Notes From The Editor

Every trader and investor should learn to recognize price trends. Trend identification is a relatively simple yet very valuable skill you can use to enhance your trading profitability.

Most professionals use trendlines on a regular basis. Even market strategists at major brokerages and trading institutions (the guys & gals with the big bucks) use trendlines to determine exactly when a current trend is in play.

If you are an experienced professional who is already very familiar with the power of trendlines, you can skip the next couple of paragraphs. However beginners and even intermediate traders will certainly benefit from these short sound bites straight out of "Trading 101."

In a nutshell, a trend-line is simply a straight line drawn on a common price chart that connects a series of highs or lows. Learning to draw trendlines isn't complicated at all. In fact most charting packages include a trendline tool that makes learning this skill even easier.

Just take any price chart and notice the high points across the top. Then imagine that the highs are peaks of a mountain range that you are viewing from a distance. Starting on the left side, draw a straight line across the top of the peaks so that only the two highest peaks are connected.

Is the line moving up? Is it moving down? If the line is up, then the mountain peaks are in an up-trend from left to right. If the line is headed down, then the trend is down. That's all there is too it.

Remember that the trend is your friend whether up or down. Also note that trends can and do change direction. To take advantage of the trend requires that we know how to trade with the trend, no matter which way it goes.

Everyone knows how to trade an UP-trend; we buy! But buying in a DOWN-trend is usually a big mistake. So what do we do? One alternative is to use a market technique called "shorting."

Commonly referred to as "selling short," this learned skill allows traders and investors to trade with the trend when it is moving down. Without going into all of the details, shorting is a simple way to hop on the down-elevator to get to the right floor. To make it easier, the RightLine Report provides both short and long plays to take advantage of what the market is giving at the moment.

If the trend is down it makes little sense to try to swim upstream. However, some investors are not comfortable with the strategy of selling short. They can still avoid substantial losses during downtrends by acknowledging our short plays, moving their resources into cash and waiting for the time when market conditions improve. Or, they can take advantage of our RightLine Special Report which stocks that are chosen for their ability to move higher ... even if the overall market is trending lower.

Trade well!

- Thomas Sutton, Editor

Note: For more on Trends visit https://prorightline.com/index.php/2019/07/17/stock-charts-trends/

Quick List

    
Stock     09/06     09/06      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

HTHT      30.12      0.38     30.78                  1.93/0.97      1.88
BROS      31.81      0.04      32.5     30.47        2.03/1.02      3.22
EVH       30.51      0.16     31.51                  2.37/1.19      3.32
SDHC      34.52      0.26     35.42     33.06        2.36/1.18       3.8

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

On Friday, stocks fell across the board, with the Nasdaq leading the decline after a mixed jobs report heightened concerns that the Federal Reserve may be lagging in its rate-cutting strategy. The Nasdaq has entered correction territory but remains above its early August low, as economic data released since then still indicate ongoing expansion. All sectors experienced losses, with technology and communication services stocks driving the decline. Global markets followed suit, with both Asia and Europe also posting drops. The U.S. dollar strengthened against major currencies, while in the commodity sector, WTI oil hit a new low for the year and gold prices also fell.

In August, total nonfarm payrolls increased by 142,000, falling short of the expected 160,000 and the 12-month average monthly gain of 202,000. Revisions to job gains for June and July amounted to a decrease of 86,000. Despite slower job growth, the unemployment rate edged down to 4.2%, as anticipated, following an unexpected rise last month. Hourly earnings rose by 3.8% annualized, exceeding the forecasted 3.7%. On a positive note, weekly jobless claims remained low, suggesting that companies are mostly scaling back hiring rather than making significant layoffs. While the labor market and economy are cooling, recent data do not suggest a sudden deterioration indicative of a recession.

Bond yields have decreased, with the 10-year Treasury yield around 3.72%, and bond prices have risen, helping to buffer some of Friday's equity market volatility. The 2-year Treasury yield is at 3.69%, pushing the term spread (or yield curve) back into positive territory after more than two years of inversion.

The Federal Reserve has indicated plans to begin cutting interest rates later this month, and the bond market is pricing in expectations of a 2.5% reduction in Fed rates over the next year, potentially bringing the Fed Funds rate below 3%. With inflation moderating, the Fed's focus is shifting toward its maximum employment mandate as the labor market cools.

We anticipate the Fed will start a rate-cutting cycle, likely continuing for several meetings. While a 50 basis point cut this month is a possibility, a 25 basis point reduction seems more probable. Lower interest rates should reduce borrowing costs for both businesses and consumers, which would benefit economic growth and corporate profits.

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".

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

MONDAY, SEPT. 9					
10:00 am	Wholesale inventories	
3:00 pm	Consumer credit	

TUESDAY, SEPT 10					
6:00 am	NFIB optimism index
	
WEDNESDAY, SEPT. 11					
8:30 am	Consumer price index	
8:30 am	CPI year over year			
8:30 am	Core CPI	
8:30 am	Core CPI year over year			

THURSDAY, SEPT 12					
8:30 am	Initial jobless claims	
8:30 am	Producer price index	
8:30 am	Core PPI	
8:30 am	PPI year over year			
8:30 am	Core PPI year over year			
2:00 pm	Monthly U.S. federal budget

FRIDAY, SEPT 13					
8:30 am	Import price index	
8:30 am	Import price index minus fuel	
10:00 am	Consumer sentiment (prelim)

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

TRADER'S TIP: "Position Sizing"

"Position sizing is the most important part of your system in determining how much you are likely to make trading the system."

~ Van K. Tharp, from "Trade Your Way To Financial Freedom"

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

H World Group Limited (HTHT: Consumer Cyclical/Lodging) - BULLISH BOUNCE. The charts for HTHT show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Friday, resulting in the early stages of a rebound that started near moving average support. The resulting Bullish Bounce set-up offers a potential entry point for a long play. Set your trigger to BUY shares at 30.78, and follow your entry with a trailing stop of 1.93. Tighten it to 0.97 when a 1.88 profit is reached. HTHT ended the latest session at 30.12. Earnings Report Date: Nov 22, 2024. Beta: 0.75. Market-Cap: 9.438B. Optionable.

Dutch Bros Inc. (BROS: Consumer Cyclical/Restaurants) - SQUEEZE PLAY. Friday's trading session left BROS 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 32.5 and your SELL short trigger at 30.47. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.03 trailing stop. Once you have a 3.22 profit, reduce the stop to 1.02. Earnings Report Date: Nov 5, 2024. Beta: 2.50. Market-Cap: 4.905B. Optionable.

HEALTHCARE SECTOR

Evolent Health, Inc. (EVH: Healthcare/Health Information Services) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday EVH seemed intent on initiating a rebound. With moving average support nearby, EVH 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 31.51. Manage risk with a 2.37 stop. Tighten your stop to 1.19 when you have a 3.32 profit. EVH ended the day at 30.51. Earnings Report Date: Oct 31, 2024. Beta: 1.57. Market-Cap: 3.548B. Optionable.

REAL ESTATE SECTOR

Smith Douglas Homes Corp. (SDHC: Real Estate/Real Estate - Development) - SQUEEZE PLAY. Traders are feeling the pressure as SDHC's intra-day price range on Friday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 35.42 and a SELL short entry at 33.06. SDHC's price movement will decide which entry is filled. As soon as you're in the trade, enter a 2.36 trailing stop. Tighten it to 1.18 after you get a 3.8 gain. SDHC closed Friday at 34.52. Earnings Report Date: N/A. Beta: --. Market-Cap: 1.77B. 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.

Trader's Corner

The Gap Primer

Gaps are shock events that jolt price up or down and leave an "open window" to the last bar. Market folklore (such as the infamous "gaps Get filled") seems to offer guidance, but in reality it has little value. After all, many gaps never get filled. So how can we use these one-bar wonders to make good trades and increase profits? The first thing to do is figure out what kind of gap you're dealing with. It should fall into one of these three categories:

~ Breakaway gaps appear as markets break out into new trends, up or down.

~ Continuation gaps print about halfway through trends, when enthusiasm or fear overpowers reason.

~ Exhaustion gaps burn out trends with one last surge of emotion.



Certain trades work best with each gap type, so proper identification is extremely important. Use relative location and key characteristics to place them into the right category. There is also a psychological aspect to recognizing the correct gap. Breakaway gaps "surprise" because they appear suddenly on charts you've ignored. Continuation gaps "frustrate" because they pop up where you think price should reverse. Exhaustion gaps "relieve" because they print after you hold on for too long.

Trade the trend on the first pullback to a breakaway or continuation gap. In other words, buy the decline after a rally, or sell the rally after a decline. The odds favor a reversal back in the primary direction, even if these gaps fill. However, the pullback trade often requires great patience. Markets retest breakout gaps right after they occur, but many bars can pass before price returns to test a continuation gap.



Use the continuation gap to target major reversals. The first test usually occurs after closure of the exhaustion gap. But you can't trade it if you can't find it, so here's a trick: Wait until you can count three price moves, up or down. Then place a Fibonacci grid across the entire trend and look for a continuation gap at the 50% level. If you find one, place a limit order within the gap and wait for a test to occur. The retracement should provide enough support or resistance to force a reversal. Once the gap is filled, place a trailing stop and keep it close behind current price action.

Modern markets fill many continuation gaps for a bar or two before they reverse. If you're a defensive trader, place your order within this extreme price level. Many times you won't get filled, but you'll save yourself whipsaws from entering too early. Keep in mind the filled gap presents low risk only when volume remains flat and price doesn't gap back through the old gap to get there.



Exhaustion gaps print blowoffs that end a trend. This last burst of energy can occur on high volume, but the lack of it doesn't change the outcome. Exhaustion gaps fill easily, with price often heading lower in a hurry. After this reversal, use multiple time frame analysis to plan your next move. For example, an exhaustion gap may also print a continuation gap in the next larger time frame. Be patient if this sounds confusing. Seeing this three-dimensional landscape requires a sharp eye and a lot of charting experience.

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.

Disclaimer

The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.

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