successfully. One of the old arguments is that if you go long on a stock it can only fall to zero, but if you go short the stock price can (hypothetically) rise forever to infinity. This is a stupid argument. We don't trade in a vacuum nor do most folks hold on to a position to zero or infinity. However, to succeed when the market is going down, the key is not fighting the tape (trend) but rather embracing it.
Trying to establish long positions when the market is choppy and whipsawing is a good way to lose money fast. However, when we are working with a definite trend, it becomes easier. Rather than trying to swim upstream, go with the flow. I constantly hear people say that a stock is a screaming short because it has moved so strongly and has been setting new highs. That is a not the best way to select a short. You pick a short the same way you do a long. Instead of finding stocks that are breaking out setting new highs, you look for stocks that have broken support, are in a weak sector or which tend to move in lock step with other stocks that have just reported problems. You can use stops to protect yourself in short positions as well."
On Money Management ...
"Many great traders have sabotaged themselves by poor money management. The bust out list runs long, from heavy hitters like Victor Neiderhoffer to small traders like most of us. All can bust out if one is not disciplined and follows this simple yet critical trading formula:
1. Plan your trades.
2. Trade your plan.
3. Document your results with a Trading Journal and use it to work to eliminate mistakes.
4. Be disciplined. Lean in when times are strong; sit on your hands when they aren't.
5. Strive to understand what emotions influence your decisions and how to manage them.
6. Use and refine your system. Allow it to be evolutionary rather than revolutionary. Tweak and tune it, but avoid jumping from one system to another.
7. Be patient.
8. Enjoy yourself and share your successes!"
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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