September 15, 2022 - The RightLine Report
Notes From The Editor
Pattern Day Trading: Demystified
Are you a day trader? While you might have your definition of what constitutes day trading, the SEC has its own regulatory definition. And that can make a big difference when it comes to the rules that dictate your trading strategy.
First off, the SEC defines a pattern day trader as someone who executes four or more round-trip (in-and-out) day trades within five consecutive business days. Day trades, for this purpose, refer to a stock you buy and sell during the same day.
If you don't remotely come close to this frequency of trading, pattern day trading rules have no direct impact on you and your account. However, if you like to frequently move in and out of the market, buying and selling stocks several times a day, here's what you need to know:
- To engage in pattern day trading, you need to maintain an account balance of at least $25,000. This must be a margin account. To make this happen, you'll obviously need to have necessary funds, but also need your brokerage to authorize you for a margin account.
- The brokerage can determine, on their own, whether or not you're likely to be a pattern day trader. This can be a result of the initial questions you answer when you apply for an account, or a result of your trading history with the brokerage.
- Remember that margin requirement? By being labeled a pattern day trader, you have access to a lot more leverage. As a pattern day trader, you have buying power up to four times your margin excess. For example, let's say you have $30,000 worth of equities in your account. That's $30,000 above your minimum margin. Based on the 4:1 rule, you'd be able to buy $120,000 worth of securities.
Note that this leverage isn't always a good thing. Without proper risk management, you can be slaughtered. Exercise extreme caution when trading on margin. We can't stress this enough!
The vast majority of RightLine set-ups are geared toward swing traders, who don't typically enter and exit the same equity during the same trading session. If you fall in this category too, it's still good to at least have an awareness of pattern day trading rules.
While pattern day traders don't make up the majority of the market's total volume, their margin buying and fast paced in-and-out trading can lead to heightened volatility. Their impact can be particularly strong in volatile stocks that tend to trade relatively large intraday ranges.
Here's to profits,
Kent Barton Senior Analyst
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
Stocks Covered Today
Stock Splits
Quick List
Stock 09/15 09/15 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
TSE 24.98 0.24 25.7 23.83 1.87/0.94 2.36
LOVE 25.20 0.89 25.77 23.48 2.29/1.15 3.6
MRTX 82.49 0.62 85.59 6.77/3.39 7.72
INSM 24.18 0.05 24.56 22.84 1.72/0.86 2.14
ASLE 20.89 0.27 21.31 1.51/0.76 1.76
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.
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
Stocks Covered Today
Stock Splits
Market Summary
The major US stock indices were lower on Thursday as traders appear to be pricing in a 75-basis-point rate hike as the most likely outcome for next week's Fed Bank FOMC - Federal Open Market Committee - meeting. A heavy economic calendar included below par retail sales, a dip in weekly initial unemployment claims and an unexpected decline in industrial production. New York manufacturing activity improved but remains in contraction territory, while Philadelphia manufacturing surprisingly fell into contraction territory. In addition, import prices decreased by a smaller amount than predicted and business inventories increased as forecast. On the equities front, US railroad companies reached a tentative deal to avoid a strike, Humana (HUM $497) increased its full-year guidance, and Adobe Incorporated (ADBE $309) is set to acquire collaborative design platform Figma for roughly $20-billion. Oil prices and gold finished the trading session lower, the USD/dollar closed near even, and treasuries were mostly lower, lifting yields.
Sep 14, 2022 Sep 15, 2022
-------------------- --------------------
Dow 31,135.09 30.12 30,961.82 -173.27
Nasdaq 11,719.68 86.10 11,552.36 -167.32
S&P 500 3,946.01 13.32 3,901.35 -44.66
NYSE Volume 4.33B 4.48B
NYSE Advancers 1,663 938
NYSE Decliners 1,526 2,280
Nasdaq Volume 4.89B 4.84B
Nasdaq Advancers 2,236 1,943
Nasdaq Decliners 2,331 2,617
New Highs/Lows
09/08 09/09 09/12 09/13 09/14 09/15
--------------------------------------------
NYSE New Highs 23 36 42 17 33 18
NYSE New Lows 101 29 37 105 183 176
Nasdaq New Highs 34 48 57 37 37 25
Nasdaq New Lows 200 95 97 218 265 266
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
Stocks Covered Today
Stock Splits
TRADER'S TIP: "Making Decisions Builds Confidence"
Each time we enter or exit a trade we make a decision. Every decision we make causes us to grow - IF we give our experiences the value they deserve. However, if we short-change ourselves for not always making "perfect" choices and view our experiences as "mistakes" our confidence will go down instead of up.
Just remember that trading conditions are rarely optimum, and we're always making decisions under less than ideal circumstances. Give yourself a break, knowing that only YOU can set the proper value for each experience you have. Be sure you make the right choice. Build your confidence and never value any trade or other experience as worthless.
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 - 3901.35 September 15, 2022
52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
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 - 11552.36 September 15, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
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 - 30961.82 September 15, 2022
52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
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
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
Stocks Covered Today
Stock Splits
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
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
Stocks Covered Today
Stock Splits
TRADER'S TIP: "How Do You Get To Carnegie Hall?"
We've all heard the answer to this old joke . . . "practice, practice, practice!" While it is certainly obvious that trading successfully requires plenty of it, many investors have yet to apply this ancient bit of oriental wisdom: "Practice is the best of all instructors."
Stocks Covered in This Issue
BASIC MATERIALS SECTOR
Trinseo PLC (TSE: Basic Materials/Specialty Chemicals) - SQUEEZE PLAY. The ticker for Thursday's session shows TSE is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 25.7 and a SELL short trigger at 23.83. When TSE starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.87 trailing stop. Upon reaching a 2.36 profit, resize the stop to 0.94. Earnings Report Date: Nov 03, 2022. Beta: 1.30. Market-Cap: 873.616M. Optionable.
CONSUMER CYCLICAL SECTOR
The Lovesac Company (LOVE: Consumer Cyclical/Furnishings, Fixtures & Appliances) - SQUEEZE PLAY. Thursday's trading session left LOVE in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 25.77 and your SELL short trigger at 23.48. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.29 trailing stop. Once you have a 3.6 profit, reduce the stop to 1.15. Earnings Report Date: Dec 06, 2022. Beta: 2.38. Market-Cap: 382.647M. Optionable.
HEALTHCARE SECTOR
Mirati Therapeutics, Inc. (MRTX: Healthcare/Biotechnology) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 82.49, MRTX is on our radar for a BUY entry at 85.59. If you purchase shares of MRTX, be sure to also place a trailing stop of 6.77. Snug it up to 3.39 on a 7.72 gain. Earnings Report Date: Nov 07, 2022. Beta: 0.91. Market-Cap: 4.587B. Optionable.
Insmed Incorporated (INSM: Healthcare/Biotechnology) - SQUEEZE PLAY. INSM shareholders know what it feels like to be squeezed. Thursday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. INSM closed Thursday at 24.18. The plan is to enter in the right direction by placing a BUY trigger at 24.56 and a SELL short trigger at 22.84. Once INSM establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.72. After you've collected a 2.14 profit, tighten the stop to 0.86. Earnings Report Date: Oct 26, 2022. Beta: 1.83. Market-Cap: 2.901B. Optionable.
INDUSTRIALS SECTOR
AerSale Corporation (ASLE: Industrials/Airports & Air Services) - BULLISH BOUNCE. This trader-friendly setup turns repetitive stock behavior into real profits. Based on the tendency for up-trending stocks to drop briefly and then resume the up-trend, the Bullish Bounce places traders into excellent stocks when conditions are primed for more skyward movement. ASLE's current price action near moving average support signals a potential BUY entry at 21.31, followed by a 1.51 trailing stop which can be tightened to 0.76 upon earning 1.76. ASLE closed Thursday at 20.89. Earnings Report Date: Nov 07, 2022. Beta: 0.46. Market-Cap: 1.081B. 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.
Editorial
Quick List
Market Summary
Technical Analyst
Market Calendar
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
---------------- ------- -------- ------- ------ -------
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.
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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