Phil's Newsletter

Testy Tuesday – S&P Futures Back over 2,050 – for Now

Go on, take the week off.  

Really, these markets are just stupid – there's no point trading them.  The volume on the S&P ETF (SPY) yesterday was 58M, one of the lowest levels of the year – including half days!  We opened at $205.51 and closed at $205.21 with a high of $205.84 and a low of $204.99 so a narrow range of 9 S&P points during the day and then, at 3am, we magically race back up 12 points – on no volume at all.  

It's a manipulated joke of a market and, while we enjoy playing the game, I hear from far too many people who take this nonsense seriously and are worried about what to do in the face of all this uncertainty.  The only trade we added in our Live Member Chat Room yesterday was a neutral butterfly spread on TGT, using our BE THE HOUSE stratgegy of selling premium over time against a long-term position.  That's how you make money in this market – take it from the people who think they know which way it will go!  

We're hoping for a nice rally so we can add back Nasdaq Ultra-Short (SQQQ) positions, now that Apple (AAPL) has bounced a bit.  Of course you are sick of me saying "I told you so" but I did tell you so, right in our Friday the 13th post, where I said:

Also, if you'd like a quick stock play – we picked up Apple (AAPL) at $90 yesterday and we leveraged it with the May (expire next Friday) $87.50 calls at $3.15, which closed yesterday at $3.25, which is net $90.75 and we think AAPL can at least bounce $1 or two and that should take those calls to $4, which is a very nice, quick gain into the weekend.  

With AAPL closing at $95.22 on Friday, those calls expired at $7.72 for a very nice $447 (137%) per contract win in 7 days.  That's the kind of trade idea you get just for having a PSW Report Membership ($99) as it was right in my morning post.  Of course, if you subscribed to our higher-level Memberships, you would
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Messy Monday Markets – G7 Fails to Clean Up Currency Woes

F is for Failure

It's also for Finance Ministers and F is also the grade they got at this weekend's G7 meeting after failing to accomplish anything to calm the markets.  As you can see from the Nikkei chart, Japan's markets opened down a quick 2% before recovering half as it gyrated wildly into the close after testing 16,666, which is how the Banksters signal their minions that the fix is in and they have control.

For those of us not looking for Satanic messages from the trading floor, 16,500 is a strong (40% of the run) retrace from the bottom we called at 15,900 back on May 4th (good for a $5,000 per contract gain) to the top we called at 16,900 on May 11th (good for a $2,000 per contract gain) so you're welcome for those!  Remember – I can only tell you what the markets are going to do and how to make money trading them – the rest is up to you…

16,700 is the 20% (weak) retrace and, per our 5% Rule™, so upside resistance there is a bad sign and, if we bounce between there and 16,500, we're likely consolidating for a move down, which is likely if Japan fails to get permission to further devalue the Yen by the end of the G7 Bosses Meeting on Friday.  So we can look forward to another week of rumors and innuendo but the fun won't end there as OPEC then has their meeting on June 2nd.  Have I mentioned how much I like CASH!!! lately?

The lack of consensus over which policy levers to pull comes as Japanese Prime Minister Shinzo Abe prepares his heavily indebted nation for what may be another dose of spending to help the struggling economy. Ideally, he’d like the blessing of his G7 peers before doing so, but expectations are low that national leaders can go one step further on any economic accord when they meet in Japan later this week.

"Globally coordinated stimulus and cooperative exchange-rate management look a distant prospect amid deep G-7 divisions," said Frederic Neumann, co-head of Asian economic research at HSBC

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2,050 or Bust – Can the S&P 500 Avoid a 4th Weekly Decline?

SPX WEEKLY10 points.  

That's what we need on the S&P today to reverse what is turning into a very ugly downtrend on the weekly chart.  We've been discussing that line since February as the danger zone and, if you read us at all, you KNOW we short the S&P every time it gets to 2,100 and the last visit was mid-April, when I warned it wouldn't last in "Toppy Tuesday – What More Can They Do?"  At the time, the market had spiked up on enthusiasm over the "emergency meeting" between the White House and the Fed – nothing came of it and the markets promptly began to fall for the next 4 weeks.

In that article, I noted that we expected weak earnings, especially in the Financial Sector and, more importantly and more relevant to today's discussion, I warned that the real crisis was China's growing debt load, saying:

As money is sucked out of the pockets of the many and placed in the bank accounts of the few, China's economy (like ours) has stagnated as consumers can't afford to buy the goods they are producing at work and, as of last year, Chinese firms had only just enough operating profit to cover the interest expenses on their debt 2 times, down from 6 times in 2010.  That means a rise in rates OR a decline in profits can quickly lead to a huge economic crisis with massive defaults. 

As credit stresses mount, China is drafting rules to make it easier for lenders to convert bank loans into equity stakes of debtor companies. China may also approve, as soon as this month, a plan allowing banks to convert as much as 1Tn Yuan ($150Bn) of soured debt into equity – a very bad idea.

Last May (in case you forgot) is when China began going off the rails – triggered by a wave of defaults that I was warning you about all spring.  The problem was, I was too early with my warnings and a lot of people got complacent by May so this year I've waited before bringing it up again but the cycle will begin again soon and we need to keep our ears open for reports of Chinese loan defaults.  Our own market followed China down with a

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Federally Flip Flopping Thursday – Market Confusion Continues

Ball of confusion!

People moving out, people moving in. Why, because of the color of their skin.
Run, run, run but you sure can't hide. An eye for an eye, a tooth for a tooth.
Vote for me and I'll set you free. Rap on, brother, rap on.
Well, the only person talking about love thy brother is the preacher.
And it seems nobody's interested in learning but the teacher.
Segregation, determination, demonstration, integration, Aggravation, humiliation, obligation to our nation.
Ball of confusion. Oh yeah, that's what the world is today.

SPY 5 MINUTEAs relevant today as it was in 1970 and, apropos to the markets, it's by the Temptations…  We were tempted to go long off the negative reaction to the Fed Minutes yesterday as the market tanked on the MSM interpretation that tightening was right around the corner but, as I said to our Members in our Live Webinar (replay will be posted this afternoon) but the US indexes looked too dicey so we chose the Nikkei (/NKD) Futures.  As I commented back in our Chat Room at 3pm:

"We talked about fresh horses in the Webinar and now our lines are 17,450, 2,040, 4,325 and 1,100 so long the laggard once 2 are over and I like /NKD 16,700 too because the Dollar just popped back over 95 and it's not reflected yet." 

The Nikkei topped out at 16,850 for a $750 per contract gain and we already locked in over $300 on our other Futures trades during the live Webinar so it was another $1,000 profit to add to our streak for our 2016 Webinar winners.  We also still have a long play on Natural Gas (/NG) at the $2 line – expecting a nice run-up into inventories.  /NG is an expensive contract and only needs to make $2.025 for another $1,000 winner.   Remember – I can only tell you what the market is going to do and how to make money playing it – the rest is up to you! 

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Which Way Wednesday – Waiting on the Fed Minutes

Philstockworld Russell Futures Trade 05172016You are very welcome!  

Yesterday's morning post (which you can get, pre-market, every morning by subscribing HERE) was titled: "Trendless Tuesday – Watch Yesterday’s Fake Gains Disappear" and, if that wasn't enough of a hint of things to come, despite the Futures being positive at the time, I even let the free readers have a look at our Live Chat Trade Idea for playing the Indexes short, saying:

I've already put a note out to our Members to short the Futures in our Live Member Chat Room:

People are starting to notice China's debt and that's not a good thing.  After a brief flirt higher, we're back to Dow 17,650 (/YM), S&P 2,060 (/ES), Nasdaq 4,375 (/NQ), Russell 1,112.50 (/TF) and Nikkei 16,720 (/NKD) and I wouldn't use /NKD but the others all make good shorting lines to play (if 2 are under, short the laggards, look for last others to confirm and tight stops if any go back over).  

As you can see above, we had a nice $2,000 per contract gain on the Russell and the Dow hit 17,450 for a $1,000 per contract gain with the S&P hitting 2,040 for a $1,000 per contract gain and Nasdaq fell to 4,320 so 55 points at $20 per point is $1,100 gained on each of those contracts – not bad for a day's work!  

Keep in mind though, that that comment was a quote from our Member Chat Room at 7:42.  In the course of writing the post, we decided to add back the Nikkei short as well as it tested 16,700 and we caught a $750 gain per contract move to 16,550 after coming in just shy of our 16,500 target.  All in all, that's $5,850 in winning trade…
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Trendless Tuesday – Watch Yesterday’s Fake Gains Disappear

Philstockworld SPY Chart Here we go again.  

As you can see from the SPY chart, volume during yesterday's "rally" was 20% lower than even our recent low average (about 100M), which is 50% below last summers levels already and so much of the volume comes in the last 15 minutes of each day and it's generally selling as the TradeBots dump shares into whatever buyers they've managed to attract but, on the whole, the smart money is pouring OUT of the markets.  In fact, $7Bn came out of stock ETFs in April while $36.7Bn went into Bond ETFs – that should tell you something.  

What it doesn't tell you, however, is that $11.3Bn have flowed out of stocks in the first two weeks of May!  And, as usual, what earnings season is not telling you is that, if it weren't for another record-setting round of share buybacks by the S&P 500,  we'd be looking at a 7.5% earnings contraction this quarter – much worse than Q4 and guidance has not been encouraging either – so what on Earth is there to rally about?

These are the net incomes per share AFTER the companies have bought back 1.6% of their shares, on average, for the past 4 years.  That's 6.4% LESS shares that these earnings are being divided by and they are STILL DOWN 7.5% – that's pathetic!  The effect of the buybacks should be exponentially positive to EPS over time – we're going the other way and, aside from indicating a very poor earnings environment – it's a huge red flag that most of these companies have made very poor investments by diverting so much money into their own stocks, rather than investing in turning around their businesses.  

I've already put a note out to our Members to short the Futures in our Live Member Chat Room:

People are starting to notice China's debt and that's not a good thing.  After a brief flirt higher, we're back to 17,650, 2,060, 4,375, 1,112.50 and 16,720 and I wouldn't use /NKD but the others all make good shorting lines to play (if 2 are under, short the laggards, look for last others to confirm and tight stops

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Monday’s Oil Mess: Rent-A-Rebel Jacks up Prices into the Holiday

Rent-A-Rebel to the rescue!  

That's right, whenever the oil market needs a lift, there are hundreds of reliable groups of kids with guns and outboard motors who are able to shut down oil production and transportation around the World.  This week, with just 5 days to go until the contract rollover on Friday and 239M barrels of fake, Fake, FAKE!!! orders piled up at the NYMEX, the best way to boost interest in the contracts you are dumping is to funnel $50,000 to some starving teenagers and promise another $50,000 if they can interrupt the oil supply enough to get you an extra Dollar for your $239M barrels.  This week, it's a brand new group in Nigeria driving up prices by issuing this ultimatum:

The Niger Delta Avengers is giving two weeks ultimatum to all oil companies in our region to shut down and evacuates their staff. To international oil companies, this is just the beginning and you have not seen anything yet. We will make you suffer as you have made the people of the Niger Delta suffer over the years from environmental degradation and environment pollution,” the group said in a statement signed by spokesman Mudoch Agbinibo.

If at the end of the ultimatum and you’re still operating. We will blow up all the locations. It will be bloody. So, just shut down your operations and leave,” it added.

That was just what the oil bull doctor ordered and oil blasted up from $46 to $47.25 (2.5%) on that "news" completing the exact 5% move from $45 and right back to our shorting range at $47 (if it crosses back under).  While a small group of students "incapacitate" dozens of multi-Billion Dollar energy firms and their extensive security forces (and if so, what hope is there against terrorism), the reality is Nigeria is still putting out 1.7Mb/day of crude, 800,000 of their peak capacity, which isn't nothing but only 1/3 of the 3Mbd global glut we're in at the moment.  

No, this is all theater to drive gas prices up
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Using Stock Options to Pay Yourself 5% Monthly Dividends

Sometimes we forget the basics.

In our video series, there's a lesson called "The Secret to Consistent 20-40% Annual Returns on Stocks" and I hope you've seen it.  Although the low implied volatility of the market has made it a rough year for option selling, we were still able to scratch out just over 40% profits in four months in our paired Long-Term and Short-Term Portfolios.    Our other virtual portfolios are also performing very well with the Options Opportunity Portfolio up over 30% in 2016 and, surprisingly, our very conservative Butterfly Portfolio is up over 60% due to some not very conservative bullish adjustments we made in the February dip.  On the whole, though, we accomplished all this by following the BASIC strategies we teach at Philstockworld, not by gambling! 

Not that we're adverse to gambling, gambling is fun – but fun means fun, which means it's a small part of our total investing portfolio while the vast bulk of our money is SENSIBLY INVESTED in safer strategies that are designed to grind out consistently good returns over many years.  We have discussed the long-term advantages of compounding annual growth in "How to Get Rich Slowly" and now we'll begin discussing some basic strategies that will help you generate those consistent annual returns to put you on a path to a healthy, wealthy retirement.

In the "7 Steps" video, we're discussing a basic covered call strategy and we delve into the Fundamentals of stock selection.  At the time (Sept 2013), we were using ABX, which was trading at $19.15 and we sold the November $19 calls (45 days out) for $1.30.  The simple instructions were to wash, rinse and repeat to make up to 40% a year by simply selling calls against the stock.  

As you can see, ABX has dropped as low as $6.57 since then, down about 65% BUT, had you followed through and kept selling calls, we had a lovely 12-month period in which it stayed in our range and that would have given us 8 opportunities to collect at least $1 for $8 back before the stock turned down in September of 2014.  That would have dropped the net outlay below $10 and stopping out at $15 would have been a…
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$5,000 Friday – Yesterday’s Futures Trades Pay Off Nicely

You are welcome!  

I know often those of you who don't subscribe to the PSW Report don't get these trade ideas after the market opens and miss out on some of our Futures trades but yesterday oil didn't even hit our target short at $47 until 9:20 and was still at $46.75 even after my free post went up over at Seeking Alpha with that very, very specific trade idea and target.  We actually published the trade idea at 5:53 am in our live Member Chat room – so our Members had hours to get on board and you can actually see our initiation of the trade all the way back on Wednesday, during our Live Trading Webinar at 2pm (where I also called Retail dead the day before the big Retail sell off (at 00:56:10)!   

As it worked out, we nailed the top and nailed the bottom on that oil call and no, I'm not psychic – we're merely using the 5% Rule™ – one of the essential tools we teach to our Members at PSW every day!  

We even made money on the move back up in our Live Member Chat Room, calling the turn at 11:17, a full hour before it began to go higher.  We also had similar success on our Gasoline Futures play (/RB), where we had called the short in the Webinar at $1.575 and we caught a 0.02 drop at $420 per penny, per contract, which paid $840 on a single contract and $3,360 for 4 to push us well over the $5,000 mark from Wednesday's Webinar Trade Ideas – keeping our 2016 streak of winning trade ideas alive.  

Remember – I can only tell you what is going to happen in the markets and how to make money playing it – the rest is up to you!  

We had an extensive macro discussion this morning on oil and the Global Economy in our chat room, so I won't go over that again but the key takeaway was the Abe/Kuroda one-two punch this morning that sent the Yen lower but has failed to lift the Nikkei as people simply no longer believe in the Banksters who…
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Thursday Fakery – Manipulation in the Oil Market Boosts Prices

What an incredible rally!  

That's INcredible as in, NOT credible.  Oil is up almost 50% in 3 months and INcredibly, we now have 23 MILLION MORE BARRELS in inventory than we had then, representing an average build of 1.9M barrels in each of the 12 weeks.  That's why yesterday's  6.2Mb draw in inventories came as such a shock and sent oil flying up from $45.25 ahead of the report (10:30) to $46.40 (+2.5%) after the report and again the real surprise is the small reaction – unless you take into account the fact that this completes a 10% run on oil this week.  Somebody knew that the EIA data would surprise us.  

Since our toothless regulators certainly won't be investigating this, we decided to and we found something very interesting.  Looking at the EIA's full report for the week, we noticed that, in fact, inventories as a whole were at 2.0645Bn barrels (yes, that's enough to cover 278 days of imports) but that's only down from 2.0659Bn barrels last week (and up 130.4M from 1.9355Bn last year).  How is that possible if the report said:

  • Crude -3.4M barrels vs. +0.7M consensus, +2.8M last week.
  • Gasoline -1.2M barrels vs. -0.7M consensus, +0.5M last week.
  • Distillates -1.7M barrels vs. -1M consensus, -1.3M last week.

As it turns out, there was an unreported 4.8Mb BUILD in "Other Oils", which is a bundle that includes Aviation Gas (but not Jet Fuel, which is a Distillate), Kerosene, LNG, Lube Oils, Waxes, Asphalt, Coke, etc. – things we usually don't care about.  But we should care when almost the entire draw on inventory was clearly nothing to do with a change in demand but merely a
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Zero Hedge

Precious Metals: Fake-Rally Ends, Hostage Markets Return

Courtesy of ZeroHedge. View original post here.

Submitted by Sprott Money.

Precious Metals: Fake-Rally Ends, Hostage Markets Return

Written by Jeff Nielson

Back at the beginning of 2009, we had a real rally in the precious metal...

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Phil's Favorites

Headlines to Ponder: ECB Warns of Populist Risk; French Authorities Raid Google

Courtesy of Mish.

What’s the real populist risk: Donald Trump and Nigel Farage?

How about the ECB, the European Commission, and the French authorities?

Perhaps a few headline stories can help answer the question.

ECB Warns of Populist Risk to Financial Stability

The Financial Times reports ECB Warns of Populist Risk to Financial Stability.

The ECB said in the latest edition of its twice-yearly Financial Stability Review that a rise in political risk “pose[s] a challenge to fiscal and structural reform implementation and, by extension, public debt sustainability”.

The report was published a da...

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Chart School

Equity Valuations, Recessions and Stock Market Declines

Courtesy of Doug Short's Advisor Perspectives.

Note: In response to an email, I've updated the data in this article through the March month-end numbers and at the launch of the Q1 2016 earnings season.

When I initiated the dshort web page in late 2005, one of my routine topics was equity valuations, initially inspired by Nobel laureate Robert Shiller's book, Irrational Exuberance, the second edition of which was published earlier that year. I gradually expanded my focus from his cyclically adjusted price-to-earnings ratio (CAPE) to include Ed Easterling's Crestmont P/E, Nobel laureate James Tobin's Q Ratio and m...

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Wilbur Ross discusses Donald Trump's candidacy, and his investing strategy

By Jacob Wolinsky. Originally published at ValueWalk.

Wilbur Ross discusses Donald Trump’s candidacy, and his investing strategy

The post Wilbur Ross discusses Donald Trump’s candidacy, and his investing strategy appeared first on ValueWalk.

Sign up for ValueWalk's free newsletter here.


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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Global Stocks Broadly Higher, Reversing Early Losses (Wall Street Journal)

Global stocks climbed Tuesday, while the dollar strengthened against the euro and yen.

Shares, dollar climb as markets play Fed waiting game (Reuters)

European shares were heading for their best day in over a month on Tuesday as the waiting game to see whether the U.S. raises interest rates again next month sent the euro to its lowest since March.

Asian shares had stumbled to near 2-1/2-month lows ove...

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Swing trading portfolio - week of May 23rd, 2016

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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Kimble Charting Solutions

Gold- Two-thirds odds prices fall on a support break

Courtesy of Chris Kimble.


Since the peak in 2011, Gold remains in a downtrend, creating a series of lower high and lower lows.

Gold’s rally in 2016 is attempting to break this 5-year falling trend, as it is attempting to break a series of lower highs.

Over the past 6-months, Gold could be creating a rising wedge pattern. This pattern two-thirds of the time, suggests lower prices are ahead.


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Digital Currencies

The Biggest Bitcoin Arbitrage Ever?

Courtesy of Chris at CapitalistExploits

Do you remember when you were growing up and all your friends were allowed Atari game consoles but you weren’t?

Well, I do and the things seemed as foreign to me as Venus. Mostly because the little time I managed to spend on the gaming consoles when my friends weren’t hogging them I found it all a bit silly. I never “got” computer games, and to this day still have poor comprehension of things like Angry Birds.

I suspect that many people around the world view Bitcoin in the same way as I view Angry Birds: with mild amusement and a general lack of understanding as to what the hell all the fuss is about.

I was thinking of this since a buddy of mine recently started ...

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All About Trends

Mid-Day Update

Reminder: Harlan 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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This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again



After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.


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Mapping The Market

About that debate last night

Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,

The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now. 

And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now. 

Phil writes back,

I was expecting them to start throwing poop at each other &n...

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PSW is more than just stock talk!


We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more! features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...

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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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