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September 30, 2023 - The RightLine Report
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NOTES FROM THE EDITOR
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Common Trading Mistakes...And How to Avoid Them (Part IV)
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"QUICK LIST"
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Stock 09/29 09/29 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
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CPE 39.12 -0.39 40.1 37.62 2.48/1.24 2.32
COOP 53.56 -0.42 51.79 3.37/1.69 1.76
CRNX 29.74 0.39 30.56 28.23 2.33/1.17 2.74
LMB 31.73 -0.27 32.9 30.71 2.19/1.1 4.12
RNG 29.63 0.60 30.56 28.53 2.03/1.02 1.94
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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After an initial uptick driven by optimism over a more favorable core PCE inflation reading, stock markets closed the day with modest losses on Friday. This decline coincided with a last-minute effort by Speaker Kevin McCarthy to prevent a US government shutdown, which did not succeed. The S&P 500 has experienced a decline of approximately 4.8% for the month and is down around 6.4% from its recent peak on July 31. The Nasdaq, with its tech-heavy focus, saw more substantial losses, retreating by 5.5% for the month and 7.5% since July 31. Bond yields remained stable on Friday, with the 10-year Treasury yield standing at 4.58%, still near cycle highs. The rapid ascent in yields this month, with the 10-year yield up nearly 0.5% in September, has exerted downward pressure on both stock and bond returns. Nevertheless, there is a belief that yields may be approaching a peak, which would be welcomed by investors in both equity and fixed-income markets. Data on core inflation continues to indicate signs of moderation. August's PCE (personal consumption expenditure) inflation data aligned with expectations, showing a slight uptick in headline inflation and a cooling of core inflation. Headline PCE inflation for August rose to 3.5% year-over-year, in line with projections but slightly above the previous month's 3.3% figure. Conversely, core inflation eased, increasing by 3.9%, which is lower than the previous month's 4.2% reading. A similar divergence between headline and core CPI (consumer price index) inflation was observed earlier this month. This situation arises as oil and energy prices have surged, exerting upward pressure on headline inflation, while core inflation has benefited from declining prices for used and new cars, along with some moderation in wage growth. The expectation is that core inflation may continue to gradually decrease as the shelter and rent components stabilize and as there is potential for a slowdown in services consumption and wage growth. Concerns regarding a US government shutdown persist as the October 1 deadline looms, and both political parties grapple with passing a continuing resolution. It's worth noting that government shutdowns have been fairly frequent in recent history but have typically been of short duration. Since 1976, there have been 20 government shutdowns lasting one day or more. The most recent, in December 2018, lasted 35 days, setting a record as the longest in US history. Economically, a short-term reduction in growth around the time of a shutdown is expected, followed by a rapid rebound in activity in the ensuing months. Essentially, a shutdown displaces or delays spending and economic activity but does not eliminate it. From a market perspective, the uncertainty associated with a potential government shutdown can lead to short-term increases in volatility. However, similar to most political events, government shutdowns have typically had limited lasting impact on equity performance. Stocks have been positive about half the time during government closures and, in most cases, were higher three and six months later. Friday On The Week
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Dow 33,507.50 -158.84 -456.34 -1.34%
Nasdaq 13,219.32 18.05 +7.51 0.06%
S&P 500 4,288.05 -11.65 -32.01 -0.74%
NYSE Volume 3.88B
NYSE Advancers 1,293
NYSE Decliners 1,580
Nasdaq Volume 5.16B
Nasdaq Advancers 2,158
Nasdaq Decliners 2,069
New Highs/Lows
09/22 09/25 09/26 09/27 09/28 09/29
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NYSE New Highs 21 25 19 33 42 29
NYSE New Lows 176 249 287 307 223 89
Nasdaq New Highs 32 45 32 35 38 37
Nasdaq New Lows 366 428 386 340 306 146
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TRADER'S TIP:
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TRADER'S TIP: "Profits Improve With Technical Timing" Regardless of the reasons you decide to buy a stock, Technical Analysis is always helpful when it comes to timing entries. Support and resistance on the charts may be unfamiliar to most investors, but they have a huge impact on stock price movement. **************************
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 - 4288.05 September 29, 2023 52-Week High: 4607.07 52-Week Low: 3491.58 Daily Trend: DOWN Weekly trend: DOWN Weekly Pivot Levels Resistance 3: 4488.15 Resistance 2: 4388.27 Resistance 1: 4338.16 Pivot: 4288.39 Support 1: 4238.28 Support 2: 4188.51 Support 3: 4088.63 https://www.prorightline.com/rlch/092923SPX.jpg--ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, OCT. 2 9:45 am S&P final U.S. manufacturing PMI 10:00 am ISM manufacturing 10:00 am Construction spending TUESDAY, Oct. 3 10:00 am Job openings WEDNESDAY, OCT. 4 8:15 am ADP employment 9:45 am S&P final U.S. services PMI 10:00 am Factory orders 10:00 am ISM services THURSDAY, OCT. 5 8:30 am Initial jobless claims 8:30 am U.S. trade deficit FRIDAY, OCT. 6 8:30 am U.S. employment report 8:30 am U.S. unemployment rate 8:30 am U.S. hourly wages 8:30 am Hourly wages year over year 3:00 pm Consumer credit 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: "Paid Two Ways" "When it comes to trading the stock market, everyone is paid two ways - in money and experiences. Learn from the experiences first, and the money will follow." ***********************************
STOCKS COVERED IN THIS ISSUE
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ENERGY SECTOR Callon Petroleum Company (CPE: Energy/Oil & Gas E&P) - SQUEEZE PLAY. CPE shareholders know what it feels like to be squeezed. Friday'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. CPE closed Friday at 39.12. The plan is to enter in the right direction by placing a BUY trigger at 40.1 and a SELL short trigger at 37.62. Once CPE establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 2.48. After you've collected a 2.32 profit, tighten the stop to 1.24. Earnings Report Date: Oct 31, 2023. Beta: 2.75. Market-Cap: 2.686B. Optionable. FINANCIAL SERVICES SECTOR Mr. Cooper Group Inc. (COOP: Financial Services/Mortgage Finance) - BEARISH U-TURN. The weight of COOP's declining weekly trend was lightened recently when shares began to move upward. However, like a swimmer against the tide COOP encountered strong resistance on Friday. Price action indicates a likely return to the previous downtrend, so plan to short COOP upon reaching our SELL trigger at 51.79. Set a 3.37 trailing stop which can be tightened to 1.69 after you have a 1.76 gain. COOP ended the latest session at 53.56. Earnings Report Date: Oct 24, 2023. Beta: 1.58. Market-Cap: 3.58B. Optionable. HEALTHCARE SECTOR Crinetics Pharmaceuticals, Inc. (CRNX: Healthcare/Biotechnology) - SQUEEZE PLAY. CRNX traders on both sides of the fence are now locked in a head-to-head shootout. Friday'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 30.56 and a SELL short trigger at 28.23. When one of the orders is filled, cancel the remaining order and enter a 2.33 trailing stop. When you've reached a 2.74 paper profit, tighten the stop to 1.17. CRNX closed at 29.74 on Friday. Earnings Report Date: Nov 13, 2023. Beta: 0.85. Market-Cap: 1.967B. Optionable. INDUSTRIALS SECTOR Limbach Holdings, Inc. (LMB: Industrials/Engineering & Construction) - 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. LMB found itself in this condition on Friday 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 32.9 and a SELL short trigger at 30.71. When LMB moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 2.19 trailing stop. After you've got a 4.12 profit, tighten the stop to 1.1. LMB closed at 31.73 on Friday. Earnings Report Date: Nov 07, 2023. Beta: 1.11. Market-Cap: 349.138M. Optionable. TECHNOLOGY SECTOR RingCentral, Inc. (RNG: Technology/Software-Application) - 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. RNG traders reached this state of stand-off on Friday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 30.56 and a SELL short trigger at 28.53. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 2.03 which can be tightened to 1.02 on a 1.94 gain. RNG closed Friday at 29.63. Earnings Report Date: Nov 07, 2023. Beta: 0.91. Market-Cap: 2.806B. 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/ ***********************************
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 ---------------- ------- -------- ------- ------ ------- 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. For a closer look at the different stages of a Stock Split go to: https://prorightline.com/index.php/trading-stock-splits-stages/ **********************************
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. ======================================================================
Best of luck and have a Great Week!
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