Phil's Newsletter

Option Opportunities Portfolio – Month 2 Review

It's actually only been 56 days but close enough.  

So far, we've only had to close 10 positions (average of about one per week) for a $13,255 gain, which is 13.25% of the portfolio's $100,000 base.  Our original goal was to try to make $5,000 a month, so we're well on track so far.  It's been a choppy, nasty market and we've spent the last two weeks protecting our long positions more so than trying to add new ones.  

The goal of our Options Opportunity Portfolio, is to take advantage of short-term OPPORTUNITIES in the market using options for both hedging and leverage.  Overall our goal remains closing about $5,000 a month in profits, some of which we roll over into longer-term positions that will being paying us steady incomes as they mature.

The only new positions we added this week were Micron (MU), which had a wonderful day on Friday after  earnings and finished at $15.91, well over the $15.50 target we need to make 72% on that trade.  To protect our very quick gains, we also added a Jan $25/30 bull call spread on the ultra-short Nasdaq ETF (SQQQ) at $1,600, which pays $5,000 should the Nasdaq slips – so that's $3,400 of downside added against our open positions.  Once you have profits, you also have a responsibility to protect them!  

Before we Review our open positions, here's a quick look at the ones we've closed:

Our biggest loser, BID, is still a working, open position.  We have 20 of the April $32s still open at $4.30 and we're down $2,600 so that's $1.30 per contract which means we neet to be $5.60 above our $32 strike by April option expirations (15th).  The purpose of these reviews (and it's a habit you should have for all your positions) is to decide whether we are on or off track on our open items and to make adjustments were we're not on track.  

The premise with BID is that their Q2 miss was caused simply because they delayed a major auction a couple of weeks, which happened to put it in July, rather
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Fedapalooza Friday – 6 Fed Speakers Flap the Markets

What are these people so terrified of?

Clearly the markets are not allowed to have even a normal correction before the Central Banksters leap in with more stimulus.  This morning, China stepped up their game by directing their banks to "support" infrastructure projects (more empty cities and airports will fix everything!) with a new round of bond issues.  The China Development Bank and Export-Import Bank of China have received additional funding from the State Administration for Foreign Exchange (SAFE) for the same purpose.

The Chinese Government is even showering love on the casino operators in Macau pledging to introduce more policies this year to support the city.  Government support could include allowing more mainland Chinese cities to offer individual visas, and introducing multi-entry permits to make it easier for people to gamble.  

To support firms, the government will expand tax breaks and tax advantages now granted small firms to larger firms as well. In addition, incentives to engage in R&D activity will be increased and broadened. The government also hopes to increase foreign trade through cuts in certain import and export duties.  Unfortunately, all this is just putting a band-aid on a severed limb as the Corporate Debt situation in China is in a full-fledged melt-down:

This week, Macquarie released a must-read report titled "Further deterioration in China’s corporate debt coverage", in which the Australian bank looks at the Chinese corporate debt bubble, not in terms of net leverage, or debt/free cash flow, but bottom-up, in terms of corporate interest coverage, or rather the inverse: the ratio of interest expense to operating profit.  With good reason, Macquarie focuses on the number of companies with "uncovered debt", or those which can't even cover a full year of interest expense with profit.

Image result for danger chinese characterAs noted by Zero Hedge:  It looks at the bond prospectuses of 780 companies and finds that there is about CNY5 trillion in total debt, mostly spread among Mining, Smelting & Material and Infrastructure companies, which belongs to companies that have a Interest/EBIT ratio > 100%, or as western credit analysts would
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Thrilling Thursday – Thrusting Futures Give Us Another Chance to Short!

Everything is proceeding as I have foreseen.  

We drew the S&P bounce chart for you yesterday and we said we expected a run to our strong bounce line at 1,910 from 1,877,75 at the time.  The long play paid off at $50 per point, per contract for a lovely $1,612.50 per contract gain (you're welcome) and this morning, in our Live Member Chat Room as well as the Chat in our Options Opportunity Portfolio, we took advantage of the overshoot to 1,924 (also noted on yesterday's chart) to short the S&P again and, as you can see, that's paying off nicely already

We don't officially trade Futures in the OOP but, once in a while, I'll throw a pick out there along with our usual options trading.  MU was our most recent long position and they release earnings after the close so I can't tell you what our play was because it's still gettable for our Members but tomorrow I'll tell you how well it went. 

Overall, we are pretty sure this "rally" is fake, Fake, FAKE!!! and that's how we're playing it so expect us to be adjusting our hedges and cashing in some longs as we get ready for what could be a major leg down in the markets.  For those of you who haven't been following along and aren't well-prepared for a market downturn, I refer you to my weekend post: "Hedging For Disaster – Now, Are You Ready To Listen? "

As you can see from Declan's SPX chart (full post at Chart School) the S&P needs to get back over 2,020 just to get back to where we bounced after the Aug 24 disaster and that was a VERY QUICK (2-day) recovery to 1,993.  Today is day 2 of bounce 2 and are we at 1,993?  No, we are not.  

Image result for kinetic energy formulaTherefore, this bounce is WEAKER than the last bounce and, much like a bouncing ball that's losing it's kinetic energy, the S&P 500 is losing it's energy as gravity begins to take it's toll (see the classic "Stock Market Physics" for more on how this works).  For
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Window Dressing Wednesday – Don’t be Fooled by False Profits!

So many things to talk about today.  

None of it really matters as it's the last day of the month and windows have to be dressed and already yesterday's losses are more than reversed with 1% pre-market (low-volume) gains that are taking us back to our weak bounce lines, which remain:

  • Dow 16,200 (weak) and 16,650 (strong) 
  • S&P 1,900 (weak) and 1,950 (strong) 
  • Nasdaq 4,550 (weak) and 4,700 (strong)
  • NYSE 10,050 (weak) and 10,300 (strong)
  • Russell 1,130 (weak) and 1,160 (strong).

All red is, obviously, not a good sign but we'll be bouncing up to test some of the weak bounces again so we'll reserve judgment until we see what sticks.  I already warned our Members not to try to jump in bullish as it's not likely we go much higher than 1.25% and I think we'll be rejected around there (16,200, 1,900, 4,125 (on the 100), 10,100 and 1,090).  Those are the bounce levels our 5% Rule™ tells us to expect intra-day.  In the bigger picture, the S&P looks like this:

I did a full 2-part rundown on the S&P back on August 13th, so I won't rehash…
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Testy Tuesday – Double Bottom or Look out Below?

This is not a pretty chart.  

Especially when you have these big, long, red lines heading down that are getting longer every day, which indicates that panic is growing and sellers are no longer waiting for a bounce to dump what's left of their holdings.  Nonetheless, we are playing for the bounce this morning (see our 7:29 Alert) as we tested some critical bounce lines in the Futures but we're not expecting much – just a bit of window-dressing in an attempt to save the quarter.

Should the window-dressers encounter heavy selling – it will be time for some new, aggressive downside plays (see yesterday's post for examples) because, as you can see from the Big Chart, the Russell and the NYSE have already broken below our August lows and the only reason the Dow seems to be holding up is that Nike (NKE) alone is responsible for 250 Dow points since the mini-crash.  

Subtract NKE from the Dow and we're at 15,750, right in line with the other indexes which is why we focused our attention this morning on the Nasdaq, which is dominated by Apple (AAPL), which is 15% of the index and rose from $95 back to $115 for a nice 21% gain which we then multiply by 15% to get 3.15% times the Nasdaq 4,554 is 143 Nasdaq points which would bring it down to 4,411 – right back to where we were also.  

Of course it's not fair to subtract ALL of NKE or AAPL but it gives you an idea of how distorted even our major indexes can be on the actions of a single stock, which tells you nothing about the overall health of the index.  What we can see, though, is that 788 more NYSE stocks made new lows than new highs yesterday and that's certainly not a healthy sign by any measure.  Keep in mind that 2,250 stocks made new lows on 8/14 so these 788 new lows are lower than that – now you get the picture, right?  

To put is simply, another down day today would add to the total and that would send an incredibly
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Monday Manufacturing Malaise – China Down 8.8%

Embedded image permalinkHow is this a GDP that's growing by 7% a year?

That's the -10% line we're testing on China's Industrial Profits, which is the worst decline since the Government has been releasing the data (2011).  “Companies are facing enormous operational pressures,” said Liu Xuezhi, a macroeconomic analyst at Bank of Communications Co. in Shanghai. “The momentum of growth is weak, and the downward pressure on the economy is relatively large.”   

I know the conventional wisdom is that, if we pretend China is not having a crisis for long enough, the crisis will go away but this is rapidly spilling over to other Asian economies and is now affecting Europe too.  This is like when everyone in your family but you catches the flu and you just KNOW you're going to get it – the only question is when.  Coal mining profits in China, for example, are down 64.9% from last year so either they have converted 60% of their economy to renewables in 12 months or their economy is slowing considerably.

Keep in mind this is AFTER 5 interest rate cuts in the past year along with reduced reserve-requirements for the banks AND currency devaluations.  As noted by Asia Analytics: 

 "The Chinese central bank can drop the price of money all it wants and shovel ever more cash into the banking system, but the problems facing the Chinese corporate world are more about the lack of customers than the lack of credit, more about insolvency than illiquidity."

This is happening on our planet folks – not off in some distant galaxy!   It amazes me how little concern people seem to have about what's going on in China – as if we learned nothing at all 7 years ago – not even to be a little bit cautious.  Well, I'm not going to try to convince you – I put up "Hedging for Disaster – NOW Are You Ready to Listen?" and the rest is up to you.  I can only tell you what's going to happen in the markets and how to profit from it – that's the extent of my powers.  
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Hedging for Disaster – NOW Are You Ready to Listen?

SPX DAILY3 weeks ago, we told you how to protect yourself from a market downturn.

21 days is not a lot of time to test and investing premise but it's good to take a look at our progress on this relatively small market dip (that we accurately predicted) so perhaps you'll take the necessary precautions to avoid taking losses in the next leg of our downturn.  My biggest regret in 2008 was "trying not to be so gloomy" so now I'm going to keep reminding you to hedge (or better yet, get to CASH!!!) – all the way down to the bottom.

As you can see from Dave Fry's S&P 500 chart, we're barely down on the S&P from where we were on September 4th, so you'd think our bearish hedges wouldn't pay off – BUT YOU'D BE WRONG!  Why?  Because, like our long market conditions, our bearish hedges follow our Be the House – NOT the Gambler™ strategy, which allows you to make money in relatively flat markets too.  Let's take a look at the hedges we showed you that day (Sept 4th) from our Short-Term Portfolio:

These are simple option trades called "bull call spreads" – something our PSW Members learn in their first week of trading stock options.  This isn't an educational post so we'll go right on to the results portion of the discussion:

  • The ultra-short S&P (SDS) Sept $21/24 bull call spread expired on 9/18 at $2.48 – up 50% from the $1.23 net we showed you on 9/4 (5th column from the right was that day's prices).  With 50 contracts, the position we showed you made $6,150 in 3 weeks.  
  • The ultra-short Nasdaq (SQQQ) Sept $21/24 bull call spread expired on 9/18 at $1.48 – up 169% from the 0.65 net we showed you on 9/4.  With 50 contracts, the position we showed you made $4,150 in 3 weeks.  
  • The ultra-short Nasdaq (SQQQ) Jan $18/30 bull call spread closed Friday at $4.50 – up 45% from the $3.10 net we showed you on 9/4.  With 50 contracts, the position we showed you made $7,000 in 3 weeks.  
  • The ultra-short Russell (TZA) Oct $11/14 bull

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Fed Up Friday – Janet Saves the Day!

And up we go again!  

After failing the 16,000 line early yesterday, the Dow has now come back 450 points (2.8%) thanks to Janet Yellen's bullish outlook in yesterday's "do-over" speech at Amherst.  “The message from Yellen yesterday was that it’s not that bad, and we’re still going to hike,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “That was what the market needed to hear.”  

Of course, this was no surprise at PSW as I had already said to our Members Tuesday Morning (7:56) in our Live Chat Room: "Interesting timing (Yellen's 5pm Thurs speech) knowing Durable Goods are out that day.  She's scheduled for 5pm, so maybe a market-booster into the week's end. "  

In fact, in our Options Opportunities Portfolio, we called the top in gold as it topped $1,155 and cashed out the trade we discussed in yesterday morning's post, getting $6.95 for our long Gold ETF (GLD) Oct $104 calls and buying back the short $108 calls for $3.40 for net $3.55 ($3,550), which was up a very nice 62% ($1,360) in just two weeks.  That's why we call it the OPPORTUNITY portfolio!  

By the way, this is the last 5 days to sign up at our introductory rate.  As of October 1st, rates go back to the normal $199 a months but you can still lock in the very low annual introductory rate of $792 between now and then – we just made almost double that on a single trade!  

In fact, just yesterday morning, when I was telling you how great that trade was, it was only at $3,000, so we added another $550 (18.3%) in a single session!  Options are certainly a tool you want to have in your trading tool belt.  Sure, anyone could have seen that GLD would bounce off $105 and go back to test $110 and you could have made 5% playing the stock.  But you would have had to have bought 710 shares of stock for $74,550 to make the same $3,550 we made by investing just $2,190 in…
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Thursday Failure – Indexes Test Some Critical Levels Pre-Yellen

SPX DAILYShall we keep pretending? 

Clearly that's the plan of the MSM, where you'd think we were in some kind of rally while critical index levels are falling by the wayside right and left on a daily basis.  This is very much like 2008, when the Global Economy was collapsing and an endless stream of a-holes came on TV to tell you not to worry – and they kept people from worrying – until it was too late.  

Amazingly, after looking at that clip, CNBC is still on the air but Jon Stewart is not.  Now we face another serious crisis and we have 3 financial networks: Fox, CNBC and Bloomberg and none of them can seem to find any guests who don't think we shouldn't be worried about:

And I don't want you to think I spend hours digging up bad stories – those are just today's headlines!  If it were not for the DESPERATE attempts of the G8 Central Banksters to prop up the markets, I'd be gung-ho bearish but,…
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Which Way Wednesday – Super Mario to the Rescue?

Up and down we go.

Where we stop, no one seems to know.  Mario Draghi is speaking at 9 am this morning and, now that the Fed has put off their rate increase, the ball is in his court to do SOMETHING to stop the collapse of the European markets.  Not only have the indexes fallen 5% this week (and today bouncing the obligatory weak 1% ahead of Draghi's speech – as we predicted yesterday in "Back to Bouncing"), but the Euro has fallen 2.5% – leaving no escape for any asset class in Europe.  

Former Goldman Sachs Managing Director Draghi is already in the process of giving $1,300,000,000,000 to EU Banksters (including his alumni, of course) and, like Janet, they want more, More, MORE!  It's very possible yesterday's horrific 3% drop in the EU markets was nothing more than an engineered cry for help by the Banksters, giving Draghi the excuse he needs to enrich his friends further without too much public outcry. 

There's really nothing left to do but cry for European Citizens, who have seen Draghi devalue their life's savings by 25% since he took power in November of 2011.  And yet they are "puzzled" as to why there's no inflation when the buying power of every European has been reduced by an average of 6% a year for the last 4 years.  Hey, I know, let's give more money to rich people – that will fix everything! <end sarcasm font>

Somebody actually said to me on Seeking Alpha yesterday: "Trickle down works like this: the rich buy large houses, this puts carpenters to work, then they buy appliances/furniture, which helped to create Home Depot and Lowe's, they have landscapers, house cleaners, nannies, etc. – all created from their wealth."  

After I stopped laughing, I did try to point out that a lot more people are employed building 300 $330,000 homes than a single $100M home but our problem isn't the lone commenter on SA – it's the fact that ALL of our Governments are following this horribly flawed plan to "fix" the Global economy when all they are actually doing is upwardly distributing wealth
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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Taking Intelligent Risks: How To Stay In The Trading Game (Trader Feed)

You have to risk money to make money.  You have to make sure you don't risk so much money that you can lose your stake and go out of business as a trader.  Bet too little and you never make a good return on your capital.  Bet too much and you court career risks.  So much of trading success boils down to taking intelligent risks.

Here is a useful calculation tool that can tell you the probability of hitting a drawdown threshold.  


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Zero Hedge

The Media-Opoly: Cancelled, From Saturday Night, It's Conspiracy Theory Rock!

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

A day after we ran "Meet Your "Independent" Media, America", in which we showed how prime time entertainment like 60 Minutes is strategically and voluntarily "planted" with propaganda trolls and "concerns" thus crushing any "unbiased" credibility mainstream US media may have, we dug into the archives to bring you "Conspiracy Theory Rock."

This cartoon created by SNL cartoonist Robert Smigel in 1998 ran once in a "TV Funhouse" segment, and has been since removed from all subsequent airings of the Saturday Night Live episodes. As a reminder, 90...

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Phil's Favorites

Trump vs. Fiorina vs. Obama on Isis; Fiorina and the "Law of Bad Ideas"

Finally, one of the top republican candidates said something intelligent about Syria while the dreadful Fiorina explained how we need to defend our,...yes, OUR territory in the middle east by engaging Russia in a war. Yeah, something like that. 

Courtesy of Mish.

Carly Fiorina Seeks No-Fly Zone

In the Fox interview show below, Republican presidential candidate Carly Fiorina says the US should enforce a no-fly zone in Syria, even if it means shooting down Russian aircraft.

Quote of the day: "Russian jets have been basically conducting dangerous and unpredictable maneuvers around our waters and our borders and our territory".

Can I have a definition of "our" territory please?


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Chart School

SP500 Wyckoff Review

Courtesy of Read the Ticker.

Review of the SP500, pre Oct 2015, fire fighting the technical damage.

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...

.."Your goals are to select only stocks that move soonest, fastest and farthest in bull or bear markets. Limited losses and let profits run."..

Richard D Wyckoff

..“Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.”..


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Kimble Charting Solutions

Opportunity Friday…What would you do with these Opportunities?

Courtesy of Chris Kimble.

Opportunities are knocking at our door friends! I’ve been sharing the Power of the Pattern with customers for the past 20-years. In my humble opinion, some really nice opportunities (based on price, momentum and sentiment) are forming for investors around the world. Below is two of the dozens of rare patterns I am seeing, that I wanted to share with you today.

What would you do with this opportunity?


As shared above, this asset has fallen around 35% of late. The decline has taken it down to its 4-year rising channel support l...

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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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Swing trading portfolio - week of September 28th, 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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Sector Detector: No rate hike translates into heightened wall of worry

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

Courtesy of Sabrient Systems and Gradient Analytics

The Fed’s decision to not raise the fed funds rate at this time was ultimately taken by the market as a no-confidence vote on our economic health, which just added to the fear and uncertainty that was already present. Rather than cheering the decision, market participants took the initial euphoric rally as a selling opportunity, and the proverbial wall of worry grew a bit higher. Nevertheless, keep in mind that markets prefer to climb a wall of worry rather than ride a crowded bandwagon, and I continue to envision higher levels for the markets after further backing-and-filling and testing of support levels (perhaps even including the August lows).


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Some Hedge Funds "Hedged" During Stock Market Sell Off, Others Not As Risk Focused

By Mark Melin. Originally published at ValueWalk.

With the VIX index jumping 120 percent on a weekly basis, the most in its history, and with the index measuring volatility or "fear" up near 47 percent on the day, one might think professional investors might be concerned. While the sell off did surprise some, certain hedge fund managers have started to dip their toes in the water to buy stocks they have on their accumulation list, while other algorithmic strategies are actually prospering in this volatile but generally consistently trending market.

Stock market sell off surprises some while others were prepared and are hedged prospering

While so...

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Baxter's Spinoff

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

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...

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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 


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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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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...

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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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