October 26, 2023 - The RightLine Report
Notes From The Editor
The Mind of A Trader - An Intentional Attitude
In the world of trading and investing, the majority of folks have yet to learn the fundamental concepts they need in order to be successful. For example, traders that are consistently profitable usually recognize the advantages of intentionally developing and maintaining their attitudes. On the flip side, the average investor's mindset is typically and unknowingly directed by others. This means that in Bull markets the crowd often becomes manic and overly optimistic, and at some stage during Bear markets they become completely depressed.
Do you suppose these types of wild emotional extremes could affect a person's judgment?
Several years ago I took a road trip through the mid-west USA. Needing gasoline for my car, I pulled into a mom and pop gas station in a small town in eastern Ohio. I was looking for one of the well-known brand names, but after many highway miles running on fumes I was just pleased to find anything open. As I pulled up to the pump, a young man stepped to the driver's side of the car and smiled at me through the glass. I wasn't sure what he wanted, so I rolled down the window. Before I could say a word, he cheerfully said, "Fill it up?"
I replied with a somewhat surprised "yes" and waited to see what happened next. I watched him in the side mirror as he stepped back to the side of my car, and with nozzle in hand, just stood there looking toward me. After a few seconds he walked back to the driver's side window and said, "Could you pop the gas tank latch, please?"
Somewhat embarrassed, I quickly released the latch, and sat silently as he cleaned my front windshield ... AND the wipers. Once the tank was filled, he placed the nozzle back on the pump, and pleasantly told me how much I owed for the gas. I paid him for the fuel and tipped him for the excellent service. He courteously thanked me, and I drove off.
I admit that I probably enjoyed the experience more than I should have, but without question if there were a gas station with service like that in my neighborhood, I would be a regular customer.
So what has this got to do with stocks? First, it reminds me of how successful traders always look for a competitive edge in the way they go about their business. It also symbolizes the advantages of being small - you can quickly implement new ideas to improve your status without having to ask permission from layers of corporate higher-ups. But more importantly, the kid at the pump reminds me of the significance of a good attitude. For some reason, consistent winners always have the "right" mindset and seem to attract success in any effort they are involved in.
Do you suppose the right attitude positively influences a person's judgment?
Trade well!
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 10/26 10/26 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
TRUP 21.26 0.39 21.87 19.68 2.19/1.1 2.68
QTRX 21.14 0.03 21.8 20.29 1.51/0.76 3.24
KIDS 23.53 -0.20 24.08 22.4 1.68/0.84 2.94
MEG 23.39 -0.35 24.43 22.47 1.96/0.98 2.14
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
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Stocks Covered Today Stock Splits
Market Summary
Equities took a significant tumble on Thursday, particularly driven by a decline in large-cap growth stocks. Over the course of two days, the stock market has experienced sharp losses. The Nasdaq, known for its technology-heavy focus, dropped by over 1.5% and has now seen a roughly 14% decrease since its recent high on July 31.
Strangely, market losses have occurred despite resilient economic growth in the third quarter and a drop in Treasury yields on the same day. The US recorded a third-quarter real GDP growth of 4.9%, which exceeded expectations for 4.5% growth but slightly missed the Atlanta Fed GDP-Now forecast of 5.4%. The economy has displayed remarkable strength in the first three quarters of the year, driven by a robust job market and sustained consumer spending.
Nevertheless, we anticipate a slight slowdown in the upcoming quarters. This projection is based on the fact that household savings have decreased, and banks are maintaining strict lending standards. Additionally, interest rates continue to fluctuate, with 10-year US Treasury yields falling to approximately 4.83% on Thursday. This decline in yields led to a rebound in stock prices from their pre-market lows.
Strong consumers played a crucial role in supporting economic growth, with a 4.0% increase in consumption, the highest this year. Government spending and private investment also contributed to the robust consumption and overall growth in the third quarter. Furthermore, the core personal consumption expenditures (PCE) price index decreased this quarter, indicating a continuation of the deceleration in core inflation.
Although the past quarter demonstrated robust economic growth, it's important to note that GDP figures look backward, and early signs of softening are appearing as we approach the year-end. Consumers are now saving less, grappling with higher credit card debt, elevated interest rates, and stricter lending standards. While we don't anticipate a deep or prolonged downturn in the US economy, we do expect a slowdown in economic growth in the upcoming quarters as it moves away from the current above-trend growth.
As earnings season continues, technology companies have been in the spotlight this week. Approximately 42% of S&P 500 companies have reported their third-quarter results, with approximately 78% surpassing earnings forecasts. Earnings growth is on track to increase by 1.7% year-over-year in the third quarter, marking the first quarter of positive earnings growth after three consecutive negative quarters. However, the focus has largely been on mega-cap technology companies that have been the driving force behind stock returns in 2023. This week, companies such as Microsoft, Google (Alphabet), and Facebook (Meta) reported their earnings, and the outcomes were mixed. Microsoft benefited from the growth of its artificial intelligence (AI) platforms, while both Google and Facebook faced challenges in their cloud and advertising businesses.
Considering the significant rally that large-cap stocks in the "Magnificent 7" have experienced this year, the bar was set quite high leading into earnings season, and valuations were likely stretched. Investors may now be contemplating taking profits in these stocks and exploring opportunities in areas of the market with more reasonable valuations.
Oct 25, 2023 Oct 26, 2023
-------------------- --------------------
Dow 33,035.93 -105.45 32,784.30 -251.63
Nasdaq 12,821.22 -318.65 12,595.61 -225.62
S&P 500 4,186.77 -60.91 4,137.23 -49.54
NYSE Volume 3.87B 4.28B
NYSE Advancers 683 1,508
NYSE Decliners 2,230 1,355
Nasdaq Volume 4.61B 4.92B
Nasdaq Advancers 1,188 1,985
Nasdaq Decliners 3,059 2,273
New Highs/Lows
10/19 10/20 10/23 10/24 10/25 10/26
--------------------------------------------
NYSE New Highs 16 4 7 8 12 16
NYSE New Lows 355 401 454 198 421 297
Nasdaq New Highs 17 9 16 26 22 25
Nasdaq New Lows 471 533 640 347 602 515
Stocks Covered Today Stock Splits
TRADER'S TIP: "Know WHY To Buy or Sell"
Studies show that most investors buy and sell on emotion instead of reasoning. For example most investors will sell their winning positions to make up for losers, then hold the losers way too long in hopes they will recover. This is the opposite of what should be done, for the winners tend to keep on winning, while losers usually keep losing.
The most common management strategy used by successful traders is pretty simple. Get rid of losers quickly, and keep winners profitable with an exit strategy that includes stop orders. It isn't that difficult to understand intellectually how this approach pays off, but sticking with it is too much of an emotional challenge for most people. The solution comes from the discipline gained through repetitive conditioning.
"Repetitive conditioning?" That's selling any and all losing positions immediately upon their reaching a predetermined level, and holding any and all winners until they meet the specific sell criteria of your exit strategy. Just another term for "good experience!"
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 - 4137.23 October 26, 2023
52-Week High: 4607.07
52-Week Low: 3698.15
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4621.33
Resistance 2: 4450.79
Resistance 1: 4337.47
Pivot: 4280.25
Support 1: 4166.93
Support 2: 4109.71
Support 3: 3939.17
NASDAQ Composite - 12595.61 October 26, 2023
52-Week High: 14446.55
52-Week Low: 10207.47
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 14437.47
Resistance 2: 13812.65
Resistance 1: 13398.23
Pivot: 13187.83
Support 1: 12773.41
Support 2: 12563.01
Support 3: 11938.19
Dow Industrials - 32784.30 October 26, 2023
52-Week High: 35679.13
52-Week Low: 31429.82
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35523.36
Resistance 2: 34493.85
Resistance 1: 33810.56
Pivot: 33464.34
Support 1: 32781.05
Support 2: 32434.83
Support 3: 31405.32
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, OCT. 23 None scheduled TUESDAY, OCT. 24 9:00 am S&P Case-Shiller home price index (20 cities) 9:45 am S&P flash U.S. services PMI 9:45 am S&P flash U.S. manufacturing PMI WEDNESDAY, OCT. 25 10:00 am New home sales THURSDAY, OCT. 26 8:30 am GDP Q3 8:30 am Initial jobless claims 8:30 am Durable-goods orders 8:30 am Durable-goods minus transportation 8:30 am Advanced U.S. trade balance in goods 8:30 am Advanced retail inventories 8:30 am Advanced wholesale inventories 10:00 am Pending home sales FRIDAY, OCT. 27 8:30 am Personal income (nominal) 8:30 am Personal spending (nominal) 8:30 am PCE index] 8:30 am Core PCE index 8:30 am PCE (year-over-year) 8:30 am Core PCE (year-over-year) 10:00 am Consumer sentiment (final) 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 TIP: "In Sync with the Trend = More Winners"
It's much easier to make money when we're in sync with the trend - yet even the best setups don't always produce a profit. A review of the "All Time Top Ten" mechanical trading systems tested by Futures Truth revealed that the best winning rate was 57.5%, while several were less than 50%. The key to the success of these systems is that winning trades outperformed losers by a wide margin. The stock market can be a finicky creature at times. Always use Risk Control to protect your profits and capital. One big winner can offset several small losers, so always cut losses quickly and let the winners grow.
Stocks Covered in This Issue
FINANCIAL SERVICES SECTOR
Trupanion, Inc. (TRUP: Financial Services/Insurance - Specialty) - SQUEEZE PLAY. Thursday's narrow price range has created a potentially profitable setup in TRUP, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 21.87 and a SELL short entry at 19.68. Let TRUP's price action determine your long or short entry. Once the order is filled, place a 2.19 trailing stop, and tighten it to 1.1 upon getting a 2.68 gain. TRUP closed Thursday at 21.26. Earnings Report Date: Nov 02, 2023. Beta: 1.61. Market-Cap: 879.562M. Optionable.
HEALTHCARE SECTOR
Quanterix Corporation (QTRX: Healthcare/Medical Devices) - SQUEEZE PLAY. Traders are feeling the pressure as QTRX's intra-day price range on Thursday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 21.8 and a SELL short entry at 20.29. QTRX's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.51 trailing stop. Tighten it to 0.76 after you get a 3.24 gain. QTRX closed Thursday at 21.14. Earnings Report Date: Nov 06, 2023. Beta: 1.25. Market-Cap: 793.862M. Optionable.
OrthoPediatrics Corp. (KIDS: Healthcare/Medical Devices) - SQUEEZE PLAY. Thursday's trading action forced KIDS'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 KIDS 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 24.08 if KIDS moves higher, and place your order to SELL short at 22.4 if price declines to that level. As usual follow your entry with a trailing stop, 1.68 should be sufficient. Reduce your stop to 0.84 on a 2.94 gain. KIDS closed Thursday at 23.53. Earnings Report Date: Nov 06, 2023. Beta: 0.90. Market-Cap: 549.463M. Optionable.
INDUSTRIALS SECTOR
Montrose Environmental Group, Inc. (MEG: Industrials/Waste Management) - SQUEEZE PLAY. A look at MEG'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 24.43 and a SELL short trigger at 22.47. Once MEG shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.96 and tighten to 0.98 on a 2.14 gain. MEG closed Thursday at 23.39. Earnings Report Date: Nov 07, 2023. Beta: 1.74. Market-Cap: 705.321M. 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
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.
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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