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S&P 500 Snapshot: Record Intraday and Closing Highs … Again

Courtesy of Doug Short.

US equity indexes hovered around the flatline today on vanishing volume. The Dow and Nasdaq closed with tiny losses, down 0.02% and 0.04%, respectively. The S&P 500 posted a fractional gain of 0.05%, but anything positive ensured both intraday and closing record highs. As for today’s trading range (a -0.06% low to a 0.22% high), it was the fourth smallest of 2014.

The yield on the 10-year note ended the day at 2.52%, up 4 bps from yesterday’s close. It is now 8 bps above its interim closing low of May 28th.

Here is a 15-minute chart of the past five sessions. The S&P 500 is up 7.55% year-to-date.

Volume on the SPY ETF, which gives a rough sense of individual investor participation, continues to shrink.

For a longer-term perspective, here is a pair of charts based on daily closes starting with the all-time high prior to the Great Recession.

Click to View
Click for a larger image

Click to View
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3 Things Worth Thinking About

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


I spent a good deal of time yesterday going through a point-counterpoint analysis of the current bull market. However, there are a few things that have been sitting on my desk that I wanted to make some comments on, and given we are now winding up the week, this is a good day address them.

1) SEC Votes To Put “Gates” On Money Market Funds

Zerohedge posted a very important article yesterday that deserves some serious consideration by all investors. To wit:

“Moments ago the gates arrived, when following a close 3-2 vote (with republican commissioner Piwowar and democrat Stein dissenting), the SEC adopted new rules designed to curb the risk of investor runs on money market funds, capping the end of a years-long heated debate between regulators and the industry dating to the financial crisis according to Reuters.

Among the changes, funds will have to switch to a floating share price instead of the current $1/share (hence the term breaking the buck). But the key part: “The SEC’s rule will require prime money market funds to move from a stable $1 per share net asset value, to a floating NAV. It also will let fund boards lower redemption ‘gates’ and fees in times of market stress.”

There are a couple of important questions that we should be asking ourselves with regards to this move.

  1. What do they know that we don’t?
    1. “Gates” are used to cease outflows of capital from an investment pool in order to prevent disorderly liquidations that create an uncontrollable crash in asset prices. While we are being told that the current “bull market” is structurally sound and will last for years, the SEC is quietly preparing for a “crash” environment. It is much like the stewardess telling passengers to remain calm while the pilots are putting on parachutes.
    2. Given the fact that the Federal Reserve is preparing to withdraw their accommodative support from the financial markets which, as discussed recently, has always led to either a major financial event, recession or both; is the SEC acting now due to more serious concerns?
  2. Will “gates” actually work? Kara Stein, one of the objectors to the ruling, stated the


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The Four Totally Bad Bear Recoveries: New Update

Courtesy of Doug Short.

Note from dshort: At the request of The Advisory Group in San Francisco, here’s updated comparison of four major cyclical bear markets. The numbers are through the July 23rd close.


This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:

  1. The Crash of 1929, which eventually ushered in the Great Depression,
  2. The Oil Embargo of 1973, which was followed by a vicious bout of stagflation,
  3. The 2000 Tech Bubble bust and,
  4. The Financial Crisis following the nominal all-time high in 2007.

The series includes four versions of the overlay: nominal, real (inflation-adjusted), total-return with dividends reinvested and real total-return.

The first chart shows the price, excluding dividends for these four historic declines and their aftermath. As of today’s close are now 1708 market days from the 2007 peak in the S&P 500.

Inflation-Adjusted Performance

Nominal Total Returns

Now let’s look at a total return comparison with dividends reinvested. The recovery following the 1973 Oil Embargo Bear is the top performer, up 48.3% from the 2007 peak, with the current post-Financial Crisis recovery in close second.

Real (Inflation-Adjusted) Total Returns

When we adjust total returns for inflation, the picture significantly changes. The spread between three of the four markets narrows, and the current real total return has pulled far ahead of the others. Second place, by this metric, goes to the recovery following the Crash of 1929.

Here is a table showing the relative performance of these four cycles at the equivalent point in time.

For a better sense of how these cycles figure into a larger historical context, here’s a long-term view of secular bull and bear markets, adjusted for inflation, in the S&P Composite since 1871.

These charts are not intended as…
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How Long to the Next Recession? iM’s Weekly Update

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


The BCI at 179.2 is up from last week’s 178.5. The BCIg, the smoothed annualized growth of BCI, at 22.2 is at its highest level in the current business cycle, rising from last week’s 21.6. This week’s BCI does not indicate a possible recession in the near future.

Figure 1 plots BCIp, BCI, BCIg and the S&P500 together with the thresholds (red lines) that need to be crossed to be able to call a recession. Figure 2 plots the history of BCI, BCIg, and the LOG(S&P500) since July 1967, i.e. the last 44 years which include seven recessions, each which the BCI managed to indicate timely.


Click for a larger image


Click for a larger image

The off-peak indicator BCIp is at 100, and at this level the BCIw graphic with the tracks to recession is not applicable.

The BCI, BCIp and BCIw are described in article 1, article 2 and article 3 respectively. Historic values of BCI, BCIg and BCIp can be downloaded from the author’s website.

Apart from the weekly Business Cycle Index, updates of a number of weekly and monthly financial macro models are also available on the website.


Anton Vrba and Georg Vrba
iM imarketsignals.com

Anton Vrba is an electrical engineer. He pursued a career in R&D, manufacturing and construction project management. He developed the iMarketSignals’ proprietary Business Cycle Index (BCI) and the authors’ website. His other interests are mathematics and physics. He is a lateral thinker and has many ideas that challenge the established and accepted explanations.

Georg Vrba is a professional engineer who has been a consulting engineer for many years. In his opinion, mathematical models provide better guidance to market direction than financial “experts.” He has developed financial models for the stock market, the bond market, yield curve, gold, silver and recession prediction, all published in Advisor Perspectives. The models are updated weekly at http://imarketsignals.com/.





New Jobless Claims at Lowest Since February 2006

Courtesy of Doug Short.

Here is the opening statement from the Department of Labor:

In the week ending July 19, the advance figure for seasonally adjusted initial claims was 284,000, a decrease of 19,000 from the previous week’s revised level. This is the lowest level for initial claims since February 18, 2006 when they were 283,000. The previous week’s level was revised up by 1,000 from 302,000 to 303,000. The 4-week moving average was 302,000, a decrease of 7,250 from the previous week’s revised average. This is the lowest level for this average since May 19, 2007 when it was 302,000. The previous week’s average was revised up by 250 from 309,000 to 309,250.

There were no special factors impacting this week’s initial claims. [See full report]

Today’s seasonally adjusted number at 284K was well below the Investing.com forecast of 308K.

Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

Click to View
Click for a larger image

As we can see, there’s a good bit of volatility in this indicator, which is why the 4-week moving average (the highlighted number) is a more useful number than the weekly data. Here is the complete data series.

Click to View
Click for a larger image

Occasionally I see articles critical of seasonal adjustment, especially when the non-adjusted number better suits the author’s bias. But a comparison of these two charts clearly shows extreme volatility of the non-adjusted data, and the 4-week MA gives an indication of the recurring pattern of seasonal change in the second chart (note, for example, those regular January spikes).

Click to View
Click for a larger image

Because of the extreme volatility of the non-adjusted weekly data, a 52-week moving average gives a better sense of the secular trends. I’ve added a linear regression through the data. We can see that this metric continued to fall below the…
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The Big Four Economic Indicators: Real Retail Sales

Courtesy of Doug Short.

Note from dshort: This commentary has been updated with Real Retail Sales for June.


Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:


  • Industrial Production
  • Real Personal Income (excluding Transfer Payments)
  • Nonfarm Employment
  • Real Retail Sales

The Latest Indicator Data

With this morning’s release of the June Consumer Price Index, we can now calculate Real Retail Sales for last month. Real Sales were essentially flat at -0.01% Month-over-Month. The Year-over-Year growth is 2.14%

Here is a chart of the monthly data points since 2009. I’ve included a regression to assist our visualization of the post-recession trend. The winter slow-down is clearly evident, with the dip below trend starting in December and a sharp plunge in January. February saw some improvement, and March almost took this indicator back to the trendline. But after two additional months of fairly standard growth, June was a disappointment.

The chart and table below illustrate the performance of the Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. We now have the first indicator update for the 60th month following the recession. The Big Four Average (gray line below).

Current Assessment and Outlook

The overall picture of the US economy had been one of a ploddingly slow recovery from the Great Recession, and the Winter data documented a sharp contraction. The early Spring appeared to support the general view that severe winter weather was responsible for the contraction — that it was not the beginnings of a business cycle decline. But the June Real Retail Sales suggest that our consumer-based economy remains a bit fragile.

The next update of the Big Four will be…
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Bulls Take Notice – Caution Suggested as Credit Markets and Equity Markets Diverge

Courtesy of Doug Short.

Summary

  • Divergence with small cap stocks and junk bonds persists.
  • Credit spreads widening suggests building short-term financial stress.
  • Markets oversold and how risk areas react will be telling.

One of the most widely followed market theories is Dow Theory, which has been around for more than 100 years. The essence of Dow Theory is to focus on confirmations or non-confirmations between the Dow Jones Transportation Average and the Dow Jones Industrial Average for assessing market trends and reversals. If one of the indexes breaks out to a new high while the other does not, we have a non-confirmation and the potential for a market reversal.

Similar to Dow Theory I like to look for confirmation between the stock market and the credit markets. When one market does not confirm the other, caution is advised. Typically I’ve found that when there is a divergence between the equity markets and the credit markets it is usually the credit markets that have it right. I believe this is the case because the average investor is far less invested in the credit markets than the equity markets and sadly the track record of the average investor is quite poor. As seen below, over the last 20 years the average investor’s annualized return barely beat the rate of inflation and underperformed every major asset class.

Click to View
Source: JPM, Market Insights 3Q 2014

When I see the credit markets not confirming the equity markets I take notice as the credit markets tend to lead the stock market at major turning points. The best example of this is the last two major turning points which were the 2007 top and the 2009 bottom. The Bloomberg Financial Conditions Index, which is a composite of credit spreads from the money market, bond market, and equity markets peaked well before the S&P 500 peaked in October of 2007 and also bottomed well before the S&P 500 bottomed in March of 2009. As seen below, the Bloomberg US Financial Conditions index peaked in early 2007 and put in a series of lower highs while the S&P 500 kept marching higher. Similarly, the credit markets put in a “V-spike” bottom in October 2008 while the equity markets didn’t bottom until nearly half a year later.


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Daily Market Commentary: Watch Expanding Bearish Breadth

Courtesy of Declan.

While the S&P and Nasdaq have recovered strongly, supporting breadth for these indices hasn’t been so glowing.

For example, the Nasdaq is on the verge of a move to a new high, sitting just below the July peak, on a second day of accumulation.


But the recovery in the Nasdaq Summation Index (the breadth index which best defines trend direction) has yet to occur.  It’s firmly net bearish.

Even the highly reactive Percentage of Nasdaq Stocks above the 50-day MA is net bearish too.

The S&P kicked in support at 20-day MA and its rising channel. Can it kick on higher?

S&P Breadth isn’t as bearish as it is for the Nasdaq, but bears hold the near term advantage.  Again, the Summation Index is the clearest indicator of trend direction, and it’s heading firmly lower.

The Russell 2000 managed to stage a recovery at its 200-day MA, but there is risk of a double top with the current bounce tiring – note narrowing of intraday range of the bars since the bearish engulfing pattern, and today’s inverse doji.  Aggressive players could short a loss of today’s low with a stop above the high.

Another bearish possibility (and further warning for the Nasdaq) is the semiconductor index. It has dropped out of its rising channel, and undercut its 20-day MA, with only trading range support around 635 available as its last stand.

Market breadth needs to improve quickly if either Nasdaq and/or S&P are to maintain new breakouts. If the latter indices obtain these new highs, watch for potential ‘bull traps’, as breadth is positioned to disappoint buyers at these levels.

Accepting KIVA gift certificates to help support the work on this blog. All certificates gifted are converted into loans for those who need the help more.





S&P 500 Snapshot: Record Intraday and Closing Highs

Courtesy of Doug Short.

Key indexes around the globe are exhibiting little volatility in the wake global conflict. The Nikkei and Dow closed the day down 0.10% and 0.16%, respectively. The Eurozone’s STOXX 50 was up 0.12%.

The S&P 500 took center stage for US indexes, setting new intraday and closing records despite ongoing tensions in Europe and the Middle East. The index opened higher, quickly sold off to its -0.05% intraday low and then rallied to a record intraday high, up 0.29%. After a minor lunch-hour dip, it spent the afternoon in a narrow trading range to its 0.18% gain for a record close.

The yield on the 10-year note ended the day at 2.48%, unchanged from yesterday’s close. It is now only 4 bps above its interim closing low of May 28th.

Here is a 15-minute chart of the past five sessions. The S&P 500 is up 7.50% year-to-date.

Volume on the SPY ETF, which gives a rough sense of investor participation, was extremely light.

For a longer-term perspective, here is a pair of charts based on daily closes starting with the all-time high prior to the Great Recession.

Click to View
Click for a larger image

Click to View
Click for a larger image





Two Measures of Inflation and Fed Policy

Courtesy of Doug Short.

Note from dshort: I’ve updated the accompanying charts with yesterday’s Consumer Price Index data from the Bureau of Labor Statistics. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison with the PCE Price Index.


The BLS’s Consumer Price Index for June shows core inflation at 1.93%. The Core PCE price index at the end of the May (the most recent data), is significantly lower at 1.49%. The Fed is on record as preferring the less familiar Core PCE as its inflation gauge.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances. [Source]  Note: Bolding added by me.

Elsewhere the Fed stresses the importance of longer-term inflation patterns, the likelihood of persistence and the importance of “core” inflation (less food and energy). Why the emphasis on core? Here is an excerpt from one of the Fed FAQs.

Finally, policymakers examine a variety of “core” inflation measures to help


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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743"

Thank you for you time!

 
 

Chart School

S&P 500 Snapshot: Record Intraday and Closing Highs ... Again

Courtesy of Doug Short.

US equity indexes hovered around the flatline today on vanishing volume. The Dow and Nasdaq closed with tiny losses, down 0.02% and 0.04%, respectively. The S&P 500 posted a fractional gain of 0.05%, but anything positive ensured both intraday and closing record highs. As for today's trading range (a -0.06% low to a 0.22% high), it was the fourth smallest of 2014.

The yield on the 10-year note ended the day at 2.52%, up 4 bps from yesterday's close. It is now 8 bps above its interim closing low of May 28th.

Here is a 15-minute chart of the past five sessions. The S&P 500 is up 7.55% year-to-date.

Volume on the SPY ETF, which gives a rough sense of individual investor participation, continues to shrink.

For a longer-term perspective, here is a pair of charts b...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Phil's Favorites

How The US Government Deliberately and Systematically Understates Inflation

How The US Government Deliberately and Systematically Understates Inflation

Courtesy of  

The US Government has been deliberately and systematically understating inflation since 1983. This video shows how the BLS does it.

This is a segment from the June 27 Radio Free Wall Street video for subscribers. The remainder of the program discusses why July could be rocky for stocks, and why real time data Federal tax revenues suggest that the financial engineering bubble should be near its peak. Subscribe to all of these cutting edge commentarie...



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Zero Hedge

Things In The Middle East Are About To Get Much Worse

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

There are major clashes occurring currently in The West Bank tonight as claims of 10s of thousands and Palestinians clash with Israeli soldiers. Sadly, as the photos below reveal taken moments ago show, things appear set to get very much worse.

 

Qalandia now. 7 injured 1 serious. Israelis soldiers use life bullets #48Kmarch #GazaUnderAttack #BDS pic.twitter.com/8nIFbduK2v

— Rami de Ramallah (@Ramideramallah) ...



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Option Review

Starbucks Options Volume Rises Ahead Of Earnings After The Bell

Volume in Starbucks options is running approximately three times the average daily level for the stock as of 1:15 p.m. ET ahead of the company’s third-quarter earnings report after the close. Shares in the name are up roughly 1.0% just before midday to stand at $79.95. Traders of SBUX options today are more active in calls than puts, with the call/put ratio hovering near 2.0 as of the time of this writing. Much of the volume is in 25Jul’14 expiry options contracts, most notably in the $80 and $83 strike calls which have traded roughly 3,350 and 2,550 times respectively and in excess of existing open interest levels in both strikes. A portion of the volume in the $80 and $83 calls appears to be part of a spread trade.

...

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Insider Scoop

UPDATE: 3M Q2 Earnings Meet Estimates

Courtesy of Benzinga.

Related MMM Earnings Scheduled For July 24, 2014 Stocks To Watch For July 24, 2014 Nasdaq Seen Rallying on Apple, Facebook Results (Fox Business)

3M Company (NYSE: MMM) reported in-line earnings for the second quarter.

The St. Paul, Minnesota-based company posted a quarterly net profit of $1.27 billion, or $1.91 per share, versus a year-ago profit of $1.2 billio...



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Sabrient

Sector Detector: Bulls remain unfazed by borderline Black Swans

Courtesy of Sabrient Systems and Gradient Analytics

Despite a highly eventful week in the news, not much has changed from a stock market perspective. No doubt, investors have grown immune to the daily reports of geopolitical turmoil, including Ukraine vs. Russia for control of the eastern regions, Japan’s dispute with China over territorial waters, Sunni vs. Shiite for control of Iraq, Christians being driven out by Islamists, and other religious conflicts in places like Nigeria and Central African Republic. But last Thursday’s news of the Malaysian airliner tragically getting shot down over Ukraine, coupled with Israel’s ground incursion into Gaza, had the makings of a potential Black Swan event, which in my view is the only thing that could derail the relentless bull march higher in stocks.

Nevertheless, when it became clear that the airline...



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OpTrader

Swing trading portfolio - week of July 21st, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's the latest Stock World Weekly. Please use your PSW user name and password to log in. (You may take a free trial here.)

#452331232 / gettyimages.com ...

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Market Shadows

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

 

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about." 

All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...



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Digital Currencies

Bitcoin Vs Gold - The Infographic

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While Marc Faber has said "I will never sell my gold," he also noted "I like the idea of Bitcoin," and the battle between the 'alternative currencies' continues. The following infographic provides a succinct illustration of the similarities and differences between gold and bitcoin.

Please include attribution to www.jmbullion.com with this graphic.

...

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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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