September 10, 2022 - The RightLine Report
Notes From The Editor
One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm not talking about some pseudo-philosophical mumbo jumbo here, but real life lessons and skills that come in handy every day.
Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:
* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.
* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.
* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.
* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.
I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 09/09 09/09 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
ONON 20.28 0.53 20.67 19.29 1.38/0.69 2.02
ARLP 25.34 0.51 26.05 1.61/0.81 1.98
CRT 21.63 0.96 22.11 20.52 1.59/0.8 2.04
CVLY 20.26 0.11 20.59 19.5 1.09/0.55 1.06
ALT 19.98 0.64 21.21 2.64/1.32 3.4
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 Trader's Corner
Market Summary
Stocks were higher on Friday, topping off a bullish week and ending a 3-week losing streak. The markets were resilient despite expectations that the US Fed Bank will remain aggressive towards tightening in order to curb inflation. Equities news was upbeat, with shares of Kroger (KR $52) and DocuSign (DOCU $64) rallying after the companies beat earnings forecasts and issued strong guidance. Economic news was light, as wholesale inventories for July were revised lower. Oil, gold prices and treasury yields moved higher, the USD/dollar retreated from multi-decade record highs.
Friday On The Week
-------------------- --------------------
Dow 32,151.71 377.19 +833.27 2.66%
Nasdaq 12,112.31 250.18 +481.45 4.14%
S&P 500 4,067.36 61.18 +143.1 3.65%
NYSE Volume 3.91B
NYSE Advancers 2,704
NYSE Decliners 540
Nasdaq Volume 4.42B
Nasdaq Advancers 3,306
Nasdaq Decliners 1,283
New Highs/Lows
09/02 09/05 09/06 09/07 09/08 09/09
--------------------------------------------
NYSE New Highs 18 0 17 16 23 36
NYSE New Lows 101 0 222 141 101 29
Nasdaq New Highs 42 0 35 31 34 48
Nasdaq New Lows 217 0 398 291 200 95
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Always Check the ADX When Using the RSI"
Many traders use the Relative Strength Indicator (RSI) level as a filter for entries, and will not place a new buy order if the RSI indicates an overbought condition. In many cases this is an effective entry filter that prevents buying just before the market reverses. However, in a lot of cases this would be a major mistake.
Always look to the ADX line - Average Directional Movement - to see if it is rising. Some of the best entry signals come when the RSI is high and the ADX is rising. Depending on the chart program you use, the ADX is usually either a stand-alone indicator, or part of the Directional Movement Index (DMI).
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 - 4067.36 September 9, 2022
52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4390.42
Resistance 2: 4200.36
Resistance 1: 4133.86
Pivot: 4010.30
Support 1: 3943.80
Support 2: 3820.24
Support 3: 3630.18
NASDAQ Composite - 12112.31 September 9, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 13227.83
Resistance 2: 12566.66
Resistance 1: 12339.48
Pivot: 11905.49
Support 1: 11678.31
Support 2: 11244.32
Support 3: 10583.15
Dow Industrials - 32151.71 September 9, 2022
52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 34167.86
Resistance 2: 32988.58
Resistance 1: 32570.14
Pivot: 31809.30
Support 1: 31390.86
Support 2: 30630.02
Support 3: 29450.74
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, September 12, 2022: 11 am NY Fed 3-year inflation expectations Tuesday, September 13, 2022: 6 am NFIB small-business index 8:30 am Consumer price index 8:30 am Core CPI 8:30 am CPI (year-on-year) 8:30 am Core CPI (year-on-year) 2 pm Federal budget Wednesday, September 14, 2022: 8:30 am Producer price index final demand Thursday, September 15, 2022: 8:30 am Initial jobless claims 8:30 am Continuing jobless claims 8:30 am Retail sales 8:30 am Retail sales excluding vehicles 8:30 am Philadelphia Fed manufacturing index 8:30 am Empire State manufacturing index 8:30 am Import price index 9:15 am Industrial production index 9:15 am Capacity utilization 10 am Business inventories Friday, September 16, 2022: 10 am UMich consumer sentiment index 10 am UMich 5-year consumer inflation expectations 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: "Margin Trading"
Always use extreme caution when trading on margin. The majority of traders who max out their margin limits wind up getting margin calls that result in big losses. Some brokers require margin be used to pay for half of every purchase of shares. If this is the case, be extremely careful that you always have enough cash on hand to offset any margined positions.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
On Holding AG (ONON: Consumer Cyclical/Apparel Retail) - SQUEEZE PLAY. ONON 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. ONON is now at 20.28. We can capture price action either way by placing a BUY trigger at 20.67 and a SELL short trigger at 19.29. Once ONON 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 1.38. When you acquire a 2.02 profit, tighten the stop to 0.69. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 6.394B. Optionable.
ENERGY SECTOR
Alliance Resource Partners, L.P. (ARLP: Energy/Thermal Coal) - BULLISH BOUNCE. ARLP has charted an upward weekly trend until recently when sellers showed up to push prices lower. On Friday the selling ran into solid support. A potential bounce up from this level should attract buyers and likely return ARLP to the previously established uptrend. The Bullish Bounce set-up is the basis for our BUY entry, so be ready to go long on a rise to our trigger at 26.05. Set a trailing stop of 1.61, tightening to 0.81 on a 1.98 profit. ARLP closed at 25.34 on Friday. Earnings Report Date: Oct 24, 2022. Beta: 1.48. Market-Cap: 3.223B. Optionable.
Cross Timbers Royalty Trust (CRT: 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 CRT. A move to the upside will trigger our BUY entry at 22.11, while a drop to 20.52 will trigger our SELL short entry. Follow your position with a 1.59 trailing stop. Tighten the stop to 0.8 once you have a 2.04 gain. CRT closed Friday at 21.63. Earnings Report Date: N/A. Beta: 0.65. Market-Cap: 129.78M. Not Optionable.
FINANCIAL SERVICES SECTOR
Codorus Valley Bancorp, Inc. (CVLY: Financial Services/Banks-Regional) - SQUEEZE PLAY. Friday's trading action forced CVLY'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 CVLY 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 20.59 if CVLY moves higher, and place your order to SELL short at 19.5 if price declines to that level. As usual follow your entry with a trailing stop, 1.09 should be sufficient. Reduce your stop to 0.55 on a 1.06 gain. CVLY closed Friday at 20.26. Earnings Report Date: Oct 26, 2022. Beta: 0.48. Market-Cap: 193.296M. Not Optionable.
HEALTHCARE SECTOR
Altimmune, Inc. (ALT: Healthcare/Biotechnology) - BULLISH BOUNCE. If you are looking for another bouncer with profits in mind, ALT fits the bill. Shares have been in retreat-mode lately, but now this stock is in the process of bouncing from support. Currently priced at 19.98, plan to buy shares at 21.21 and use a 2.64 trailing stop. Tighten the stop to 1.32 on a 3.4 gain. Earnings Report Date: Nov 07, 2022. Beta: 0.47. Market-Cap: 979.525M. 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
Breakout Trading
Significant declines evolve into long bottoms characterized by failed rallies and retesting of prior lows. As new accumulation slowly shakes out the last crowd of losers, a stock's character changes. Prices push toward the top of key resistance. Short-term relative strength improves and charts print a series of bullish price bars with closing ticks near their highs. Finally the issue begins a steady march through the wall marked by previous failures.
Stocks must overcome gravity to enter new uptrends. Value players build bases but can't supply the critical force needed to fuel rallies. Fortunately, the momentum crowd will arrive just in time to fill this chore. As a stock slowly rises above resistance, greed rings a loud bell and these growth players jump in all at the same time.
The appearance of a sharp breakout gap has tremendous buy power. But the skilled trader should remain cautious unless the move is accompanied by heavy volume. Bursts of enthusiastic buying should draw wide attention, which ignites further price expansion. When volume fails to show, the gap may quickly fill and trap the emotional longs.
Non-gapping, high volume surges provide a comfortable price floor similar to gaps. But support may be more difficult to measure. And momentum can take longer to develop, forcing a stock to swing into a new range rather than rise quickly. Fortunately this scenario also sets up pullback trades as support forces profitable bounces.
The uptrend terrain faces predictable obstacles marked by Clear Air pockets and congestion from prior downtrends. These barriers force frequent dips that mark good buying opportunities. The trader must identify these profitable zones in advance but also recognize that dips will disappear during the strongest rallies. Here price blasts through prior resistance as enthusiasm explodes.
During uptrends, one goal is to locate runaway expansion moves. As trend builds momentum, both gapping and non-gapping surges will register on technical indicators, such as MACD or ADX. Short pullbacks should not violate the math of this developing strength. As volatility absorbs each surge, more powerful rallies should erupt. During these events, price range and volume will expand bar to bar, often culminating in a second (continuation) gap and a final exhaustion spike.
Break and Run
Gap breakouts are more likely to rise toward higher prices immediately than simple volume breakouts. Waiting for a dip may be futile. Extreme crowd enthusiasm ignites continued buying at higher levels and market makers don't need pullbacks to generate volume. If entry is desired, use a trend-following strategy and manage risk with absolute price or percentage loss stops.
This instructive article was written by Alan Farley, author of "The Master Swing Trader."
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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