Notes From The Editor

Wash Sales 101

Losing trades are inevitable - but they aren't without at least a glimmer of silver lining. In most cases, you can claim a tax deduction when you sell a position for a loss. This slightly lessens the sting of a trade that doesn't go according to plan. However, something called the Wash Sale Rule can eliminate your ability to claim a deduction.

The way it works is simple. A wash sale occurs when you sell a stock for a loss, and buy the same equity within 30 days before or after the sale. Let's say, for example, that you suffer a loss on June 1st after selling 100 shares of Intel (INTC). On June 14th you buy 100 shares of INTC. Your June 1st sale, which was initially tax deductible, then becomes a wash sale. As a result, you aren't allowed to claim a loss.

However, you don't necessarily lose the benefit of your disallowed loss. Something called the Basis Adjustment lets you receive that benefit on the future sale of the stock that you bought to "replace" the initial loss. (In the example above, this would be the long position you entered on June 14th). You can add the amount of your loss to the basis of your "replacement" shares, which typically means that you get the tax benefit of the original sale, but at a later time.

Additional rules apply to wash sales - particularly if you're a frequent trader. The official rules are available at https://www.irs.gov/pub/irs-pdf/p550.pdf. One important exception is short trades; wash sale rules are different if you're taking a loss after covering a short position. A Holding Period exception also prevents you from converting a long-term loss into a short-term loss.

In a market teeming with promising trades, there's an easy way to avoid the wash sale rule all together: by simply avoiding buying a stock that you've already sold for a loss. This eliminates the confusion and uncertainty. However, it's not uncommon for successful traders to frequently move in and out of stocks that they're familiar with. If you're one of those traders, ask your tax accountant or check online for more in-depth information.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     09/22     09/22      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

ZUMZ      21.66     -0.63     22.47     20.99        1.48/0.74      2.38
WFRD      31.38      1.22     32.09                  2.95/1.48       3.1
PLRX      20.53     -0.09     21.32     19.46        1.86/0.93      2.46
FATE      22.47     -1.00     23.37     21.24        2.13/1.07      3.66

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.

Market Summary

US stock indices were lower on Thursday following Wednesday's 75-basis point interest rate hike from the US Federal Reserve Bank. Central banks around the globe also took action, as the Swiss National Bank and Bank of England and both raised rates, while the Bank of Japan maintained its monetary policy and intervened in the currency markets for the first time in over 20 years in an attempt to stabilize the falling yen. In equities news, housing companies KB Home (KBH $27) and Lennar Corporation (LEN $77) both beat earnings estimates, thogh KB's revenues didn't meet forecasts. On the economic front, unemployment claims were lower than expected, leading indicators were down for the sixth month in a row, and regional manufacturing activity unexpectedly decelerated. Oil prices, gold, the USD/dollar and treasury yields all gained ground.

                        Sep 21, 2022           Sep 22, 2022   
                  --------------------   --------------------
Dow                 30,183.78  -522.45     30,076.68  -107.10
Nasdaq              11,220.19  -204.86     11,066.81  -153.39
S&P 500              3,789.93   -66.00      3,757.99   -31.94

NYSE Volume                      4.15B                  4.31B
NYSE Advancers                     912                    580
NYSE Decliners                   2,301                  2,671

Nasdaq Volume                    4.54B                  4.96B
Nasdaq Advancers                 1,295                    968
Nasdaq Decliners                 3,312                  3,669

                                 New Highs/Lows

                   09/15  09/16  09/19  09/20  09/21  09/22
                 --------------------------------------------
NYSE New Highs        18     13     15     13     22     10
NYSE New Lows        176    362    229    395    374    726
Nasdaq New Highs      25     26     42     29     36     25
Nasdaq New Lows      266    477    490    558    630    932
   

TRADER'S TIP: "Intuition"

Intuition - we've all learned to rely on it in different areas of our lives. When it comes to trading the markets, trusting our intuition exclusively is a process that often leads to financial harm. As a rule of thumb, it's best to use your intuition to develop your methodology - not to decide when to enter or exit a trade.

For example, you may find that you intuitively prefer to trade one type of trade instead of another. Following your intuition in this manner will often lead you to better setups, resulting in bigger profits. Intuition that causes you to fine tune and test your trading methods is much more effective than using it as an entry or exit strategy.

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 - 3757.99 September 22, 2022

52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4507.62
Resistance 2: 4225.42
Resistance 1: 4049.37
Pivot: 3943.22
Support 1: 3767.17
Support 2: 3661.03
Support 3: 3378.83

NASDAQ Composite - 11066.81 September 22, 2022

52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13585.04
Resistance 2: 12631.77
Resistance 1: 12040.08
Pivot: 11678.50
Support 1: 11086.81
Support 2: 10725.23
Support 3: 9771.96
        
Dow Industrials - 30076.68 September 22, 2022

52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35200.10
Resistance 2: 33246.14
Resistance 1: 32034.28
Pivot: 31292.18
Support 1: 30080.32
Support 2: 29338.22
Support 3: 27384.26
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

FRIDAY, SEPT. 23					
9:45 am	S&P U.S. manufacturing PMI (flash)	Sept
9:45 am	S&P U.S. services PMI (flash)	Sept

For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Victory!"

Regardless of what some "experts" have to say, trading isn't war. If you consider trading the same thing as combat, you may wind up being stressed, or even worse, hostile. Those who view trading as a matter of life and death usually take things very personally and tend to hold onto losses way too long. If you choose to use a military model for your trading approach, keep in mind that throughout history successful military leaders knew when to take a small loss on the battlefield. When outnumbered, they often retreated so they could return to fight another day.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Zumiez Inc. (ZUMZ: Consumer Cyclical/Apparel Retail) - SQUEEZE PLAY. ZUMZ traders on both sides of the fence are now locked in a head-to-head shootout. Thursday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 22.47 and a SELL short trigger at 20.99. When one of the orders is filled, cancel the remaining order and enter a 1.48 trailing stop. When you've reached a 2.38 paper profit, tighten the stop to 0.74. ZUMZ closed at 21.66 on Thursday. Earnings Report Date: Nov 30, 2022. Beta: 1.51. Market-Cap: 421.729M. Optionable.

ENERGY SECTOR

Weatherford International plc (WFRD: Energy/Oil & Gas Equipment & Services) - BULLISH BOUNCE. Another bullish bouncer, WFRD appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Thursday's positive price action near Moving Average support says it's time to BUY shares if WFRD reaches our entry trigger set at 32.09. Also place a 2.95 trailing stop which can be narrowed to 1.48 when you reach a 3.1 profit. WFRD closed Thursday at 31.38. Earnings Report Date: Oct 31, 2022. Beta: 2.61. Market-Cap: 2.214B. Optionable.

HEALTHCARE SECTOR

Pliant Therapeutics, Inc. (PLRX: Healthcare/Biotechnology) - SQUEEZE PLAY. In certain stocks a tightly constricted price range is a sign that neither bulls nor bears are confident of winning in the near term. This often means that the side that gives up first causes a quick move in the opposite direction. In these fear dominated skirmishes, opposing traders always benefit from the retreat. In the Squeeze Play setup you can actually play both sides of the inevitable surge. PLRX traders reached this state of stand-off on Thursday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 21.32 and a SELL short trigger at 19.46. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.86 which can be tightened to 0.93 on a 2.46 gain. PLRX closed Thursday at 20.53. Earnings Report Date: Nov 07, 2022. Beta: 1.47. Market-Cap: 1.096B. Optionable.

Fate Therapeutics, Inc. (FATE: Healthcare/Biotechnology) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. FATE found itself in this condition on Thursday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 23.37 and a SELL short trigger at 21.24. When FATE moves outside of Thursday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2.13 trailing stop. After you've got a 3.66 profit, tighten the stop to 1.07. FATE closed at 22.47 on Thursday. Earnings Report Date: Nov 02, 2022. Beta: 1.67. Market-Cap: 2.18B. 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.

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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