Phil's Newsletter

Told You So Tuesday – How Low Can the Markets Go?

Clearly you can't say I didn't tell you so! 

Just last Thursday, I titled the morning post "Rally Almost Out of Gas" and the next day we fell and I looked really smart but then we recovered and people said "see, you were wrong" and now we're down 1% in the Futures this morning and I'm right again.  The point, however, is not to be right or wrong on any given day but to PROTECT our portfolio with sensible hedges and THAT is what Thursday's post was all about.

We also did a Live Trading Webinar Thursday afternoon, where we discussed our idea to short the S&P (/ES Futures) at the 2,050 level and, as you can see from the chart, that led to a $500 per contract win at 2,040.  We also made $225 trading the Futures during the Webinar for our Members and that was our WORST performance for the month of March – when every Webinar was a winner.  We spoke extensively about using Futures and hedges to balance our portfolios near the end of the Webinar. 

That morning (Thursday), we added 100 SDS Sept $16 calls to our Short-Term Portfolio at $3.10, against which we sold the Sept $22 calls for 0.90, putting us in the $6 spread for net $2.50 with a $35,000 upside potential and we already have a July TZA spread for additional protection so we're essentially just amused by today's little pullback – nothing at all to panic about.  

In fact, we still haven't broken down enough to start taking our longs off the table, though we did sell a lot of calls against our existing positions to protect ourselves (and collect some CASH!!! while we wait).  CASH!!! is, by far, our favorite position at the moment and all 4 of our virtual tracking portfolios are stuffed with it.  In fact, our main Long-Term Portfolio has more cash ($890,000) than value ($878,000) thanks to all the short puts we sold.  

I already sent out an extensive market report early this morning so I'm not going to repeat myself analyzing today's move (it was also tweeted).  The most important parts are:

What a start, Europe is down

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Monday Market Movement – Earnings Preview and Trump’s Recession

Things are not that good.  

This weekend, respected business leader and leading GOP Presidential Candidate, Donald Trump, warned that the US is heading into a "very massive recession" and that "a combination of high unemployment and an overvalued stock market had set the stage for another economic slump.  I think we’re sitting on an economic bubble. A financial bubble," the billionaire businessman said in an interview with The Washington Post published on Saturday.  The Donald says unemployment is much higher than 5% and the Government is lying to us.  

"We’re at an (unemployment) number that’s probably into the twenties if you look at the real number,” he said, adding that the official jobless figure is "statistically devised to make politicians — and in particular presidents — look good."  Trump said “it’s a terrible time right now” to invest in the stock market."  

btnyrep.jpgDon't forget, whether you agree with him or not, 50% of Republican voters do and that's about 70M of our fellow Americans who believe we are heading into a VERY MASSIVE Recession – that's going to put somewhat of a damper on their long-term outlook and likely to affect their spending patterns.  Even worse, Stan Druckenmiller of Soros' Quantum Fund, one of the most successful hedge funds of all time (now closed/private) agrees with my Friday post and says:


"When I look at the current picture of expected tax revenues combined with benefits promised to future generations,this is the most unsustainable situation I have seen ever in my career."

Personally, I was trying to keep a bit more of a positive spin on things but Stan is…
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April Fools – Market Window Dressing is Over, Now What?

And now reality sets in.  

It's becoming more and more clear that the stock market emperor has no clothes – and no earnings either and more and more people are starting to catch on.  To some extent, that's a good thing as the misallocation of capital can finally stop and we can get back to investing in productive things – not just instruments of financial engineering.  Unfortunately, it's likely to be a painful transition and we do expect a bit of a correction in the market, probably back to test 1,850 on the S&P next month, which hopefully will hold.  

For the past 5 years, Corporate America has been on a drunken binge of stock buybacks that have left them with mountains of debt, albeit at very low interest rates.  Spending $2Tn buying back their own stock instead of inventing new products and building new factories is what leads to the outsourcing of manufacturing to other countries, where they still believe in the basics.  In the short-term, it makes Corporate Profits LOOK better by reducing the share count but, in the long run, the debt rolls over at higher rates and the company, like our country, is saddled with massive debt payments that prevent it from being able to invest in the future.  

At the same time, we've already passed the peak of Corporate Profits in real terms, as noted on this Fed chart, and ONLY the reduction in share count engineered by Trillions in buybacks have prevented this from severely impacting the p/e ratios of the market – just as an M&A boom masked the underlying problems corporations were having ahead of the 2008 crisis.  

To some extent, these are normal business cycles as we moved from the Tech Boom of the 90s to the Housing Boom of the 00s to the stimulus boom of the 10s and now we're back in the bust phase so, as the great Clayton Williams would say: "If it's inevitable, just relax and enjoy it."  

Baby Boomer franchise opportunitiesWhat's also inevitable is how screwed we are demographically as we
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Federally Fueled Thursday – Rally Almost Out of Gas

One BILLION Dollars!  

That's how much ADDITIONAL money the ECB begins pumping into the markets as of tomorrow morning per Draghi's 33% increase in QE.  That means, of course, he was already pumping $3Bn/day into the markets and that didn't help but, clearly, investors believe somehow that this is going to be the straw that puts the camels back back together – or whatever it is unrealistic people believe these days

Over in Asia, stocks are headed for their biggest monthly gain since October as our own Federal Reserve Chairwoman has indicated she is in no hurry to lift U.S. interest rates either and, of course, the FREE MONEY continues to flow in Japan and China – what could possibly go wrong? 

“A lot of the recent rebound has been down to the Fed back-tracking on rate hikes,” Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion, said by phone. “We’ve seen a big rally but there are still some genuine worries out there. Markets had been overpricing some of the risks, whereas now they’re probably underpricing them.”

While Yellen’s dovish message from Tuesday continued to reverberate, Chicago Fed President Charles Evans signaled the central bank would tolerate above-target inflation for a “brief period” amid threats to American expansion from a slowing global economy. Futures now show no chance of the Fed altering monetary policy next month and only 45 percent odds of a rate increase by November.

Speaking of Futures, we took the money and ran yesterday on our Futures trades from last week's Live Trading Webinar.  In case you missed it (replay available here), we added Silver (/SI) at $15.2375 and got out yesterday at $15.395 for a $3,150 gain on the week and we also added Natural Gas (/NG) at $2.081 and took that money and ran at $2.212 for a $2,620 gain.  Add that to the $400 we made during the webinar session and that's +$6,170 gained in seven days after spending 90 minutes watching our Webinar!  

We're doing another one for our Members at
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Wednesday – When Fed Doves Cry, the Market Flies

How can you just leave me standing?
Alone in a world so cold? (World so cold)
Maybe I'm just too demanding
Maybe you're just like my mother
She's never satisfied (She's never satisfied)
This is what it sounds like
When doves cry

Janet Yellen could not have been more doveish yesterday.


In what was effectively a sharp rebuke of the recent speeches by Fed hawks, the Fed Chairwoman talked down the economy, pointed out global weakness and other potential dangers that will, if nothing else, keep the Fed on a very slow path towards raising rates.  Some Fed watchers thought Yellen's message was murkier than usual and raised doubts about the central bank's forecasts and monetary path.   

"Janet Yellen gave her audience limited lip service to 'baseline' projections and expectations for dual mandate improvement and rate normalization, but carpet-bombed her audience with possible downside caveats. In so doing, she created the distinct impression that she had little confidence in the Fed's baseline outlook," wrote Ward McCarthy, chief financial economist at Jefferies, in a note.

SPX DAILYAs Dave Fry notes:  "Fed Chair Janet Yellen has it both ways—she continues to suggest U.S. economic growth is “solid” but says global growth is weak (China) hence, raising interest rates will be measured or slow.  This is mana for bulls which then means bulls can play and so too can other markets. Since growth is slow, even in the U.S., this is the cover the Fed has to please Wall Street, voters and bulls.

"Who is she kidding?   No matter the contrived BS bulls now can assume the recent recovery rally was well-known by insiders on Wall Street.  We have some substantial positions in stocks since tape action is the discipline we must follow even as we rage against obvious dishonesty and the machine.  The assurance of lower interest rates also benefits commodities with commodities overall especially gold but not crude oil, at least this day."

That's the page we were on in last
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Tricky Tuesday – Tell Us About It Janet!

Yellen speaks at 11:30.

That's all you need to know for the day.  Williams already failed to boost the Futures at 5:15, when he gave a speech on monetary policy in Singapore when the generally doveish Fed head said

“Despite recent financial market volatility, my overall outlook for both the U.S. and the global economy remains largely unchanged over the past few months.  We took the first small step with a modest rate hike in December, and the future pace will be, as we’ve said repeatedly, gradual and thoughtful.”

“I see continued growth in the U.S., and I don’t see the global situation as dire,” Williams said. “The ability of governments and central banks to respond to their own needs while navigating global conditions may not be a miracle cure, but it offers stability.”

Things were already off to a rough start this morning as China's Shanghai Composite Index fell back below 3,000 and Oil Futures dropped back to $38.50 (/CL), where we like playing them long for a bounce with tight stops below that line.  Just getting back to $39 would be good for $500 per contract – more than enough to pay for our breakfast!

We're not expecting Yellen to say anything that boosts the Dollar as she recently said that the shaky start to 2016 had not significantly changed the Fed's outlook and that outlook has since dimmed.   In fact, the Atlanta Fed's GDP Now forecast, which takes a constant pulse on the economy, has fallen off alarmingly for Q1 and, as you can see from the chart – most analysts still have their heads in the clouds (or up their asses!). 

gdpnow forecast evolution (2)

 $38.50 has been good support for oil and is close enough to the $37.50 bottom of our range (detailed in Thursday's post, when we were shorting it) that it's worth a poke – especially with the OPEC meeting just two weeks away (4/14).  

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Meaningless Monday Market Movement

Most markets are closed today.

For some reason, the US takes Good Friday off and not Monday, which is better, because then you get to come back to a short week, which feels like another vacation. Anyway, this is going to be a wild week as we have 5 scheduled Fed speakers and the Fed Minutes on Wednesday.

Not too much happened over the weekend, other than Microsoft unleashing an Artificially Intelligent ChatBot on Twitter that quickly turned into a racist Trump supporter before having its plug pulled after just 15 hours of freedom.  The other big news of the weekend was Bernie Sanders crushing Hillary in Washington, Alaska and Hawaii, taking over 70% of the vote in each state.  Meanwhile, the GOP candidates continued to slander each others' wives.

Don't forget, we're heading into the end of the month/quarter, so we're expecting great efforts to be made propping up the markets into our Q1 earnings reports in April.  It's a pretty busy data week and, this morning, we got a good report on Chinese Industrial Profits which, unfortunately, makes no sense given the other data we've seen but, as I said, all the stops will be pulled out this week to give us a positive quarter to start the year.  

In addition to what you can see on the calendar, Charlie Evans speaks on Thursday afternoon but Lacker has the last word on Friday and he's all about raising the rates ,  so we'll be sticking with our hedges regardless this week.  On the whole, we are not expecting great things from earnings and the Central Banksters have Already played the stimulus card to save March – what's left to save April?  Perhaps the Fed Minutes will offer a clue.

California moved to make the minimum wage $15 over the weekend and that is fantastic news for workers – in 2022, when they finally take effect.  Well, if workers are lucky, we will have deflation over the next 6 years and  it will seem like real money.   That deflation is far more likely if we continue to delay paying our workers living wages.

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PhilStockWorld March Portfolio Review (Members Only)

$1,347,359 – that's up 124% in just over 2 years!

More importantly, our paired and balanced Long-Term and Short-Term Portfolios are up 34% since our December review and, essentially, they are the same positions – especially in the LTP, which has gained $210,056 (35%) in the 3 months since 12/13 – and those are the positions we don't touch at all and, more importantly, those are the positions which make up the bulk of our portfolio allocations – as they are meant to be INVESTMENTS – not trades!  

To you day traders out there – I implore you  - please read the December review and look over those positions and check out those same positions 3 months later and CONSIDER – please consider – that day-trading may not be the best way to play the market.  Yes, the LTP goes up and down too but, when it's down, we have cash on the side to buy bigger positions (which is what we did last year) while they are cheap.  Since those positions are INVESTMENTS, we end up with something of great value when the market comes back.


With day trading – even the best day traders spend 1/3 of their time trying to win back what they've lost and the stress level of day trading is through the roof compared to our very simple, long-term, Be the House – NOT the Gambler strategy.  Even our ultra-conservative, ultra low-touch Butterfly Portfolio popped from $181,075 to $238,800, a gain of $57,725 (57.7%) in 3 short months.  Admittedly, we went off book and got aggressive in the Jan dip, as we expected another round of drastic Central Bank action to save the market – and it did.  

I'll tell you now that, on the next breakdown, I will be nowhere near as confident flipping bullish.  I think the CBs are almost out of ammo and already their moves smack of desperation so I'm now leaning towards a lot of hedging (we did some of that last week) or just getting the Hell out with our massive gains and starting again in the Fall (or whenever we get another nice dip).  I don't mind going to CASH!!!, having a fantastic, relaxing summer and then coming back in the Fall…
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Falling Thursday – Futures Down and Our Hedges are UP $7,300

SPY 5 MINUTEThis is what hedging is all about! 

In yesterday's morning post, we listed our shorting line for the Futures saying: "Meanwhile, we're STILL shorting at those same lines we laid out Monday and this morning they are working yet again but, so far, it's been nickels and dimes against quick reversals.  I still think a major sell-off is a lot more likely than a major rally but so far, so wrong."  In our Live Trading Webinar at 1pm, we made our Members another $400 playing the bounce (more this morning as Silver is flying higher) while our short lines were:

  • Dow (/YM) Futures short at 17,500, now 17,350 – up $750 per contract 
  • S&P (/ES) Futures short at 2,042.50, now 2,017.50 – up $1,250 per contract 
  • Nasdaq (/NQ) Futures short at 4,435, now 4,375 – up $1,200 per contract 
  • Russell (/TF) Futures short at 1,091, now 1,065 – up $2,600 per contract 
  • Nikkei (/NKD) Futures short at 17,000, now 16,700 – up $1,500 per contract 

The Nikkei is not a great short as the Dollar will rise when our markets fall and, if oil fails to hold $40, it will likely take the Dow with it – so we'll keep an eye on that.  Our trading rules are very simple, we look for

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Why Worry Wednesday – Terrorism Doesn’t Matter?

I think it's amazing

They caught the Brussels bomber (the one that didn't blow himself up) and there was an extra bomb, so he could have killed more people – yet the markets in Europe are UP this morning.  Sure it's nice they caught the guy, and they say it's the same guy who mastermined Paris, but the fact that he's 24 years-old and that ISIS has 30,000 other core members SHOULD bother people – at least a little.  

When the markets are back near their all-time highs, I tend to look for things that can go wrong and it's kind of strange to think that terror attacks on major cities is not one of those things. Our near-total detachment from reality reminds me of a scene in the movie "Brazil", where rich people are having lunch and the restaurant is bombed and they simply go on eating amidst the horror, only mildly inconvenienced. Is that the world we're aiming for? Seriously?  

Neverheless, as you can see, the VIX, the "fear index" has continued it's March march lower, down almost 50% from it's February peak. The only thing the markets actually fear is that the Central Banks will stop the endless flow of FREE MONEY that is flying off the presses, and 13 Central Bank actions in the past 30 days say that's not going to happen any time soon (see Monday's post for the chart).

Speaking of Brazil (EWZ), corrupt President Dilma Rousseff said she will never resign and that she considers the impeachment procedure to be a coup as that country spirals completely out of control with barely 4 months to go before the August 5th start of the Olympics or, as Rousseff likes to think of it – payday!  You have to sympathize with her as all these years of bribes and kickbacks will all be for nothing if she can't be there in August to collect her take.

You might think that, like terrorism, Brazil doesn't matter but that country is possibly on the way to bankruptcy and it is the World's 7th largest economy ($2.25Tn) so I think it's going to
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Zero Hedge

Walls, Going Viral

Courtesy of ZeroHedge. View original post here.

By Chris at

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week's edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all it's glorious insanity.


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Market News

New You Can Use From Phil's Stock World


Financial Markets and Economy

Trillion-Dollar Payout May Mean Peak Largesse for U.S. Investors (Bloomberg)

A total $600 billion in share repurchases and $400 billion in dividends will be doled out by S&P 500 Index members by the end of the year, the biggest combined payout in history, according to strategists at Barclays Plc. Gravy like that is getting tougher to sustain as corporate profits suffer a six-quarter slump and cash levels begin to dwindle.

Deutsche Bank Could Be The “Lehman Moment” Of 2016 (Value Walk)


more from Paul


What Millennials Reject Is Mutant Capitalism

By The Foundation for Economic Education. Originally published at ValueWalk.

It’s not exactly news that capitalism has an image problem. Say the word “capitalist” and the image that comes to mind is of a rapacious, self-interested robber baron – less Steve Jobs or Warren Buffett, more Charles Montgomery Burns.

Among young people, the problem is even more severe. For the generation who came of age during the financial crisis, argues George Koopman of the Mercatus Centre in the Wall Street Journal:

“…capitalism isn’t about free enterprise, nor is it about the startups and innovation. When they hear the term, millennials think about Wall Street bailouts, corporate greed, political scandals and tax codes riddle...

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Phil's Favorites

Another Lehman Blunder Coming Up?

Courtesy of Mish.

Telegraph writer Ambrose Evans-Pritchard says the Fed risks repeating Lehman blunder as US recession storm gathers.

The key problem with Pritchard’s superficial analysis is the Lehman bankruptcy is about the only thing the Fed got right.

Liquidity is suddenly drying up. Early warning indicators from US ‘flow of funds’ data point to an incipent squeeze, the long-feared capitulation after five successive quarters of declining corporate profits.

Yet the Fed is methodically draining money through ‘reverse repos’ regardless. It has set the course for a rise in interest rates in December and seems to be on automatic pilot...

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Kimble Charting Solutions

Bio-Tech; In more trouble if this fails, says Joe Friday

Courtesy of Chris Kimble.

At one point in time, actually for years, Bio-Tech (IBB) was a market leader. From the 2009 lows to 2015, IBB out gained the S&P by more than 250%. Since the summer of 2015, Bio Tech has remained a leader, a “downside leader!” IBB has lagged the S&P by over 35% in the past 15-months.

Is the downside leadership over for IBB? Below updates the pattern on IBB


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Chart School

SP500 Status Pre US 2016 Elections

Courtesy of Read the Ticker.

Where have we been, what does the future look like?

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...

..."There is what I call the behaviour of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it, because, be...

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Members' Corner

The Orlando Massacre Part 3

Courtesy of Nattering Naybob.

A continuation of a Naybob of IT's Natterings from Part 1 and Part 2...

While many Christian churches expressed grief and offered free funeral services for the victims of the Orlando shooting, the fundamentalist Westboro Baptist Church held an anti-gay protest during the funeral of the victims.

But the Westboro Baptist Church's protest rally was blocked by about 200 people who formed a human barricade on the main street in downtown Orlando, ...

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Swing trading portfolio - week of October 17th, 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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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...

more from M.T.M.

Digital Currencies

Gold, Silver and Blockchain - Fintech Solutions To Negative Rates, Bail-ins, Currency Debasement and Cashless

Courtesy of ZeroHedge. View original post here.

By Jan Skoyles

I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.


more from Bitcoin


Epizyme - A Waiting Game

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

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...

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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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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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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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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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