Notes From The Editor

Momentum can be a trader's best friend. Once a stock has established a reliable trend, price action seems to develop a life of its own. Jumping on that trend at the right point - when there are no immediate support/resistance levels to get in to the way - is a great way to take advantage of the sustained movement.

But what about those cases when a stock is almost going vertical? In strong Bull markets this is a common occurrence. A stock generates so much momentum that it rises nearly every day. It's human nature to see a rocketing equity and think "hey, I've got to get in on that!" The problem with this approach is that the unbridled momentum can suddenly shift without warning, leaving you with a loss and the dubious distinction of having bought at the top.

There are some good rules of thumb to avoid this. The first is to simply step away if the stock has shown some huge recent gains. A 20% rally over the past week, for instance, sharply increases the likelihood of a profit-taking pullback. Traders who follow the daily stochastic indicator can quantify this; if the stochastics are pushed to the overbought extreme, with no more room to move, the short-term upside potential may be maxed out.

Also avoid rallying equities that are approaching areas of historical resistance or congestion. While levels dating back several years may seem irrelevant, they're often used as profit-targets for traders who have already been in the stock for awhile. Bears also use these as logical areas to regroup and mount a counter-offensive.

The best approach to trade a rocketing stock is to wait for a pullback to a key support level or moving average.
Scan through charts of rallying stocks to find these breakout/pullback/reversal patterns. Accompanied by a solid risk management strategy, they can be a powerful tool in your arsenal of trade set-ups.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     09/07     09/07      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

KRT       25.25     -0.21     26.19                  2.91/1.46      2.76
TPX       45.16      0.04     45.84                    2.8/1.4      1.96
MCFT      20.81      0.00     21.19     19.86        1.33/0.67      1.46
BMA       23.90     -0.40     24.62     22.84        1.78/0.89      2.72
AZEK      33.17     -0.03     33.61                  2.14/1.07       2.3

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

Equity markets closed in the red on Thursday, with concerns over a potential broadening of China's ban on Apple iPhone products weighing down technology shares. The Nasdaq, which leans heavily on tech stocks, underperformed compared to the broader S&P 500 and Dow Jones indexes. Simultaneously, Treasury yields took a pause from their recent upward trajectory, with both the 10-year and 2-year yields inching lower as investors digested better-than-expected second-quarter productivity figures. September has brought increased volatility so far, with the VIX volatility index up approximately 7%, and the S&P 500 down around 1.3% month-to-date.

According to The Wall Street Journal, Chinese officials have instructed central government agencies not to use Apple iPhones or other foreign-branded devices for work. This move is part of China's ongoing effort to reduce dependence on foreign technology and bolster cybersecurity measures. Apple's stock price dropped about 3.0% in response to this news. More broadly, technology shares experienced declines, underscoring the ongoing tech-related tension between China and the USA regarding technology, innovation, and security.

Next week, all eyes will be on headline and core CPI (consumer price index) data for August, to be released on Wednesday. Expectations are for headline inflation to rise, driven by climbing oil prices and easier annual comparisons to surpass. Conversely, core inflation is anticipated to decrease.

We believe core inflation will continue its downward trend as components such as shelter and rent in the CPI basket start to slow down. Recent signs of easing wage growth should also contribute to a cooling of services inflation over time. While headline inflation may exhibit more volatility, a sustained decrease in core inflation would likely be welcomed by both markets and the Federal Reserve.

                        Sep 6, 2023            Sep 7, 2023    
                  --------------------   --------------------
Dow                 34,443.19  -198.78     34,500.73    57.54
Nasdaq              13,872.47  -148.48     13,748.83  -123.64
S&P 500              4,465.48   -31.35      4,451.14   -14.34

NYSE Volume                      3.44B                  3.77B
NYSE Advancers                   1,088                  1,042
NYSE Decliners                   1,805                  1,862

Nasdaq Volume                    4.23B                  4.32B
Nasdaq Advancers                 1,430                  1,421
Nasdaq Decliners                 2,807                  2,857

                                 New Highs/Lows

                   08/31  09/01  09/04  09/05  09/06  09/07
                 --------------------------------------------
NYSE New Highs        78    116      0     64     38     40
NYSE New Lows         20     29      0     86     88    116
Nasdaq New Highs      90    101      0     77     48     39
Nasdaq New Lows      104     95      0    157    181    274
   

TRADER'S TIP: "The Psychology of Psychology"

In the stock market, psychology obviously plays a huge role in the dynamics of sometimes frenzied, sometimes subdued human beings - especially when substantial sums of cash get thrown in the mix. It's just one of the unique characteristics of social cultures, and we're all affected at some point or another. Remember that trade you planned out so perfectly, entered so carefully, and then so inexplicably abandoned it when your confidence waivered? We've all been there.

To help overcome that recurring possibility, consider the following:

1. Use a trading system that requires you to execute ALL aspects of your plan at the beginning of each trade, not just entry points.

2. Keep a trading log. Even if never revisited for analytical purposes, they provide a written reminder of your ability to stick with your plan. To boot, it's in your own handwriting, which can be pretty persuasive when self-doubt rears its ugly head.

3. Remove actively traded stocks from your trading program's topmost page. That prevents your natural curiosity from lulling you into ticker-tape-fixation, which tends to breed suspicion over each and every tick.

Try these ideas for starters, they have been shown to help traders better manage the potential psychological pitfalls of the markets.

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 - 4451.14 September 7, 2023

52-Week High: 4607.07
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4743.20
Resistance 2: 4616.93
Resistance 1: 4566.35
Pivot: 4490.66
Support 1: 4440.08
Support 2: 4364.39
Support 3: 4238.12

NASDAQ Composite - 13748.83 September 7, 2023

52-Week High: 14446.55
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 14981.98
Resistance 2: 14459.00
Resistance 1: 14245.40
Pivot: 13936.02
Support 1: 13722.42
Support 2: 13413.04
Support 3: 12890.06
        
Dow Industrials - 34500.73 September 7, 2023

52-Week High: 35679.13
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 36040.32
Resistance 2: 35411.75
Resistance 1: 35124.73
Pivot: 34783.18
Support 1: 34496.16
Support 2: 34154.61
Support 3: 33526.04
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Friday, September 08, 2023:
08-Sep  10:00 am   Wholesale inventories
08-Sep  3:00 pm   Consumer credit

Monday, September 11, 2023:
04-Sep          Labor Day holiday

Tuesday, September 12, 2023:
05-Sep  10:00 am   Factory orders

Wednesday, September 13, 2023:
06-Sep  8:30 am   U.S. trade deficit
06-Sep  10:00 am   ISM services
06-Sep  2:00 pm   Fed Beige Book

Thursday, September 14, 2023:
07-Sep  8:30 am   Initial jobless claims
07-Sep  8:30 am   U.S. productivity (revision)



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

TRADER'S TIP: "Okay - Where's The Bounce?"

RightLine analysts look at a myriad of charts and technical indicators in order to determine the best stocks and entry points. When our research indicates that a "bounce" play has a high probability and potential for profit, our next job is to determine the level at which the bounce is likely to occur. Be aware that a bounce can be "up" from support (similar to a ball bouncing up from the floor), or "down" from resistance (similar to a ball bouncing down from the ceiling). Frequently, the "floor" or "ceiling" from which a bounce will occur is one of our closely watched DMA (Daily Moving Average) lines.

Remember, however, that DMAs are dynamic, and constantly move based on each new day's pricing data! With that in mind, when we say to "Buy on a bounce up from support near the 22 DMA (30.50)" what must be taken into consideration is that the DMA may be moving higher. Consequently, when shares pull back three or four trading days later, the bounce will still occur at the 22 DMA - but that DMA may now be up to 32.50! Just make sure you do a quick double- check of where the DMA is located before blindly jumping into a trade - or missing a good entry!

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Karat Packaging Inc. (KRT: Consumer Cyclical/Packaging & Containers) - NEW HIGH DIP. After setting a recent new 52-week high, KRT shares have since fallen from that peak as traders put some profits in the bank. Thursday's intra-day bounce may very signal that the recent decline is over. Prepare for a continuation of this turnaround and "buy-the-dip" if KRT reaches our BUY trigger set at 26.19. Follow your entry with a trailing stop of 2.91, and tighten to 1.46 on a 2.76 gain. KRT closed Thursday at 25.25. Earnings Report Date: Nov 08, 2023. Beta: 0.92. Market-Cap: 502.172M. Not Optionable.

Tempur Sealy International, Inc. (TPX: Consumer Cyclical/Furnishings, Fixtures & Appliances) - NEW HIGH DIP. TPX's recent new 52-week high proves just how well this stock is performing. Sellers have pushed prices down the past few sessions, but Thursday's rebound near support has given us an excellent BUY setup. A continuation of this latest bounce has the potential to push above the recent 52-week high and set a new one. Be ready to get on board if TPX moves up to the 45.84 level, and set a 2.8 trailing stop to control risk. Tighten the stop to 1.4 when you have banked a 1.96-point gain. Earnings Report Date: Nov 01, 2023. Beta: 1.69. Market-Cap: 7.775B. Optionable.

MasterCraft Boat Holdings, Inc. (MCFT: Consumer Cyclical/Recreational Vehicles) - 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. MCFT 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 21.19 and a SELL short trigger at 19.86. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.33 which can be tightened to 0.67 on a 1.46 gain. MCFT closed Thursday at 20.81. Earnings Report Date: Nov 07, 2023. Beta: 1.82. Market-Cap: 357.988M. Optionable.

FINANCIAL SERVICES SECTOR

Banco Macro S.A. (BMA: Financial Services/Banks-Regional) - SQUEEZE PLAY. BMA 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 24.62 and a SELL short trigger at 22.84. When one of the orders is filled, cancel the remaining order and enter a 1.78 trailing stop. When you've reached a 2.72 paper profit, tighten the stop to 0.89. BMA closed at 23.90 on Thursday. Earnings Report Date: N/A. Beta: 1.91. Market-Cap: 5.396B. Optionable.

INDUSTRIALS SECTOR

The AZEK Company Inc. (AZEK: Industrials/Building Products & Equipment) - NEW HIGH DIP. It's no secret that strong stocks tend to get even stronger. AZEK's recent 52-week high is a clear indication that the ongoing uptrend is still healthy, though traders have taken some profits off the table during the past few sessions. Thursday's bounce from support confirms the stock's intention to move even higher. This New High Dip setup takes advantage of the tendency for strong stocks to bounce skyward after pulling back from new highs. Prepare to BUY shares in AZEK should price reach the 33.61 level. Enter a trailing stop of 2.14 as soon as your order is filled, then tighten the stop to 1.07 on a 2.3 gain. Earnings Report Date: Nov 27, 2023. Beta: 1.73. Market-Cap: 4.954B. 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  
---------------- -------     --------    -------     ------  -------   

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.

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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