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Phil's Newsletter

Thank Draghi It’s Friday

One Trillion Euros!  

It sounds like a lot of money but, already today, it's worth $40Bn less than it was on Tuesday.  Since Draghi's QE program doesn't begin until mid-March, at this pace (-$20Bn a day) by March 20th the whole Trillion will be gone – how's that for a magic trick?

Of course we don't think the Euro will keep falling to zero over the next 50 days but losing 2% per day of your entire net worth, even for just a couple of days, is bound to have some investors jumpy about their Euro-denomiated assets.  That's why the Euro continues to slip towards parity today ($1 per Euro), hitting $1.11 this morning, after opening yesterday at $1.165.  

UUP WEEKLYOur mighty Dollar flew up to 95.77 this morning as investors flocked to safer harbors.  It's really the US or nothing now as Abe has desroyed they Yen and China's Bad-Loan Ratio jumped 10% in Q4, now making up 1.29% of outstanding debt and forecast to climb to 1.6% by the year's end.  

The 0.13 percentage-point increase in the bad-loan ratio was the biggest since the regulator began compiling quarterly data in 2004 and another 0.31% by the end of 2015 will, of course, make this the worst year on record.  

Nonetheless, we are back on a bullish run in the Global Markets as everyone loves free money.  Well, everyone who's rich, anyway – and anyone else doesn't matter, so party on people!  

SPY  5  MINUTEAs I mentioned in yesterday's post, we were long in the morning, then flipped short after Draghi's announcement gave us an initial pop and then we flipped long again at 10:28 in our Live Member Chat Room and you can see how well those calls went for the day.

Those of you who read us regularly know that our long line for Natural Gas Futures (/TF) is $2.825 and we got anoter entry there yesterday as well with a very nice $750 per contract run back to $2.90 yet again (and up over $1,000 this morning at $2.925).  

We had another opportunity to go…
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Draghi Fever Thursday – Catch It!!!

gifnews animated GIF

I've got Draghi fever, she's got Draghi fever
We've got Draghi fever, we're in debt
She's gone Dollar crazy, I've gone Euro hazy
Ain't no thinking maybe, we're in Debt

The ECB kept rates on hold this morning but that doesn't matter.

What matters is the unveiling of Mr. Draghi's mad plan to boost the EU Economy (such as it is) through a bond-buying program of AT LEAST $55Bn per month.  Anything less than that will be VERY DISAPPOINTING as the markets have already baked in some massive QE from Draghi and the ECB

BalanceRealistically, there's almost nothing Draghi can do to "fix" Europe today or to meet the inflated expectations of the market.  

Sure we may get a pop on a nice program but it's not likely to last and we still have the Greek elections on Sunday, which can throw the whole Union back into turmoil next week.

As you can see from the chart above, Draghi is expected to annound a stimulus program that already puts the ECB's balance sheet back to where it was at the height of the Greek crisis (the 2nd one) and that's without (officially) a new Greek crisis – so it's a Hell of a lot of firepower spent just to fight the deflationary bogey-man.  

As noted by Bloomberg, Draghi still has to negotiate the tricky issue of buying government bonds at the negative yields currently prevailing across much of the euro zone. Paying for the privilege of storing money in, say, a three-year French bond effectively locks in a capital loss if you get back less than you paid.

A lawyer could argue that that constitutes "monetary financing" of governments, which is forbidden by the monetary union treaty. Draghi has already seen off one legal challenge to his power to buy bonds; that fight may be rekindled in the near future.

8:40 Update:  Draghi announces 60Bn Euros per month of easing ($70Bn), so 20% more than expected and it's through Septermber 2016, at least!  That sent our Futures up over our bullish target levels (…
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Wary Wednesday – Waiting for Draghi to Save Us

The state of the union is STRONG!

That was the word from our President last night as he set the agenda for his last two years in office.  The GOP response was a very predictable no way and Uncle Rupert's Journal didn't waste a second publishing a front-page editorial blasting the President for his ridiculous idea of having the rich pay their fair share of taxes in order to improve the lot of the middle class.  

In the 1944 film “Gaslight,” a con artist manipulates his new wife psychologically to make her doubt her own sanity in a scheme to steal her inheritance. That’s increasingly the way to understand President Obama ’s behavior toward Congress and especially the tax increase he floated in Tuesday’s State of the Union. The only plausible rationale is that he thinks he can gain politically by driving Republicans nuts.

It goes downhill from there…  The true State of the Union is going to be two years of gridlock and bickering with nothing much being done – not too different from the last 6 years or the rest of the century, which has seen average household income drop 10% while the top 1% tripled their wealth.  

Can we really afford 2 more years of the same?  Romney and Bush III want to make it 10 if they can.  Joni Ernst (I know, who?) delivered the GOP response, which centered on a promise to repeal the Affordable Care Act, "which has hurt so many American Families," though she couldn't actually name one, when asked later.  Instead, in her speech she said:

Growing up, I had only one good pair of shoes. So on rainy school days, my mom would slip plastic bread bags over them to keep them dry.  But I was never embarrassed. Because the school bus would be filled with rows and rows of young Iowans with bread bags slipped over their feet.  Our parents may not have had much, but they worked hard


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Technical Tuesday – Can Draghi Give Us Strong Bounces?

2,027 is our goal today for the S&P.

After that, we'll turn our attention to 2,040 tomorrow (the 10% line on our Big Chart) and we need 22 Nasdaq points to make that strong bounce line and then we'll look for 4,700 to come back on MORE FREE MONEY from the ECB on Thusday.  

Our Bounce Lines from last were were (and still are):

  • Dow 17,280 (weak) and 17,460 (strong)
  • S&P 2,006 (weak) and 2,027 (strong)
  • Nasdaq 4,608 (weak) and 4,656 (strong) 
  • NYSE 10,560 (weak) and 10,670 (strong) 
  • Russell 1,172.50 (weak) and 1,185 (strong)

China made their own weak bounce overnight and that's already enough to get our Futures back on track but, as you can see from the chart on the left – this morning's bounce to 3,173 erases only 50 points out of a 275-point drop, which just happens to be the very definition of a weak bounce per our 5% Rule™.  

So, to sum it up – we are likely to have strong bounces as traders are relieved to see China having weak bounces and,…
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Happy Martin Luther King Day!

It's Martin Luther King day so the markets are closed.

It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision.  Here's a great video of the actual event.

It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

  • Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
  • Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
  • It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
  • The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
  • Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.   
  • Never forget that everything Hitler did in Germany was legal.
  • We will remember not the words of our enemies, but the silence of our friends.
  • The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
  • A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
  • A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
  • One of the greatest casualties of


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TGIF – Bringing this Weak Week to a Close

It's been this kind of week

The hits just keep on coming as bad news is suddenly bad news for the markets and even the promise of Draghi waving his money wand next week isn't enough to keep investors in equities.  $4.1Bn flowed out of US-based stock funds according to Lipper while $4.3Bn went into bond funds – driving TLT all the way to $135, where we decided to initiate a short position in our Short-Term Portfolio.   

Our STP finished the day yesterday up 92.5% and we're still very much on the bear side, up 16.6% for the week ($16,600) while the S&P fell 3.3% – AND THAT IS HOW YOU HEDGE!  Yes, our bigger and bullish Long-Term Portfolio lost 1.8%, but that was "only" $8,600 so our net for the week is up $8,000 as our BE THE HOUSE – Not the Gambler strategy continues to pay off for the first two weeks of 2015.

Of course $8,000 a week is $400,000 a year (+66% to our $600K start), so it's not likely that we will be as much on the right side of trades all year as we were this week, but it's a fantastic example of how well our balanced portfolio approach works under extreme market conditions.  We made only a couple of minor adjustments (like adding the TLT shorts) but, for the most part – we don't have to do anything to get that performance when we call the direction right.

Monday is a holiday in the US, so we're certainly not inclined to flip bullish today – or even neutral, for that matter.  All of our weak bounce lines were broken, which is what we feared would happen on Tuesday, when we set them.  Fortunately, our 5% Rule™ prevented us from capitulating during the run-up last week and now we are reaping the rewards on the way down!  

Last Friday, for example, we mentioned that our Members had added $13,000 of TZA longs to our Short-Term Portfolio and TZA has rocketed up from $12.33 (a trade idea we published for free for
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Thursday Freak-Out – Swiss Franc Jumps 20% in One Hour!

Embedded image permalinkHoly Crap!!!  

I'd love to say I'm that good as we were up early this morning (1:54) in our Live Member Chat Room and all seemed quiet with the Futures heading higher and I said to our Members:

Oil hit $50 just after midnight, /NG topped out at $3.37, gasoline at $1.385 and the markets spiked up almost 1%.  India cut their reserve rates 0.25% – a total surprise.  Also, positive notes from China and /NKD is up from 16,600 yesterday to 17,200 just now (and I like /NKD short on that line with tight stops above).

Just two hours later, ALL HELL BROKE LOOSE and the Nikkei dropped 300 points (now more) and those /NKD shorts gained $1,500 in just two hours.  That one was more luck than skill as the Swiss National Bank made a VERY SURPRISING announcement that they were removing their 3+-year currency peg to the Euro and that sent the EUR/CHF pair from the usual 1.20 all the way down to 0.85 before stabilizing at about 1.02, down 20% in minutes!  

Embedded image permalinkNeedless to say, hedge funds who made the very usual, very normal short bet on the Swiss Frank are F'd this morning.  As the Euro had been very weak recently, there were a large amount of short bets on the Franc (CHF) in expectations of the SNB stepping up their Euro-buying program to get back to their usual 1.20 goal.  

But nooooooooooooooooooooo!  They went the other way by 20% and, as I reminded our Members this morning, those wrong way currency contracts (and there are 1M of them on this chart) lose $1,100 PER PENNY move.  That's $22,000 on a 0.20 move in CHF x 1M = $22Bn in losses this morning for currency traders.  Someone is gonna have some 'splainin' to do!  

I already sent out a detailed tweet on the subject earlier this morning, so you can delve further into the subject at your leisure.  For now we should contemplate the…
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World Bank Wednesday – Global GDP Outlook Cut By 10%

SPX WEEKLYThe World Bank has downgraded the Global Economy.

According to today's report, the Global Economy will slow to a 3% growth rate, down 10% from the previously projected 3.4% calculated in June.  That's a pretty alarming rate of decline in the 2nd half of the year, don't you think?  The report adds to signs of a growing disparity between the U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output. Risks to the global recovery are “significant and tilted to the downside,” with dangers including a spike in financial volatility, intensifying geopolitical tensions and prolonged stagnation in the euro region or Japan.  

“The global economy today is much larger than what it used to be, so it’s a case of a larger train being pulled by a single engine, the American one,” World Bank Chief Economist Kaushik Basu told reporters on a conference call. “This does not make for a rosy outlook for the world.”

The bank sees average oil prices falling 32 percent this year, a decline that’s historically associated with a boost to global GDP of about 0.5 percent. Yet the impact on growth may be smaller in 2015 and 2016 because of other headwinds including weak confidence that encourages saving rather than spending, and a “significant” income shift from oil-producing countries to those that are net consumers, the World Bank said.

In other words, all those things we have been telling you to worry about were actually things you should have been worried about.  As I mentioned to you in Friday Morning's post, we added back $13,000 worth of TZA (ultra-short Russell) spreads in expectations of negative economic news this week.  Those spreads have a $17,000 upside (130%) if the Russell fails to hold 1,170, which is right where we bounced off yesterday (the -2.5% line).  

SPY  5  MINUTEWe'll see if that line holds up today, as well as our two remaining Strong Bounce Lines (see yesterday's post for predictions that came true) of Dow 17,460 and Nasdaq 4,656.  As we…
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Tricky Tuesday – Failing at the Strong Bounce Lines Once Again

Wow, I'm getting dizzy.  

I'd say the market is like a roller-coaster but there are no roller-coasters that make moves this crazy.  Unfortunately, all this zig-zagging up and down is only serving to exhaust the erstwhile dip buyers, who haven't been getting quite the easy ride they've become used to over the past few years.  

More importantly, we are NOT making our Strong Bounce Lines per our 5% Rule™, which has kept us from chasing these bounces as we just haven't quite gotten over the hump at:

  • Dow 17,280 (weak) and 17,460 (strong)
  • S&P 2,006 (weak) and 2,027 (strong)
  • Nasdaq 4,608 (weak) and 4,656 (strong) 
  • NYSE 10,560 (weak) and 10,670 (strong) 
  • Russell 1,172.50 (weak) and 1,185 (strong)

As you can see, only the Dow has really cleared it's goal by any significant amount with the S&P right on the line and the NYSE and Russell pulling up the rear.  All should be over at the open as we're getting a 1% pop in Europe, where inflation is so low that investors are CERTAIN that Draghi will come and save the day a week from Thursday (22nd) at the next scheduled meeting.  

The Euro is
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Monday Market Movement – Clutching at Bullish Straws

INDU WEEKLYWhat an "impressive" recovery we had last week.  

After starting out down 750 Dow points we took 500 of them back overall, which gives us a still-constructive picture on the weekly chart – much better than the dreaded head and shoulders formation we would have had if we had finished around 17,500.  

So that should make the chart people happy and this morning the Futures are up a bit, even though oil is down 2.5% as Goldman Sachs took advantage of a sleepy Monday Morning to come out with a MAJOR DOWNGRADE ON OIL that calls for $41 oil in 3 months, down from their previously totally wrong forecast of $70 (for WTIC). 

Since GS was "only" off by 42% in their previous forecast, of course their current forecast is moving the markets as the beautiful sheeple stampede out of long positions.  We're thrilled to see GS send oil to new lows as it makes it cheaper for us to buy longs.  Last week alone 35 rigs were shut down at Bakken (61 overall) and, as we already calculated in our ongoing oil study, the average rig pumps 1,000 barrels a day, which means 61 rigs takes 427,000 barrels out of inventory starting next week.

Embedded image permalinkGS knows this and they know the bottom is much closer than April – they just want to force the retail buyers (including their own clients) out of long positions so they and their preferred clients (the top 0.01%) can load up on longs and make a fortune when oil does come back.  

You can see on their chart (left) that they are still projecting a $65 average for 2016 but GS knows (as do we) that the average investor has more like a 3-month time-frame, at most, and has no interest in what will happen a whole year from now – even if it could make them 50% if they simply make an investment now.  

Fortunately, at PSW, we teach our Members not to be sheeple and, as I often say to our Members: 

"We don't care IF the game is rigged as


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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...



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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!




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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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