September 28, 2023 - The RightLine Report
Notes From The Editor
Many traders are aware that markets can decline more rapidly and aggressively than they rise. So, why don't more traders utilize shorting strategies to capitalize on these potentially profitable downward movements?
There are several reasons for the relatively low participation in shorting, but the primary one is often a lack of knowledge. Surprisingly, it's estimated that just 2% of investors are familiar with what shorting entails, and only a fraction of that small number actually engage in it. Typically, only one out of every 35 shares traded on the Nasdaq is involved in shorting, which accounts for roughly 3% of the total trading volume.
However, ignorance isn't the sole factor dissuading investors from shorting. People are creatures of habit. Once they become accustomed to a particular way of doing things, they tend to stick with it, even if it doesn't always make logical sense.
To illustrate this point, consider a story from the past. Following a hurricane that battered the US East Coast, a friend reached out to seek assistance for a devastated low-income neighborhood located about fifty miles from his beachfront home. Despite being a wealthy retired medical doctor who spent his summers on a small barrier island, he lived most of the year in London, England, among the social elite.
I agreed to help and headed to the storm-ravaged area. As we surveyed the damage, my friend drove us around in a beat-up car, a small red hatchback that had barely survived the hurricane floods. However, the car had a peculiar issue: its reverse gear didn't work, so we had to repeatedly make U-turns as we navigated sandy dirt roads from one displaced family to the next.
After several days of assuming that the reverse gear problem was due to the storm, I finally asked why he hadn't fixed it. Pushing the car every time we needed to back up was becoming tiresome. To my surprise, he explained that the hatchback was his summer beach car, and the reverse had been broken for a couple of years.
I was utterly astounded. Here was a man with more than enough resources to drive a luxery vehicle, yet he was struggling with a neglected hatchback that lacked a functional reverse gear. Upon reflection, I realized he must have grown accustomed to the problem and subconsciously deemed it more troublesome to fix than to endure for a couple of months each summer.
This scenario, in many ways, mirrors the behavior of the typical investor. They understand how to navigate forward when the market is ascending, but they lack the ability to reverse course when needed. Most individuals aren't even aware that a reverse exists. They've adapted to a forward-only strategy, and rather than learning how to short stocks during downtrends, they suffer losses when their stocks decline.
It's important to note that I have a steadfast rule: "Never Go Short At Support." There's a sound technical rationale behind this rule, so always consult the charts before establishing new short positions.
Trade wisely,
Thomas Sutton, Editor
Stocks Covered Today Stock Splits
Quick List
Stock 09/28 09/28 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
LKNCY 35.53 1.63 36.26 3.49/1.75 3.72
IRBT 39.28 0.00 40.18 37.97 2.21/1.11 1.92
CHEF 21.44 -0.03 22.06 20.39 1.67/0.84 1.44
MMSI 69.42 1.44 70.98 6.16/3.08 3.28
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.
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Stocks Covered Today Stock Splits
Market Summary
US stock markets staged a recovery on Thursday ahead of Friday's release of the Personal Consumption Expenditures (PCE) inflation data, a key metric closely watched by the Federal Open Market Committee (FOMC). A higher-than-expected PCE reading could reignite concerns about an extended cycle of rate hikes, potentially driving Treasury yields and the dollar higher. Conversely, a lower PCE reading might spur a rebound in sectors that have been struggling, such as growth stocks and interest rate-sensitive ones.
As we approach the end of September, major indices are on track for monthly losses ranging between 4% and 5%, making it a challenging period for equities. However, nearly all eleven S&P sectors closing in positive territory on Thursday. Leading the gains were Materials, Communications, Discretionary, and REITs, each posting gains of more than 1%. Utilities, on the other hand, continued their decline for a sixth consecutive day as the sole decliner.
Economic data presented a mixed picture, with improved jobless claims, GDP figures in line with expectations but reflecting weak spending, and soft housing data. Meanwhile, the looming threat of a government shutdown this weekend remains. Speaker McCarthy expressed optimism about reaching a deal, even if it requires extended negotiations. He acknowledged that every challenge presents an opportunity but recognized the need for compromise, acknowledging that not everything he desires may be achieved.
Treasury yields hit a fresh cycle high earlier in the session before retreating by 10 basis points, and oil prices reached a 10-month high above $95 before retracing. There is speculation that stocks may have found a trading bottom as we enter the traditionally strong months of October and November. Friday's data release will provide further insights.
Sep 27, 2023 Sep 28, 2023
-------------------- --------------------
Dow 33,550.27 -68.61 33,666.34 116.07
Nasdaq 13,092.85 29.24 13,201.28 108.43
S&P 500 4,274.51 0.98 4,299.70 25.19
NYSE Volume 3.88B 3.86B
NYSE Advancers 1,553 1,996
NYSE Decliners 1,341 900
Nasdaq Volume 4.85B 4.66B
Nasdaq Advancers 2,284 2,608
Nasdaq Decliners 2,004 1,669
New Highs/Lows
09/21 09/22 09/25 09/26 09/27 09/28
--------------------------------------------
NYSE New Highs 14 21 25 19 33 42
NYSE New Lows 220 176 249 287 307 223
Nasdaq New Highs 27 32 45 32 35 38
Nasdaq New Lows 444 366 428 386 340 306
Stocks Covered Today Stock Splits
TRADER'S TIP: "What If I Had A Crystal Ball?"
You don't need a crystal ball if you prepare for each trade with the "what if" approach. Always remember to ask these questions before entering any position - "What will I do if price moves in my favor?" And "What will I do if price moves against me?" Most traders and investors never consider these questions at all, so simply writing down specific answers will put you way ahead of the game.
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 - 4299.70 September 28, 2023
52-Week High: 4607.07
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4667.37
Resistance 2: 4517.50
Resistance 1: 4418.78
Pivot: 4367.63
Support 1: 4268.91
Support 2: 4217.76
Support 3: 4067.89
NASDAQ Composite - 13201.28 September 28, 2023
52-Week High: 14446.55
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 14489.19
Resistance 2: 13938.55
Resistance 1: 13575.17
Pivot: 13387.90
Support 1: 13024.53
Support 2: 12837.26
Support 3: 12286.62
Dow Industrials - 33666.34 September 28, 2023
52-Week High: 35679.13
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35887.19
Resistance 2: 35058.15
Resistance 1: 34510.99
Pivot: 34229.11
Support 1: 33681.95
Support 2: 33400.07
Support 3: 32571.03
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, SEPT. 25 None scheduled TUESDAY, SEPT. 26 8:30 am New home sales 9:00 am S&P Case-Shiller home price index (20 cities) 10:00 am Consumer confidence S 1:30 pm Fed Gov. Bowman speaks WEDNESDAY, SEPT. 27 8:30 am Durable-goods orders 8:30 am Durable-goods minus transportation THURSDAY, SEPT. 28 8:30 am Initial jobless claims 8:30 am GDP (revision) 1:00 pm Fed Gov. Cook speaks 4:00 pm Fed Chairman Powell speaks FRIDAY, SEPT. 29 8:30 am Personal income 8:30 am Personal spending 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) 8:30 am Advanced U.S. trade balance in goods 8:30 am Advanced retail inventories Aug. 8:30 am Advanced wholesale inventories 9:45 am Chicago Business Barometer 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: "Earnings Conference Calls"
Since the SEC implemented the Fair Disclosure laws, most companies have begun allowing individual shareholders to listen in on earnings conference calls that were previously limited to analysts only. If you are tracking a stock as it approaches its scheduled earnings announcement, always look for the related conference call and mark it on your calendar. The behavior of the stock during the call can telegraph early reaction to management's explanation of earnings related events. If you can't find any mention of the call, give the firm's Investor Relations department a ring and ask when or if a call will be held.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Luckin Coffee Inc. (LKNCY: Consumer Cyclical/Restaurants) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Thursday LKNCY seemed intent on initiating a rebound. With moving average support nearby, LKNCY is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 36.26. Manage risk with a 3.49 stop. Tighten your stop to 1.75 when you have a 3.72 profit. LKNCY ended the day at 35.53. Earnings Report Date: Nov 20, 2023. Beta: -0.59. Market-Cap: 9.798B. Not Optionable.
iRobot Corporation (IRBT: Consumer Cyclical/Furnishings, Fixtures & Appliances) - SQUEEZE PLAY. The struggle between buyers and sellers has resulted in IRBT's narrowest trading range of the past seven sessions. With neither group able to take complete control on Thursday, the stock's short term destiny is up for grabs. You can capitalize on this unusually tight condition by placing both a BUY order at 40.18 and a SELL order at 37.97. Regardless of which order is triggered, cancel the other one and follow your entry with a 2.21 trailing stop. Tighten the stop to 1.11 once you have a 1.92 gain. IRBT closed Thursday at 39.28. Earnings Report Date: Oct 31, 2023. Beta: 1.19. Market-Cap: 1.088B. Optionable.
CONSUMER DEFENSIVE SECTOR
The Chefs' Warehouse, Inc. (CHEF: Consumer Defensive/Food Distribution) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In CHEF's case we will enter a BUY should it reach the 22.06 level, or a SELL short trade if it drops to 20.39. As usual a trailing stop is essential, 1.67 which should be tightened to 0.84 on a 1.44 gain. CHEF closed Thursday at 21.44. Earnings Report Date: Oct 24, 2023. Beta: 1.89. Market-Cap: 850.433M. Optionable.
HEALTHCARE SECTOR
Merit Medical Systems, Inc. (MMSI: Healthcare/Medical Instruments & Supplies) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Thursday's session to close at 69.42. Anticipate the rebound to continue, and be ready to buy MMSI at 70.98. Follow your entry with a trailing stop of 6.16 which can be tightened to 3.08 on a 3.28 profit. Earnings Report Date: Oct 24, 2023. Beta: 0.96. Market-Cap: 4.001B. Optionable.
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.
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