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Phil's Newsletter

PSW May Portfolio Review – Buying Those F’ing Dips

SPY DAILYWhat a spectacular month we had!  

We're starting May off at new highs in both of our paired portfolios.  The Short-Term Portfolio finished up 123.9% at $223,925, up $2,535 (1.1%) since our last review 12 days ago.  That is FANTASTIC because that's our bearish portfolio which, fortunately, we had adjusted to be not too bearish as the S&P bounced hard off that floor and is now back at the top of the channel.  

Because we cashed out our aggressive naked index shorts and retreated to longer-term spreads where we are BEING THE HOUSE – Not the Gambler (our core strategy), the market chop ended up being good for our wrong-way index shorts since it was worse on the calls we sold than the calls we bought.   See what a simple strategy this is?  

Meanwhile, we went on a shopping spree in the well-protected Long-Term Portfolio, adding 3 new short puts, one new dividend-payer and one new spread for 5 new positions in 3 weeks and the LTP finished the day yesterday up 51.3% at $756,472 and that's up $8,898 (1.2%) in the same 12 days.  Making money on both our bullish and bearish portfolio at the same time is quite a feat and our combined total of $980,397 is now up 63.4% from our $600,000 start in late Novemeber of 2013 (17 months).  

Also, keep in mind that we went back to mainly CASH!!! so the 1.1% gain is more impressive as we only have 20% of our virtual cash committed (not even 10% of our margin).  The LTP, in fact, has $765,815 in cash and -$9,343 in net positions.  Most of the gains we've had since cashing out were simply watching our "losing" positions turn back into winners as the Materials Sector cycled back around.  

While the chart above serves as a guidline in "normal" markets, this market is far from normal – so take it with a grain of salt but I do want to illustrate that stock sectors do tend to have cycles and our very simple philosophy when we cashed our most of our Long-Term Portfolio on March 24th was that our underperforming Energy and Material stocks were going to come around if we gave them time and
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TGIF – Fed Forecasts Falling GDP in Q2 Too!

Look out below!  

The Atlanta Fed, who were the only people to accurately predict Q1 GDP, have just put out a report showing Q2 GDP will be no improvement, coming in at 0.9%, which is 2.5% (73%) below the average consensus at 3.4%.  That's a pretty big gap to fill by analysts, who usually re-issue their GDP forecasts after getting a look at Q1 earnings

As you know, our Members didn't need to wait as we went to CASH!!! last month (see our Top Trade Review) in anticipation of the correction we got a little taste of yesterday.  Thanks to that little correction, our bearish Short-Term Portfolio shot up to a 121.3% gain while our bullish Long-Term Portfolio also went up to a 50.7% gain – as we kept our materials stocks, which were the only stocks that were positive yesterday as oil tested $60 (and yes, we were long on that too, but now short /CL at $59.50).  

All in all, we're at a new high in our paired portfolios and, if anything, I want to get more bearish as we could have done better on a big dip than we did yesterday.  We'll review the portfolios today in our Live Member Chat Room and see if we can find a more aggressive hedge to carry us into next week.  

Greece might be fixed over the weekend or China may announce more stimulus and, of course, some huge company could buy some other huge company to make an even huger company – those are the only reasons we are not MUCH more bearish on the markets because we sure don't see any upside earnings surprises or any gangbuster sales in ANY sector that's reported so far.  

As I noted in Member Chat, there was a $121.9Bn increase in private inventories in Wednesday's GDP Report and that ADDED 2.8% to our GDP numbers, which were 0.2%.  So without this massive build-up of unsold merchandise – our economy would have contracted by 2.6% in Q1.  Growth in GDP is considered a positive because there is an underlying assumption that inventories wouldn't be rising unless retailers were…
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Failing Thursday – Russell Leads Us Lower


After making a mighty break from the pack in March to run up with the Nasdaq for a month, the Russell has now fallen back and is, in fact, leading us lower – failing to hold the 50-day moving average yesterday by just a half a point.  But it was a very significant half a point since this is the first time any index has failed to hold the line in a month.

This morning the Russell Futures (/TF) are at 1,235, which is up $2,000 per contract from where we called the short in Tuesday morning's post (you're welcome) as well as our Live Trading Webinar, where we demonstrated the shorts on the Russell and the S&P (/ES Futures), which are down from 2,107 to 2,092 for a 15-point gain at $50 per point, per contract (+$750) and you are welcome again!  

1,230 is the 2.5% line on the Russell, according to our fabulous 5% Rule™, which we discussed in great detail in this morning's Live Member Chat Room regarding the S&P's past and future inflection points.  

There's not going to be much support for /TF (Russell Futures) between 1,230 and 1,200 (another $3,000 per contract if you catch that move) and, since we've fallen all the way from 1,275 we're looking for a weak bounce to 1,239 (call it 1,240) and a stronger one to 1,250 and we're not going to be impressed by less than 1,250 at tomorrow's close. 

Anything below that and we stay bearish into the weekend and, meanwhile, we'll be looking to see if our other indexes are going to confirm the Russell's slide.  Nasdaq is now our lone high-flyer at 5,024 and you know 5,000 (25% over the Must Hold with AAPL providing 15% of it – up from $75 to $130 since last year) must hold up to impress us.  The S&P, like the Nasdaq less AAPL, is up 14% at 2,110 but, as we noted, the /ES Futures, which predict the June 30th finish, are already down to 2,095 – also bouncing along the 50 dma at 2,090 – a very precarious position.

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Which Way Wednesday? GDP and the Fed Make it Anyone’s Guess

I already did a full rundown on GDP

We tweeted it out from our Live Member Chat Room this morning and you can read all about it here, so I'm not going to waste time going over it all again as there are lots of other important things to talk about.

First on my list is Lumber Liquidators (LL), which was one of the 3 Top Trades we featured on Monday at Seeking Alpha to show people how clever we are at picking stocks.  We're not looking so clever this morning as LL had their earnings report and the stock is down 17%, to $27.65, on news of a $7.78M loss for Q1 (0.29/share) vs a $13.7M profit (0.49/share) in last year's Q1.  $2.3M of that loss came from Home Test Kits the company sent to it's customers to verify that their floorboards weren't killing them and legal costs pretty much made up the rest. 

Same-Store Sales, surprisingly, were only down 1.8% despite all the negative publicity but the company also announced that Federal Charges were pending under the Lacey Act, which is a 1907 law governing the import of plant products.  There are also 100 class-action suits pending, so the legal issues aren't going away soon and will continue to hurt profits – even while the customers continue shopping.  While it will be a long turnaround, we stand by our trade idea, which was:

Our trade idea for LL consists of selling 5 of the 2017 28 puts for $6.90 ($3,450), which obligates you to buy 500 shares of LL at $28 ($14,000 total potential risk on the trade if LL goes BK). We can then use the money collected to buy 10 of the 2017 $30/40 bull call spreads at $3.46 ($3,460) for net $10 on $10,000 worth of spreads.

With any luck, we'll have an opportunity today to position this trade more aggressively as LL drops back below $30 but I'll tell you right now that this is a ridiculous over-reaction to news that has already been out and is well-priced into the deeply discounted shares.  Obviously, this is not an unfixable problem – they ALLEGEDLY sold wood
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Technical Tuesday – 2,100 Still the Line to Beat on the S&P

4th time's a charm?  

Not so far as we're once again failing the 2,100 line on the S&P and the Russell took a deep dive yesterday, from 1,275 back to 1,250, failing to hold its 5% line and testing the 50-day moving average at 1,246, which really must hold today or we will have a lot of technical reason to worry about the market

Last week I asked "Can Low Volumes Drive us to New Highs" and, so far, the answer is clearly: No, they can't.  Not the kind that are sustainable, anyway.  In that post, I mentioned that we were shorting /ES (S&P Futures) at 2,100 and /TF (Russell Futures) at 1,170 with tight stop above "simply because the reward to risk ratio is high on those plays – so why not?"  

While the Russell's up and down moves gave us several wins last week (with a huge one yesterday), the S&P has spent the whole week over the line so this morning is the first chance to test our short on that index.  Futures contracts on the S&P pay $50 per point, per contract – so we're talking big money from little drops.  

2,090 is the S&P's 50 dma so look out below if that breaks but we'll expect it to be bouncy – if we test it at all – as it's the end of the month on Wednesday, so windows must be dressed and we have the Fed, who usually manage to save us when the markets are turning lower by eliminating or adding a word to their meeting statement, which allows the MSM to spin it whichever way pleases their Corporate Masters.  There, that's all you need to know for Econ 101 these days…

Also testing a major line today is the Nikkei (/NKD on the Futures) at 20,000.  That's a nice, round number you would think would hold up – especially with their Government and Central Bank pulling out ALL of the stops to do WHATEVER it takes to goose the markets over there.  Nonetheless, Japanese Retail Sales COLLAPSED in March, falling 9.7% from last year's levels and down 1.9% from weak February sales that…
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Monday Markets – Counting Down Greece’s Final Moves

The countdown continues.

Here's a nice rundown of the Greek endgame, which is moving towards it's final stages as the ECB refused to consider a "plan B," even as a meeting of the block's 19 finance ministers fell apart over the weekend. 

Greece doesn't just need money to service their Bonds and IMF loans, which are what the US press has been fixating on (because we are one of the parties that is owed that money).  Greece also needs moneys to pay their own country's pension obligations and, of course Government salaries so perhaps you can understand the "FU" attitude the Government is beginning to have towards the ECB as the ministers insist on more and more cutbacks.

Greece has about two weeks to convince the EU to release another $7Bn to them under SOME kind of terms that will enable them to pay $3.7Bn in bonds $800M due to the IMF on the 12th otherwise that default will quickly cascade things out of control.  Over the next month, that $7Bn will be used up on other debt obligations all ahead of a $4Bn payment they already owe to the ECB on July 20th.  Per Goldman Sachs:


We believe negotiations could drag on likely through May and possibly into June. A ‘hard’ deadline could be July 20, when Greece faces a payment of €3.6 bn to the ECB, for which, we think, the country will not have sufficient cash.  Peripheral spread volatility is likely to increase as time goes by, as investors will associate a higher probability of default to a higher probability of Grexit, although this association will depend on what conditions have led to the credit event.

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Top Trade Review – April

Take this review with a grain of salt as we went back to cash on most.

Still, it's good to take a look at what worked and what didn't – especially since those that didn't are often some of our best new opportunities!  It's been a crazy market environment but we try to find at least one Top Trade each week for our Alert subscribers (and, of course, our Premium Members).  I don't force them – I either like a trade enough to feature it or I don't.  

Top Trade Alerts are sent out once or twice a week via EMail and Text Message from our Basic and Premium Live Member's Chat Room.  These trades are just a very small portion of what we discuss during chat each day, but hopefully a good representative sample of the dozens of trade ideas we share with our Members each week in our Live Member Chat Room as well as our Weekly Live Webinars (Tuesday's replay can be seen here).

Keep in mind these are just snapshots of trades as of today – it's up to you to take good trades off the table and cut the losses (or make adjustments) on ones that go bad.  We're always discussing adjustments in our Live Member Chat Room – join us there for follow-ups.  

2/20 – GOGO was our pick around lunchtime as we liked the story on the provider of WiFi services for airplanes.  GOGO was a part of our Income Portfolio before we cashed that out and it was just starting to rally back from the low end of the range and we didn't want to miss the breakout.  I wrote quite a dissertation about why I liked them and our new trade idea was:

So, for the LTP, let's sell 10 2017 $15 puts for $4.40

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Friday Failure – Kaisa Bond Default Underlines China Housing Crash

What is Kaisa?

Kaisa Holdings is #1638 on the Hong Kong Stock Exchange and is currently trading at 50% of it's 2014 price at $1.50 per share.  That may make it seem unimportant but, in the Wacky World of Chinese Stocks – it's an $1Bn+ company.  Kaisa specializes in large-scale real estate projects and has borrowed $10.5Bn for various projects but, unfortunately, just went into default for lack of $52M as it also delayed the release of 2014 financials

Already the company's $800M worth of 8.875% 2018 bonds have dropped to 55 cents on the Dollar and 2020 notes are no fetching just 29.9% of face value and that's going to look generous as this situation rapidly spirals out of control.  It is estimated that, in a full default, Kaisa's bond-holders can expect about 2 cents on the Dollar because the company has generated no real value for them after spending $10.5Bn of other people's money.  

Kaisa last month postponed its results announcement for 2014, saying that auditors needed more time to verify its accounts. There may be a “significant adjustment” to the figures, the company said on March 31 without saying when the results would be released.

The earnings and profitability of some Chinese property developers may deteriorate further in 2015 and more defaults can’t be ruled out, S&P said in a report Friday. It said developers’ annual results for 2014 indicate many are in “significantly worse” shape than the previous year.

If you are an investor in Chinese notes or Chinese stocks, consider this a warning.  I will remind you that these are slow-rolling crises that take quite a long time (in the timeframe of the average investor) to unwind.  Well, maybe not so slow as this morning Glorious Property Holdings, who just had their debt cut to Ca (junky junk) is struggling to come up with $19.5M of the $300M it must provide on 13% notes due Oct 25th.  Since the end of last year,…
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Bad News is Still Good News in China as Poor PMI Boosts Market

The Chinese economy is collapsing.  

That, of course (in this insane QE World) is being taken as good news by equity traders who anticipate another wave of free money to come gushing out of Beijing ON TOP OF the $194Bn that was announced on Monday.  That's right, China's economy is so big that they need $194Bn PER WEEK to keep it afloat.  How long do you really think they are going to be able to keep that up?

We're short on China with some FXI puts, but not too many yet as we don't know WHEN this madness will end – only that it will end and that it will end very badly when it does.  China's PMI is once again contracting at an accelerating rate DESPITE all the stimulus but last year Chinese market rallied while the economy was clearly contracting as well – popping FXI from 32 in March to 42 in September (up 35%) before collapsing back to 36 in October.  

The Sept/Oct drop happened when Manufacturing numbers were improving, which indicates that the Chinese market, like Japan's and, to some extent, the US and Europe, have nothing to do with how well the economy is doing and everything to do with how much free money the Central Banksters will be able to transfer to their Top 1% buddies.  

The reason the markets don't seem to make sense to you is because you are not in the top 0.01%, where all the free money is going.  From their perspective, they don't give a crap about the economy or the companies they own and invest in, they only care about how much money they can funnel out of the Government, through the banks, that can end up in their pockets.  

4-22-2015 6-01-20 PM cATERPILLAR 2How else do you explain the madness of CAT, who haven't had good sales numbers since the beginning of 2013 (another indication of the World-wide slump) yet have kept their stock net flat over that time period?  The stock even surged to $108 (up 30%) last year before coming back to the $80s but even
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Whipsaw Wednesday – Market Manipulation Takes Center Stage

SPY  5  MINUTEWhat a crazy-assed market!  

With virtually NO volume at all, the S&P (along with the other indexes) gapped up 10 points at the open (0.5%) but then proceeded to sell off all day as the Fund Managers that manipulate the Futures trading sold their stocks to all the suckers who ran in to buy into the "rally" that the Media Puppets were applauding all morning.  

I know it sounds like a conspiracy theory when I tell you the markets are manipulated but, just yesterday, they accused a 36 year-old guy (31 at the time) with a very small trading firm ($5M) of crashing the Global Markets in the "Flash Crash" (May 6th, 2010).

Aside from the sad fact that it took them 5 years to find the culprit, it should scare the crap out of people that a single person, with no special equipment and a fairly ordinary margin broker account could knock $1Tn in value off of global equities in less than an hour.  If that's how easy it is to manipulate the entire market – how can you NOT believe that there are people manipulating individual stocks every day?

“Things like this don’t build a lot of confidence,” said Timothy Ghriskey, the chief investment officer at Solaris Asset Management LLC in New York.

“It’s ridiculous, it’s the government at its best — inept,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in a phone interview. “It really is just another one of many things to deal with, it’s extremely frustrating. We’ve seen flash crashes and we’ll see them again and it’s definitely disconcerting.”

According to the government, Sarao had trading software altered to let him send and modify orders to sell stock futures thousands of times a day with virtually no risk they’d be filled. That was his goal: to make it seem like orders for futures were piling up so they’d fall and he could buy them on the cheap, the complaints say.  Oddly enough – I just pointed out that same activity going on in the Oil Futures during yesterday's Live Webinar.…
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Chart School

Scan with the Volume Wave Chart

Courtesy of Read the Ticker.

Scanning symbols by chart is the best way to see something that is going on. Its the best view.More from RTT Tv

NOTE: does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Investing Quote...

...“My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in histo...

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Phil's Favorites

French Unemployment At New Record Highs: Whom Do They Blame?

Courtesy of Mish.

While ECB president Mario Draghi brags his economic policy of negative interest rates is working, I ask for whom?

On April 23, 2015 I noted Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

Let's now turn our attention to France.

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Zero Hedge


Courtesy of ZeroHedge. View original post here.

Submitted by williambanzai7.












THE REGISTER--According to local media reports Thursday, German intelligence agency BND (the Bundesnachrichtendienst) has helped the US National Security Agency (NSA) spy on the European Commission and French authorities since 2008.

“When it comes to our role in the...

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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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Insider Scoop

Morgan Stanley Reviews Exxon's Earnings

Courtesy of Benzinga.

Related XOM Exxon Posted A Positive Surprise: Evercore ISI Group Analyst Explains 4 Energy Pair Trades From MKM Partners Apple Has Cursed The Market - Cramer's Mad Money (4/30/15) (Seeking Alpha)

In a report published Friday, Morgan Stanley analysts maintained an Underweight rating on Exxon Mobil Corporation (NYSE: ... more from Insider

Kimble Charting Solutions

S&P repeating 2000 and 2007 pattern right now?

Courtesy of Chris Kimble


In 2000 and 2007 the S&P created bullish ascending triangle patterns, which two-thirds of the time suggest higher prices are ahead. The key to this pattern is support holding.  Both times multi-year support failed to hold and you know the rest of the story.

Now the S&P appears to be creating the same pattern again, at 161% Fibonacci extension resistance.

In 2000 & 2007, what the S&P did at support was very important!

In my humble opinion, what the S&P does at support right now is very important too!

To become a me...

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Sector Detector: Sector rotation model stays bullish, but neutral rankings and technical resistance flash caution

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

Courtesy of Sabrient Systems and Gradient Analytics

Last week, stocks cycled bullish yet again. In fact, the S&P 500, NYSE Composite, and NASDAQ each closed at record highs as investors positioned for the heart of earnings season in the wake of strong reports from some of the Tech giants. Notably, Utilities stocks got some renewed traction as yield-starved investors returned to the sector. Although our trend-following sector rotation model remains bullish, strong overhead technical resistance and neutral rankings in our SectorCast quant model indicate that caution is in order, and this might not be the moment for a major upside breakout, particularly given the expected softne...

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Swing trading portfolio - week of April 27th, 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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Digital Currencies

Why Bitcoin's male domination will be its downfall

Here's an interesting argument by Felix Salmon, although I think he is taking two correct observations and mistakenly attributing a cause-and-effect relationship to them: Bitcoin is going nowhere because women are not involved.

More likely, in my opinion, women are not involved in bitcoin because bitcoin is going nowhere (and they know it). Or maybe, simply, bitcoin is going nowhere and women are not involved. 

Why Bitcoin's male domination will be its downfall 

By Felix Salmon

Nathaniel Popper’s new book, Digital Gold, is as close as you can get to being the definitive account of the history of Bitcoin. As its subtitle proclaims, the book tells the story of the “misfits” (the first generation of hacker-l...

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Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene


The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Market Shadows

Kimble Charts: South Korea's EWY

Kimble Charts: South Korea's EWY

By Ilene 

Chris Kimble likes the iShares MSCI South Korea Capped (EWY), but only if it breaks out of a pennant pattern. This South Korean equities ETF has underperformed the S&P 500 by 60% since 2011.

You're probably familiar with its largest holding, Samsung Electronics Co Ltd, and at least several other represented companies such as Hyundai Motor Co and Kia Motors Corp.


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Mapping The Market

S&P 500 Leverage and Hedges Options - Part 2

Courtesy of Jean-Luc Saillard.

In my last post (Part 1 of this article), I looked at alternative ETFs that could be used as hedges against the corrections that we have seen during that long 2 year bull run. Looking at the results, it seems that for short (less than a month) corrections, a VIX ETF like VXX could actually be a viable candidate to hedge or speculate on the way down. Another alternative ETF was TMF, a long Treasuries ETF which banks on the fact that when markets go down, money tends to pack into treasuries viewed as safe instruments. In some cases, TMF even outperformed the usual hedging instruments like leveraged ETFs. There could of course be other factors at play since some of 2014 corrections were related to geopolitical events which are certain...

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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 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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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 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.

Thank you for you time!

FeedTheBull - Top Stock market and Finance Sites

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...

Learn more About Phil >>

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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.

Market Shadows >>