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October 8, 2022 - The RightLine Report
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NOTES FROM THE EDITOR
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The large number of reality shows available are a reflection of our naturally curious human nature. Many of us want to know how others live and act in these "real" situations.
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"QUICK LIST"
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Stock 10/07 10/07 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
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ATHM 30.14 -1.06 29.03 2.35/1.18 2.94
DAWN 19.55 -0.96 18.87 1.87/0.94 2.84
CYRX 25.23 -1.84 24.44 2.66/1.33 3.22
MAXR 20.59 -0.50 21.04 19.59 1.45/0.73 1.76
BMBL 23.58 -1.32 24.61 22.6 2.01/1.01 2.68
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" at https://prorightline.com/index.php/rightline-report-quick-list/. In addition,always use the RightLine Risk Calculator before entering any position. For access to the Risk Calculator, go to https://prorightline.com/index.php/risk-calculator/. To learn more about controlling risk go to the RightLine Risk Control System at https://prorightline.com/index.php/rightline-risk-control-system/ For a glossary of terms unique to The RightLine Report go to: https://prorightline.com/index.php/glossary/ Questions? Send us an email using our contact form at: https://prorightline.com/index.php/contact-us/
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MARKET SUMMARY
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The week ended on a bearish note as the market traded significantly lower following the release of the September nonfarm payroll report. However, the major indices still posted a weekly gain due to the bullish price action on Monday and Tuesday. The labor data showed job growth was up more than expected, the unemployment rate suprisingly went down, and the labor force participation rate declined. In economic news, consumer credit was well above predictions, and wholesale inventories posted an increase. On the equities front, Advanced Micro Devices (AMD $58) lowered its revenue guidance, while Levi Strauss (LEVI $14) beat quarterly earnings estimates yet fell short of revenue forecasts and reduced its guidance for the year. Oil prices, treasury yields and the USD/dollar all moved higher, as gold traded lower.
Friday On The Week
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Dow 29,296.79 -630.15 +571.28 1.99%
Nasdaq 10,652.40 -420.91 +76.78 0.73%
S&P 500 3,639.66 -104.86 +54.04 1.51%
NYSE Volume 4.47B
NYSE Advancers 496
NYSE Decliners 2,704
Nasdaq Volume 4.65B
Nasdaq Advancers 816
Nasdaq Decliners 3,687
New Highs/Lows
09/30 10/03 10/04 10/05 10/06 10/07
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NYSE New Highs 4 17 30 32 28 19
NYSE New Lows 485 237 78 122 163 397
Nasdaq New Highs 38 56 67 59 41 40
Nasdaq New Lows 572 378 161 199 163 401
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TRADER'S TIP:
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TRADER'S TIP: "Fading the Gap" Often, news can dramatically impact the price of a stock after the close or prior to the next session's open. This is often reflected in the opening price being much different than the price at the previous close. The difference between the closing and opening price is commonly referred to as a gap. "Fading the gap" is a trader's tactic that involves trading in the opposite direction of a gap at the market open. For example, the market has a tendency to pullback after a strong open. This usually happens because of an imbalance between buy and sell orders. Once Market Makers and Specialists work through their overnight and pre-market orders, they will usually either drop their bids or go short. As the price begins to drop, many traders will also sell short, or "fade the gap" in anticipation that the gap will fill. Whenever you see a considerable gap up or down in price at the open, watch for the first major move to be in the opposite direction of the gap.
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THE TECHNICAL ANALYST
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This section contains important technical data for the three major market averages -- the S&P 500, the Nasdaq Comp Index, and the Dow Industrial Average. For guidance on how to use this information, go to: https://prorightline.com/index.php/technical-analyst-section-rightline-report/ S&P 500 - 3639.66 October 7, 2022 52-Week High: 4818.62 52-Week Low: 3584.13 Daily Trend: UP Weekly trend: DOWN Weekly Pivot Levels Resistance 3: 4087.79 Resistance 2: 3885.81 Resistance 1: 3762.73 Pivot: 3683.83 Support 1: 3560.75 Support 2: 3481.85 Support 3: 3279.87 https://www.prorightline.com/rlch/100722SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, October 10, 2022: 10-Oct None scheduled. Columbus Day holiday Tuesday, October 11, 2022: 11-Oct 6 am NFIB small-business index 11-Oct 11 am NY Fed 5-year inflation expectations Wednesday, October 12, 2022: 12-Oct 8:30 am Producer price index, final demand 12-Oct 2 pm FOMC minutes Thursday, October 13, 2022: 13-Oct 8:30 am Consumer price index 13-Oct 8:30 am Core CPI 13-Oct 8:30 am Core CPI (three-month SAAR) 13-Oct 8:30 am CPI (year-on-year) 13-Oct 8:30 am Core CPI (year-on-year) 13-Oct 8:30 am Initial jobless claims 13-Oct 8:30 am Continuing jobless claims Friday, October 14, 2022: 14-Oct 8:30 am Retail sales 14-Oct 8:30 am Retail sales ex-motor vehicles 14-Oct 8:30 am Import price index 14-Oct 10 am UMich consumer sentiment index (early) 14-Oct 10 am UMich 5-year inflation expectations 14-Oct 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" at this link: https://prorightline.com/index.php/economic-indicator-effects/
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TRADER'S TIP:
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TRADER'S TIP: "The Accuracy of an Economist" "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." - Laurence J. Peter
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STOCKS COVERED IN THIS ISSUE
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COMMUNICATION SERVICES SECTOR Autohome Inc. (ATHM: Communication Services/Internet Content & Information) - BEARISH U-TURN. The weekly trend for ATHM is down, but recent daily price activity has lifted shares upward in what's known as a "counter-trend" bounce. As the name implies, this type of rebound is against the main trend. These bounces tend to revert back to the direction of the main trend - in this case downward - once the bounce reaches significant resistance. This is exactly the situation ATHM finds itself in, as Friday's recoil from moving average resistance presents the beginnings of a possible return to the weekly downtrend. ATHM now sits at 30.14 after reaching an intra-day high of 30.97 during the latest session. Place a short-SELL order with your broker if price drops to the 29.03 level. Follow your entry with a trailing stop of 2.35 and tighten to 1.18 on a 2.94 profit. Earnings Report Date: Nov 16, 2022. Beta: 0.22. Market-Cap: 3.808B. Optionable. HEALTHCARE SECTOR Day One Biopharmaceuticals, Inc. (DAWN: Healthcare/Biotechnology) - BEARISH U-TURN. Shares of DAWN have experienced the pain of selling pressure for a while, yet a recent bounce has given shareholders some welcome yet perhaps temporary relief. On Friday the upward bounce ran into a brick wall at a Moving Average. DAWN now appears ready to head lower again. A continuation of this bearish reversal would signal a retracement of the recent gains, so prepare for SHORT entries at 18.87, using a 1.87 stop. Tighten to 0.94 on a gain of 2.84. Friday's closing tick was 19.55. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.436B. Optionable. INDUSTRIALS SECTOR Cryoport, Inc. (CYRX: Industrials/Integrated Freight & Logistics) - BEARISH U-TURN. CYRX's weekly downtrend was recently interrupted by a bullish counter-trend rebound. Unfortunately for Bulls this uphill bounce reversed on Friday after running into resistance. CYRX is now at risk of dropping even lower. On a continued pullback, short entries can be taken at 24.44. Manage your position with a 2.66 stop, pulling it up to 1.33 on a gain of 3.22. CYRX closed at 25.23 on Friday. Earnings Report Date: Nov 02, 2022. Beta: 1.28. Market-Cap: 1.223B. Optionable. TECHNOLOGY SECTOR Maxar Technologies Inc. (MAXR: Technology/Communication Equipment) - SQUEEZE PLAY. MAXR is stuck in a Bull/Bear deadlock. Fortunately for traders this impasse should be resolved soon, with one side or the other taking control. We want to be positioned for a potential quick move up or down, so get ready to catch this train with a BUY entry at 21.04 and a SELL short entry at 19.59. Once your trade is filled, enter a 1.45 trailing stop. Tighten it to 0.73 after a 1.76 gain. MAXR closed on Friday at 20.59. Earnings Report Date: Nov 01, 2022. Beta: 1.37. Market-Cap: 1.528B. Optionable. Bumble Inc. (BMBL: Technology/Software-Application) - SQUEEZE PLAY. Traders are feeling the pressure as BMBL's intra-day price range on Friday 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 24.61 and a SELL short entry at 22.6. BMBL's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.01 trailing stop. Tighten it to 1.01 after you get a 2.68 gain. BMBL closed Friday at 23.58. Earnings Report Date: Nov 08, 2022. Beta: N/A. Market-Cap: 4.353B. Optionable. IMPORTANT: Before entering any recommended positions, always use the RightLine "Risk Control System" to determine the level of acceptable risk and the maximum number of shares to buy. Link: https://prorightline.com/index.php/rightline-risk-control-system/ Use "Gap Adjusted Entries" to reset the Entry Price for stocks that gap beyond recommended entry levels. Link: https://prorightline.com/index.php/gap-adjusted-entries-increase-profits/
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STOCK SPLIT SUMMARY
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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 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
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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
For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/
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TRADER'S CORNER
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Stop Loss Questions And Answers - Part I I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills. What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement. We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all those folks who bought tech stocks in the late 1990s. I've compiled a question-and-answer session that addresses the most important elements of stop-loss strategy. Question: Where do I place my stop loss when shorting a stock that gaps down? Answer: The most obvious place is just above the price level where the gap would be filled. But that's a generic answer. It's more effective to place the stop loss on top of converging resistance, such as highs, Fibonacci retracements and moving averages. A bouncing stock will have a very hard time getting through those levels. Q: I'm getting stopped out of both my longs and my shorts in this market. Are my stops too tight, or should I blame it in the choppy market? A: There are many reasons why stops get hit too often. It's hard to tell without knowing the specifics of each placement. This is a tough market, and you often have only two choices. First, place a tight stop loss and trade the small swings to avoid all the choppy reversals. Second, back up a giant step and trade the broader trend you see in front of your nose. In other words, the market is only choppy if you're a daytrader or if you flip positions every few days. The trends are more obvious if your holding period is weeks or longer. But longer holds have a disadvantage when it comes to stop placement. You have to take on greater risk with longer-term positions, because stocks will wiggle around a lot more before getting from point A to point B. There's one more caution in regard to stop placement. Your stops have to match your trading strategy. For example, if you're looking for a 3- point swing, you have to stay out of the market until your risk (current price to stop price) is a point or less. This goes back to the importance of picking good entry points. Q: My stops get hit all the time. What am I doing wrong? A: Keep those stops away from the most obvious support or resistance levels, such as round numbers. There's a lot to gain by pushing price through these levels. It cleans out one side of the market and sets up a vacuum headed the other way. It's one reason I'll actually sell short into a breakout or go long into a breakdown. Keep in mind that many traders look for price stretching through a barrier as a signal to go the other way. Q: Should I use a flat dollar or percentage stop loss? A: I never use percentage or dollar stop losses, at least for the initial placement. The first stop loss is always based on the price pattern and where current action violates the trade setup. Of course, you need good trailing stops once a position moves in your favor, and flat dollar strategies have a useful purpose in protecting profits. But I would avoid percentage stop losses in all cases. A move of 5%, 10% or 50% says nothing about the current market or trade setup. You could enter a position where a stock moves 11% every day on average. So your 10% stop is at risk every day because of market noise, rather than anything else. A percentage stop loss gives the illusion of controlling risk without giving you the realization of what risk is in the first place. Why is this important? Reward and risk are joined at the hip. If you don't have one right, the other won't be right either. There is a definable risk based on the pattern and where you enter the trade. Each trade has a different risk profile, and your trade entry tells you how much it can wiggle but still get you to the goal. You need to include this standard deviation in your stop-loss planning, or you'll take maximum loss after maximum loss. Q: I'm thinking about using time-based stops instead of price-based stops. Do they work? A: Time-based stops may work, but time cycles are 10 times harder to manage properly than price. So your chances of being wrong with time stops are about 10 times as great. You'll also experience major drawdowns while you wait for your time to get hit. Q: How can I protect my positions from gaps and sudden price moves? Sometimes they happen before I have a chance to set my stop losses. A: Plan a fire drill and practice it in your head at all times. The fire drill is a consideration for the worst-case scenario. Of course, we protect positions with stops whenever we can. But things such as gaps and world events can carry positions through them, and we need to know exactly what to do when the market spikes. The only way to accomplish this is to visualize it happening and to see how you really want to address it. Then you'll act spontaneously when the time comes. If a stock is set to gap through your stop loss when it opens, do you sell it immediately or wait for a bounce? There's really no right answer. I usually pull my stop and watch the first few minutes of trading. If the market reverses, I try to close out on the bounce to a common retracement level. Some midday panic situations are global, while others are sudden. Most times, my preferred fire drill is to exit first and ask questions later. Sometimes I'll see the futures go crazy and not know why. They may not affect my individual positions at the time, but I'll often exit everything until I can find out what happened. I still remember the futures going crazy on Sept. 11, 2001. There was only a few minutes to jump ship before the market was shut down for days. Q: I'm placing very tight stops on every trade, but they keep getting hit. What am I doing wrong? A: Base your stops on the risk profile of the stock you're trading. You can't trade a volatile biotech stock and expect to get away with a 15- cent stop loss. But you might be able to do it with a slow moving REIT or paper company. Look at total dollar exposure and the stock's volatility. Be focused on exiting when you're wrong, wherever that is on the price chart. The only way that makes sense with your stop loss is if your entry was appropriate to the trade setup. You can also take another shot at a stock if your stop loss gets hit or the stock recovers. These new positions should move in your favor immediately, or you should jump ship again because you were already wrong once. ************************* This guest article was written by Alan Farley, author of "The Master Swing Trader." Be sure to read "Stop Loss Questions And Answers - Part II" in the next weekend issue of the RightLine Report.
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Best of luck and have a Great Week!
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