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Three Charts to Watch

Courtesy of Declan.

A bit of a hodgepodge of charts to review. I’ll start with my favourite of the bunch: the relationship between oil and gold prices. Peaks in the relative price between these commodities have historically provided swing lows for commodities – oil in particular. Certainly, sufficient time has passed between peaks to mark a major low.


The relationship between Nasdaq Highs and Lows doesn’t suggest we have reached any major inflection yet. Ideally, Nasdaq Lows should spike above 100 to mark a major low, with 200+ for ‘back up the truck’ style low.

Nasdaq breadth is also stronger than where historic sell offs typically occur, although developing bearish divergences have much in common with those in 2007. Maybe the second half of the year will deliver the ultimate peak for the 2009-15 advance(?).

With the exception of the gold:oil relationship, the other charts are long term plays that have some way to go. In the meantime, oil looks to has reached a ‘buy’ point for those willing to grab the nettles.

You’ve now read my opinion, next read Douglas’ and Jani’s.





RTT browsing latest..

Courtesy of Read the Ticker.

rtt-browsing-latestPlease review a collection of WWW browsing results.

Date Found: Sunday, 11 January 2015, 12:52:21 AM

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Comment: Paul Gambles, co-founder of MBMG Group, says there is a lot of risk in the stock market that could see equities correct 60 percent. He admits that this could be “some years away”.

Date Found: Sunday, 11 January 2015, 01:05:55 AM

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Comment: NZDUSD See the spring at 0.76, strength to 0.7786. Need to see it jump the creek over 0.785

Date Found: Sunday, 11 January 2015, 01:19:51 AM

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Comment: See how BOJ central bank was the puppet master of economy. www.youtube.com/…

Date Found: Monday, 12 January 2015, 02:56:27 AM

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Comment: YHOO shows a perfect stepping stone, more gains to come. Watch for a bounce off support via spring.

Date Found: Monday, 12 January 2015, 03:01:31 AM

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Comment: GDX and GDXJ shows massive volume on this base. All this volume and price is not going down,bullish. Notice current base busted stops and support at $20 on GDX, a sharp move to $25 could be followed by a faster move to $35

Date Found: Monday, 12 January 2015, 03:03:30 AM

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Comment: NUGT…WOW, has there been a split or something or is it like GDX & GDXJ massive accumulation on going!

Date Found: Monday, 12 January 2015, 11:34:22 AM

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Comment: Good break out, but notice the volume, too much supply around for a good rally from this stepping stone, volume needs to fall off show supply has dried up. One to watch.

Date Found: Monday, 12 January 2015, 11:36:40 AM

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World Markets Update: The Surge Accelerates

Courtesy of Doug Short.

Seven of eight indexes on my world market watch list posted weekly gains, with the three European indexes topping the list, thanks to the ECB’s QE. France’s CAC 40 was up 5.96%, Germany’s DAX rose 4.74% and the UK’s FTSE 100 gained 4.31%. But the list of big winners extended beyond Europe. The three Asia-Pacific Indexes posted gains ranging from 3.10% to 4.11%. The S&P 500 was the poorest performer of the weekly winners, but its 1.60% gain snapped a three-week losing streak. China’s Shanghai Composite posted the only weekly loss, down a modest -0.73%.

Here is a overlay of the eight for a sense of their comparative performance so far in 2015.

Here is a table of the 2015 data performance, sorted from high to low, along with the interim highs for the eight indexes. Seven of the eight indexes in the green at this early point in the New Year, the S&P 500 being the negative outlier.

Six of the eight indexes closed the week at year-to-date highs.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks (through year’s end) for these eight major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.

The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

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A Longer Look Back

Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai SENSEX and Hang Seng) up to…
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Indices Breakout – Head-and-Shoulder Reversal in S&P Negated

Courtesy of Declan.

ECB action ruled Thursday’s action across global markets and currency pairs. For many indices, it marked a pause in the New Year decline, but many of these same markets remain range bound by December’s swing lows and the end-of-year highs. From a trend perspective, nothing has really changed.

The S&P finished above a converged, yet flat-lined 20-day and 50-day MAs. There was some technical improvement with a fresh MACD ‘buy’, and a marked accumulation day leading to a ‘buy’ for On-Balance-Volume, but whipsaw risks for each of these signals remains high. Bulls would probably be best served by some tight action just below 2,100, then a break higher. It does look like the bearish head-and-shoulder reversal is done, at least in its prior form.


The Nasdaq also finished above channel resistance, and turned net ‘bullish’ technically (a good long term marker). It will likely be the first index to challenge 2014 high, and maybe help bring the S&P and Dow along with it.

The Russell 2000 also made a move out of its channel, but it finished in the middle of the year long ‘handle’. A continuation of the 2009-2015+ rally is going to need Small Cap leadership. Yesterday’s action will have done it no harm.

Yesterday’s action was great for bulls trading in the short term, but it didn’t really change the picture on the daily. Narrow range-day action over the coming days would offer a swing trade opportunity, but it’s an intraday traders market at the moment.

You’ve now read my opinion, next read Douglas’ and Jani’s.





ECRI Recession Watch: Weekly Update

Courtesy of Doug Short.

Today’s new release of the publicly available data from the Economic Cycle Research Institute (ECRI) puts its Weekly Leading Index (WLI) at 135.5, down fractionally from 130.9 the previous week. The WLI annualized growth indicator (WLIg) is at -5.0, unchanged to one decimal place from the previous week. The growth metric is hovering at its lowest level since January 2012.

Falling Oil Prices and Bond Yields: No Surprise to ECRI

The latest public news item on the ECRI website (unchanged from last week) includes a snapshot of the company’s Long Leading and Coincident Indexes of Global Growth. They remark that “The two biggest surprises for the markets in 2014 — falling oil prices and international bond yields — are completely consistent with ECRI’s cyclical call on global growth, and its prescient call on secular shifts in developed economies. Furthermore, when made, those forecasts were diametrically opposed to the consensus view.” See the complete commentary on ECRI’s website.

The ECRI Indicator Year-over-Year

Below is a chart of ECRI’s smoothed year-over-year percent change since 2000 of their weekly leading index. I’ve highlighted the 2011 date of ECRI’s original recession call and the hypothetical July 2012 business cycle peak, which the company previously claimed was the start of a recession. I’ve update the chart to include the “epicenter” (Achuthan’s terminology) of the hypothetical recession.

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Appendix: A Closer Look at the ECRI Index

The first chart below shows the history of the Weekly Leading Index and highlights its current level.

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For a better understanding of the relationship of the WLI level to recessions, the next chart shows the data series in terms of the percent off the previous peak. In other words, a new weekly high registers at 100%, with subsequent declines plotted accordingly.

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As the chart above illustrates, only once has a recession ended without the index level achieving a new high — the two recessions, commonly referred to as a “double-dip,” in the early…
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Chicago Fed: Economic Growth Moderated in December

Courtesy of Doug Short.

“Index shows economic growth moderated in December”: This is the headline for today’s release of the Chicago Fed’s National Activity Index, and here are the opening paragraphs from the report:

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.05 in December from +0.92 in November. None of the four broad categories of indicators that make up the index increased from November, and two of the four categories made negative contributions to the index in December.

The index’s three-month moving average, CFNAI-MA3, moved down to +0.39 in December from +0.54 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests modest inflationary pressure from economic activity over the coming year.

The CFNAI Diffusion Index, which is also a three-month moving average, decreased to +0.25 in December from +0.37 in November. Forty of the 85 individual indicators made positive contributions to the CFNAI in December, while 45 made negative contributions. Thirty-three indicators improved from November to December, while 52 indicators deteriorated. Of the indicators that improved, 14 made negative contributions. [Download PDF News Release]

The previous month’s CFNAI was revised upward from 0.73 to 0.92.

Background on the CFNAI

The Chicago Fed’s National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed’s website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth.

The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.

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For a broad historical context, here is the complete CFNAI historical series dating from March 1967.


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Conference Board Leading Economic Index: Fourth Consecutive Monthly Increase

Courtesy of Doug Short.

The Latest Conference Board Leading Economic Index (LEI) for December is now available. The index rose 0.5 percent but November was revised to downward from 0.6 percent to 0.4 percent. The latest number came in above the 0.4 percent forecast by Investing.com. The latest release incorporates annual benchmark revisions and the base year was changed to 2010=100 (previously 2004=100).

Here is an overview from the LEI technical notes:

The Conference Board LEI for the U.S. increased for the fourth consecutive month in December. Positive contributions from the yield spread, the Leading Credit Index™ (inverted) and average weekly initial claims for unemployment insurance (inverted) more than offset the negative contribution from building permits. In the second half of 2014, the le ading economic index increased 3.3 percent (about a 6.8 percent annual rate), slightly faster than the growth of 3.0 percent (about a 6.1 percent annual rate) over the first half of 2014. In addition, the strengths among the leading indicators have remained widespread. [Full notes in PDF]

Here is a chart of the LEI series with documented recessions as identified by the NBER.

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And here is a closer look at this indicator since 2000. We can more readily see that the recovery from the 2000 trough weakened in 2012 but began trending higher in the latter part of the year.

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For a more details on the latest data, here is an excerpt from the press release:

“December’s gain in the LEI was driven by a majority of its components, suggesting the short-term outlook is getting brighter and the economy continues to build momentum,” said Ataman Ozyildirim, Economist at The Conference Board. “Still, a lack of growth in residential construction and average weekly hours in manufacturing remains a concern. Current economic conditions measured by the coincident indicators show employment and income gains are helping to keep the U.S. economy on a solid expansionary path despite some weakness in industrial production.”

For a better understanding of the relationship between the LEI and recessions, the next chart shows the percentage off the previous peak for the index and the number of months between the previous peak and official recessions.

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Here is a look at the rate of change, which gives a closer look at behavior of the index in relation to recessions.

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And finally, here is the same snapshot, zoomed in to the data since 2000.

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Check back next month for an updated analysis.





Understanding the CFNAI Components

Courtesy of Doug Short.

The Chicago Fed’s National Activity Index, which I reported on earlier today, is based on 85 economic indicators drawn from four broad categories of data:

  • Production and Income
  • Employment, Unemployment, and Hours
  • Personal Consumption and Housing
  • Sales, Orders, and Inventories

The complete list is available here in PDF format.

In today’s Chicago Fed update, we learned that none of the indicators that make up the index increased from November, and two of the four made negative contributions to the index in December. Let’s now take a look at the historical context, focusing on the less volatile 3-month moving average of the components.

A chart overlay of the complete multi-decade span of all four categories, even if we use the three-month moving averages, is quite challenging for visual clarity:

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So here is a close-up view since 2000:

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But a snapshot of the 21st century contains only two recessions, so it’s unclear how the individual components have behaved in during the seven recessions since the 1967 starting point for this data series.

Here is a set of charts showing each of the four components since 1967. Because of the highly volatile nature of the data, the charts are based on three-month moving averages, a smoothing strategy favored by the Chicago Fed economists. I’ve also highlighted the values for the months that the NBER subsequently identified as recession starts.

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There’s a lot to digest in the individual charts. Clearly the first two (Production and Income and Employment, Unemployment and Hours) are the more volatile of the quartet.…
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S&P 500 Snapshot: Four-Day Rally Snapped

Courtesy of Doug Short.

Eurozone markets continued to celebrate the Draghi QE bazooka, with the Euro STOXX index 50 gaining 1.8%. But enthusiasm waned in the US. The S&P 500 spent the day in its narrowest trading range so far the year. It opened at its intraday high, 0.01% below yesterday’s close and sold off to its -0.50% morning low about 75 minutes later. A sustained afternoon effort to enter the green failed, and the index sold off last two hours of trading to its -0.55% close, snapping a four-day rally. The S&P 500 is now back in the red YTD at -0.34%.

The general aura of caution was reflected in the yield on the 10-year Note, which closed at 1.81%, down nine bps from yesterday’s close.

Here is a 15-minute chart of the week.

Here is a daily chart of the SPY ETF, which gives a better sense of investor participation, which was definitely muted.

A Perspective on Drawdowns

Here’s a snapshot of selloffs since the 2009 trough. The S&P 500 is 1.58% off its record close on December 29th.

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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.

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Conference Board Leading Economic Index: About Those Benchmark Revisions

Courtesy of Doug Short.

Today’s release of the December Conference Board’s Leading Economic Index (discussed here) included benchmark revisions in addition to the routine monthly revisions. Also the base year for the index was changed from 2004=100 to 2010=100. Today’s press release included the following comment:

“These revisions do not change the cyclical properties of the indexes. The indexes are updated throughout the year, but only for the previous six months. Data revisions that fall outside of the moving six-month window are not incorporated until the benchmark revision is made and the entire histories of the indexes are recomputed. As a result, the revised indexes, in levels and month-on-month changes, will not be directly comparable to those issued prior to the benchmark revision.”

How extensive were those benchmark revisions? One way to visual the magnitude is to calculate the cumulative growth of the previous and new benchmark series and overlay the two.

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As we can readily see, the latest benchmark revisions extend back many years, and the general direction of the revision is quite obviously downward.





 
 
 

Zero Hedge

The New "Shadow Of The Crisis Has Passed" Normal (In 1 Fact-Ridden Chart)

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

If the 'shadow' of the crisis has passed, does that mean the actual 'crisis' is about to appear?

Of course, now that the ECB has unleashed QE, everything will be fixed, just like it was when The Fed unleashed QE3...

h/t @Not_Jim_Cramer

...

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Chart School

Three Charts to Watch

Courtesy of Declan.

A bit of a hodgepodge of charts to review. I'll start with my favourite of the bunch: the relationship between oil and gold prices. Peaks in the relative price between these commodities have historically provided swing lows for commodities - oil in particular. Certainly, sufficient time has passed between peaks to mark a major low.


The relationship between Nasdaq Highs and Lows doesn't suggest we have reached any major inflection yet. Ideally, Nasdaq Lows should spike above 100 to mark a major low, with 200+ for 'back up the truck' style low.

...

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Phil's Favorites

Syriza Trounces New Democracy; Greeks Stop Paying Taxes; Run on Greek Banks Escalates; Get Out!

Courtesy of Mish.

As late as yesterday I read numerous mainstream media reports that Syriza would win by three to five percent and would need to form an unstable coalition to rule.

In contrast, here was my January 19 prediction (and rationale): Expect a Blowout Win by Syriza in Greece.

Syriza Trounces New Democracy

The final votes are not counted, but exit polls show a blowout, with incumbent party New Democracy going down in flames.

The Wall Street Journal reports Greece’s Radical Leftist Syriza Party Poised to Win Election, Exit Polls Say.
Syriza appeared set to win be...



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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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Sabrient

Sector Detector: New Year kicks off with new fears to keep investors on edge

Courtesy of Sabrient Systems and Gradient Analytics

As widely expected, the New Year has begun with plenty of volatility on high trading volume, as investors fear more than just a mild correction to start out the year. Despite the strong fundamentals here in the U.S., there are plenty of dangers around the rest of the world, and many fear that our cozy comfort at home simply cannot remain insulated for much longer.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

I...



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OpTrader

Swing trading portfolio - week of January 19th, 2015

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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Market Shadows

Are You Trading or Gambling?

ARE YOU TRADING OR GAMBLING?

An interview with John Ehlers of Stock Spotter and Mesa Software

By Ilene

Ilene: John, in our last discussion about trading systems in general and yours in particular (Can trading be reduced to cycles, stresses and vibrations?) you mentioned Monte Carlo simulations and their use in measuring performance. Can you explain more about how you measure the performance of a trading system?

John: Let's start with comparing trading with gambling. The two have several things in common.  In both ...



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Digital Currencies

Jitters After Bitcoin Exchange Suspends Services

So as I was saying yesterday (Bitcoin: The Biggest Clown Show In History?), Bitcoin has several obstacles on the path to potential success as an alternative currency. But I forgot to mention hacking and theft at Bitcoin exchanges and other technical problems. This is related to the lack of government backing and the fact that the value of Bitcoins is based entirely on confidence.  

Jitters After Bitcoin Exchange Suspends Services 

By 



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Pharmboy

2015 - Biotech Fever

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

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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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 this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

...

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



more from Caitlin

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!




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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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About Ilene:

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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