Phil's Newsletter

Just Another Manic Monday

Image result for Sell the house, sell the car, sell the kids wool"SELL EVERYTHING!"  

That's what Jeff Gundlach of DoubleLine Capital is telling people this morning as he said many asset classes look frothy and his firm is hanging onto gold to hedge their cash, saying:

"The artist Christopher Wool has a word painting, 'Sell the house, sell the car, sell the kids.'  That's exactly how I feel sell everything. Nothing here looks good, Gundlach said in a telephone interview. "  The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong."

Well, halfway through summer vacation, he had me at "sell the kids!"  Gundlach is not alone, however.  Now Goldman Sach's (GS) Christian Mueller-Glissmann has gone outright bearish, with a "tactical downgrade to equities for the next 3 months."  Here is the reasoning behind Goldman's creeping sense of gloom: 

  • The rally in risky assets over the past few weeks has continued n and broadened – the S&P 500 has made all-time highs, the VIX has fallen, bonds and ‘safe havens’ started to sell off, and cyclicals have outperformed defensives.
  • We think a key driver of the recovery has been a combination of the light positioning into Brexit and the search for yield amid expectations of easing.
  • However, given equities remain expensive and earnings growth is poor, in our view equities are now just at the upper end of their ‘fat and flat’ range.

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Friday Fizzle – BOJ and GDP Disappoint Investors, Again

M-m-m-m-my Kuroda!  

As you can see from the Nikkei chart – it's been a wild morning already as the BOJ ended up doing nothing, sending the Nikkei down 600 (3.6%), then back up 600, then down another 600 then back up 300, down 300 up 500 and now settling down 120 overall – what a mess!  Imagine what would happen if they ever tightened (don't worry, not going to happen). 

Still, lack of loosening is tightening as far as Japanese traders are concerned and the Yen blasted 2.5% higher, which is about as much as a currency ever moves in a single day and we're back to just 103 Yen to the Dollar, well below the 110 the BOJ and the Keiretsu demand to keep the exports flowing.  

The BOJ left the door open for more easing at the September meeting by saying there would be a "comprehensive assessment" on the effects of easing but I think the Western Press is misinterpreting it as the Japanese don't like to say no and this, to me, sounds like a no, which is not surprising given the INSANE amount of easing they've already committed (yes, like a crime) in the past 2.5 years of Abenomics.

Sure it's only Yen but 400Tn of them begin to be real money – close to $4Tn, which is about the balance sheet of our own Federal reserve except that our GDP is $20Tn and Japan's GDP is now less than $5Tn and falling fast.  Nonetheless, no matter how low rates go in Japan (-0.1% now) – they have been unable to dissuade people from buying JGBs – after all, getting 99% of your money back after 10 years keeps you well ahead of their 0.4% annual deflation, right?

This is not the CPI chart of a healthy economy folks and Japan is $12.5Tn in debt which is, if you care to count 1,287,000,000,000,000 Yen – that's 1.287 QUADRILLION Yen in debt – not even Zimbabwe had enough fake money to cover that sort of deficit and Japan is adding another 10% of the GDP ($500Bn) to the debt pile every year.  This is why the BOJ seriously
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Thursday Failure – Fed Does not Inspire the Bulls with Inaction


That's what we got from our Fed yesterday in a statement that held no new action and not indication of when there would be action and nothing is no longer good enough to sustain record high market levels – especially with the very mediocre earnings that are being delivered in the broad markets

As you can see from the Fear and Greed Index, the greed is still fairly extreme and the complacency is extreme too with the VIX down under 15 this morning and Treasuries (TLT), which we're short on, are still up at the $140 line post-Fed – as if they still might turn around and loosen further than they already have.  

Arguing for the loose camp, the Atlanta Fed released their GDP Now Forecast for the end of July and Q2 has been downgraded 40% from 3% to now 1.8% over the course of the month so now we understand why the Fed didn't raise rates yesterday – the economy is much worse off than people have been supposing! 

Evolution of Atlanta Fed GDPNow real GDP forecast

Since the BS upgrades began (which we said were BS all the way up) in May, the Dow has gained 1,000 points, from 17,500 to 18,500 and the S&P is up from 2,050 to 2,165 and those are both ridiculous in a flat economy and it was these RIDICULOUS upgrades to GDP outlook that acted as the catalyst to turn us around in the first place!  Here's my commentary on the subject from May 27th (GDP Friday – Yellen Spins Us Into the Holiday Weekend):  

…now we have the Atlanta Fed providing supporting data as they have raised their GDP Now forecast by 100% this month.  

Forget the fact that the core Durable Goods were terrible or that Auto Sales are falling off or that Consumer Comfort is

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Wild Wednesday – Japan Drops 28Tn Yen Stimulus Bomb Ahead of the Fed

What a morning already. 

Japan's PM, Shinzo Abe made a surprise announcement of a 28 TRILLION Yen stimulus package just two days ahead of the BOJ meeting.  28Tn Yen is "just" $265Bn but Japan's economy is 1/4 the size of the US, so think of it as a US $1Tn stimulus – that is impressive by any measure! 

As you can see on the chart, it's been a muted reaction by the Yen so far as we wait for details on Abe's plan, wait for our own Fed to make a decision (2pm) and then wait for the BOJ's decision on Friday so a lot of waiting is in our immediate future and, meanwhile, let's talk about yesterday and yesterday's FANTASTIC call to short the Futures at:

  • 18,450 on the Dow (/YM), low was 18,311 for a $659 per contract gain
  • 2,165 on the S&P (/ES), low was 2,154 for a $550 per contract gain
  • 4,650 on the Nasdaq (/NQ), low was 4,640 for a $200 per contract gain

The Russell never went below our shorting line at 1,205 but we ran up to 1,213 and I called a short there in our Live Member Chat room and we caught a dive back to 1,205 for an $800 per contract gain on that one – TWICE! 

Today we're looking much higher with the Russell over 1,215, Dow 18,450 again, S&P 2,167.50 and the Nasdaq is testing 4,700 (/NQ Futures) thanks to an upside surprise from Apple's earnings report.  AAPL is a key long at PSW and yesterday morning I said to our Members:

AAPL/Selozi – Talk about stupidly undervalued stocks.  I hope AAPL misses so we can double down on our longs but expectations are so low, I'm not sure they can miss them.  36 analysts cover this stock and they are expecting just $42Bn in sales, off 15% from last year's $49.6Bn.  Will be very interesting to see what actually happens but the stock is already down 30% from last summer's $130, even though they

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Technical Tuesday – You Call That a Correction?


That's our shorting line on the S&P 500 Futures (/ES) and the significant line below that is the S&Ps 15% line on our Big Chart at 2,127.50 so that's the range we'll be looking for if we're going to have the beginnings of a proper correction.  Anything less than that is just a blip as we consolidate for (and I hate to say it) a move higher.

Of couse, we don't need to go all the way back to 2,127.50 to make money.  Last Thursday, we laid out our shorting lines from our Live Member Chat Room, right in the morning post and they were (and still are):

18,500 is lined up with 2,165 on /ES, 4,650 on /NQ and 1,205 on /TF, we want to see them all below to play a short.  

Then on Friday, I noted we made a profit of $500 per contact at 2,155 so of course we did it again when the levels broke again yesterday.  Learning to make money in the markets is a lot like learning to be a great stage performer – you learn your part, do it well and then learn to consistently repeat your performance over and over again.  Much like most rock bands – no one in the audience is interested in your new stuff – just play the hits please! 

S&P Futures expire in September and sentiment has them trailing the actual index, which finished at 2,168.50, 6.50 above the Futures levels, so keep that 6.5-point difference in mind when we're looking at the S&P chart and talking about the headline levels vs. the Futures.

As you can see from the hourly S&P chart,  yesterday's 13-point dip hardly registers in the bigger picture and we're still costing along the upper end of the 50-hour moving average at the top end of the bullish range.  It's going to take more than a blip like that to scare off the dip buyers – who have been rewarded by the Fed(s) for their aggressive behavior pretty much since 2009!

There's not much to do but watch and wait ahead of our Fed's announcement on Wednesday afternoon and the BOJ on Friday morning and we can expect to drift along near the highs at least until we year from our own Central Bank tomorrow. 


Monday Monetary Madness – G20 Promises to “Fix” the Markets

What a World, what a world

Unlike the wicked witch, who uttered that phrase during the previous Global Depression, liquidity has been good for the markets so far as the World is swimming in it and, even this week, more is expected from the Bank of Japan on Friday.  The entire G20 got together this weekend and promised to use "all policy tools" to lift global growth:

"While the weekend's signals from the G20 meeting in China were welcome, investors were bracing for a hectic week that includes a U.S. Federal Reserve meeting, European bank stress tests and what could be another super-sized slug of stimulus from Japan. 'The Bank of Japan is really the one that is front and centre this time with the all talk around 'helicopter money," said TD's Richard Kelly, "if they disappoint, which I think is probably more likely, then we are likely to see risk assets coming off.'"

I've been calling for CASH!!! all summer and so far, so wrong on that one as we make fresh record highs pretty much every day since the Brexit but now Goldman Sachs (GS) has decided to agree with me, putting out their own 5-point warning to clients:

  1. Valuations are already at historical extremes. The S&P 500 trades at a forward P/E of 17.6x, ranking in the 89th percentile since 1976. At 18.4x, the median constituent ranks in the 99th percentile. Most other metrics such as P/B, EV/EBITDA, and EV/Sales paint a similar picture. These valuations are only justifiable because of the historically low interest rate environment.
  2. Zero profit growth is not consistent with high stock valuations. Sluggish global growth and low inflation along with negative interest rate policies in Europe and Asia have led to record low US bond yields. Consistent with this backdrop, 2Q results will show the seventh consecutive quarter of declining year/year operating EPS (-3%, but +1% ex-Energy). Despite near-record margins, adjusted S&P 500 EPS have been flat for three straight years.
  3. Many Financials will have lower profits if low interest rates persist. Historically low yields squeeze the net interest income of banks and make liabilities harder to meet for insurance companies. Our Bank equity research team this week cut their EPS forecasts by 5%-7%. The fall in Treasury yields explains most

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Friday Fallout – Yes, the Markets Can Go Down As Well As Up!

What a week.

Congratulations if you caught our call to short the Dow at 18,500 yesterday morning, that was good for a profit of $500 on each contract as we tested 18,400 in the afternoon – not bad for a day's work!  Our other winning short index calls were:

  • 2,165 on the S&P Futures (/ES), which fell to 2,155 – up $500 per contract
  • 4,650 on the Nasdaq (/NQ), which fell to 4,630 – up $400 per contract 
  • 1,205 on the Russell (/TF), which fell to 1,198 – up $700 per contact

As you can see from the Dow chart above, we took a few losses poking short on the Dow during the week but it's all worth it when you catch a big winner on the way down.  This morning, of course, we're moving back up on no volume – which is why we end up shorting in the first place.   

Per our 5% Rule™, the week's fall from 18,550 to 18,400 is 150 points so a weak bounce is 30 points to 18,430 and a strong bounce is 60 points to 18,460 and 18,475 is the 50% line, which is where we'd poke short again with very tight stops and then, once the strong bounce line fails – we'd look for shorting opportunities at the strong bounce lines on all our indexes again.

Despite successfully playing for a bounce on oil and gasoline in yesterday's Live Member Chat Room, we are generally expecting a repeat of last Fall's fall and that is going to be bad news for the broad market as there is already a severe disconnect between Energy Sector stocks and the price of the energy they sell.

Like much of the S&P, a combination of financial engineering (and note that Business Insider is now a lot more critical of Microsoft's (MSFT) earnings than I was on Wednesday) and completely irrational exuberance has led to unrealistic valuations that even the loosest of Fed models won't be able to sustain.  With Exxon (XOM) and Chevron (CVX) both heavy Dow…
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Thursday Failure – BOJ, ECB Go On Hold, Disappointing Bulls

No more easing?

The BOJ's Koroda said this morning that there is "no need and no possibility for helicopter money."   That's a pretty firm line in the sand and, as you can see on the Nikkei chart, it led to a very quick 425-point sell-off (2.5%) which is in the process of failing the strong bounce of 170 points from 15,575 to 16,745 and failing the weak bounce again at 16,660 will be a bad sign for the /NKD Futures according to our fabulous 5% Rule™.

We're wathing the Nikkei but we already shorted the Dow and the US indexes in our Live Member Chat Room this morning, when I said to ur Members:

18,500 is lined up with 2,165 on /ES, 4,650 on /NQ and 1,205 on /TF, we want to see them all below to play a short.  

I have been saying for some time that the Central Banks have reached the end of the line on QE but clearly the bulls in the market did not believe me and our recent attempts to short the Dow have not ended well but now the ECB has also put rates on hold this morning and that paves the way for the Fed to RAISE rates at their next meeting (next Wednesday, 27th).

We'll see how the markets actually react to the end of the Free Money era.  It certainly needed to happen as we've been on a path to insanity and it's a lot better to begin a controlled deceleration of QE than to keep priming the pump until the bubble explodes in our faces.  How the markets will react to a mature decision remains to be seen.

Draghi, of course, is still talking a big game, saying the ECB stands ready to do something while, as usual, doing nothing.  Those who thought Brexit would lead to more QE will be bitterly disappointed but perhaps their too-early buying frenzy in aniticipation of ECB action was itself a factor in deterring the ECB from acting?

The IMF has issued an urgent call for the G20 to "adopt policies to boost growth and avert a global slowdown" saying Governments should be prepared to provide fiscal stimulus while the…
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Wednesday Weirdness – Microsoft Rallies 5% After Failing the GAAP

Generally Accepted Accounted Principles (GAAP).

According to Investopedia: "GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognitionbalance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!"

Let's keep those guidlines in mind as we discuss Microsoft's (MSFT) earnings last night as they are a fine expample of the kind of BULLSHIT that is permeating the market these days.  MSFT's GAAP Revenue was $20.6Bn and GAAP Earnings were 0.39 per share, missing by a mile but, after adding back "Windows 10 deferrals to revenue" and "impairment, integration and restructuring charges", they are able to boost their non-GAAP reported earnings to $22.6Bn and that extra $2Bn of revenues, which were actual expenses but have been erasted from the report, drops straight to the non-GAAP bottom line and almost doubled non-GAAP earnings to 0.69/share – a nice beat! 

And that's not the end of it as MSFT also made non-GAAP (non-Generally Accepted) adjustments to their taxes and reports that they will only pay $225M on $3.3Bn in earnings (7%).  We can be outraged about this on many levels but the earnings weren't real so it's really not fair to expect them to pay taxes on their fake earnings, is it?  It is, however, "fair" to expect invesors to pay $55 for the stock this morning, up from $53 yesterday based on all these fake earnings.  After all, the investors are just suckers, born every minute and growing up to hold the bags. 

Microsoft is part of the Big Con, which is moving the whole market to all-time highs.  It's a significant stock on all the indexes so it will lead us higher this morning – even as the broad market continues to sell off as the big boys run for the exits during this "rally".  By holding up just a few large-cap stocks, the Fund Managers and Banksters can cover their tracks as they sell off the rest of their holdings – all the while
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Testy Tuesday – DAX 10,000, Russell 1,200 Again

Watch Germany's DAX closely:

That 10,000 line is hyper-critical – it's their Must Hold Line and, as you can see on the daily chart – it's barely been holding and just failed again this morning as Germany's ZEW Economic Sentiment survey showed a horriffic post-Brexit (July 4-18) drop to -6.8 from +19.2 in June and miles below the forecast of leading economorons, who expected +9 as the DAX rallied 800 points during the period in question.

Even worse was the assessment of Eurozone Sentiment, which fell from 20.2 in June to -14.7 in July.  This indicates that Europe is not out of the woods just yet and we, at PSW, certainly got that impression from the way the Euro Stoxx Index failed to get back over 3,000 last week but, so far, we are still alone in our bearish veiw of the market.

Volume on the S&P ETF (SPY) yesterday was 54M, a new record low for the year and about half the average volume for 2016, which is less than 2/3 of 2015s average volume so, if you are buying stocks – you're pretty much alone these days.  I gave a little lecture on why low volumes lead to stock rallies in our Live Trading Webinar and it's things like this that keep us in CASH!!! and on the sidelines – because this whole move up (8.5%) since the Brexit downturn has come on extremely low volume.

SPX DAILYAs you can see from Dave Fry's note on Friday's S&P chart, volumes have been going down and down and the only "people" buying are the Central Banksters, who are desperately propping up the markets lest people begin to panic and start causing liquidity crises which the CBs are in no condition to deal with at the moment.

Unfortunately, while it's easy enough to push the market to record highs when Central Banks step in and begin buying up equities – sustaining them there is quite another story and here's why:

Let's say you have a car lot with 100 VW Beetle Convertibles and you bought them for $20,000 and you hope to sell them for

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Zero Hedge

Oops! The Economy Is Like A Self-Driving Car

Courtesy of ZeroHedge. View original post here.

Submitted by Gail Tverberg via Our Finite World blog,

Back in 1776, Adam Smith talked about the “invisible hand” of the economy. Investopedia explains how the invisible hand works as, “In a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large.”

We talk and act today as if governments and economic policy are what make the economy beh...

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Phil's Favorites

Zero Percent Down Loans in a Raging Bubble: Didn't We Try This Before?

Courtesy of Mish.

Australian parliament member Andrew Broad wants banks to accept zero percent down loans.

New.Au calls the proposal a “creative idea”.

Please consider First homebuyers with a good rental history shouldn’t have to save a deposit, Federal MP says.

IS THIS the lifeline struggling first home buyers have been waiting for?

Well, it’s certainly one of the more creative solutions to the country’s housing affordability crisis.
Federal Nationals MP Andrew Broad has suggested banks should forgo a deposit from first homebuyer...

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Chart School

RTT browsing latest..

Courtesy of Read the Ticker.

Please review a collection of WWW browsing results.

Date Found: Wednesday, 13 July 2016, 03:17:09 PM

Click for popup. Clear your browser cache if image is not showing.
Comment: .."But, investors truly wonder if the moves are sustainable. As we have stressed, the valuation on Utilities looks stretched..."... RTT: No kidding!!

Date Found: Monday, 18 July 2016, 03:28:53 AM

Click for popup. Clear your browser cache if image is not showing.
Comment: Catherine Austin Fitts-The Debt Game Is Over

Date Found:...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Commodities Have Been Down So Long It May Be Time To Snap Them Up (Forbes)

The post-crisis years have not been good for real assets, the catchall term for commodities, energy, real estate and other investments based on selling real things instead of clever ideas.

A trader psychologist who consulted on Showtime's 'Billions' reveals the biggest mistake traders make (Business Insider)

Denise Shull is a decision coach and performance architect who consulted on Showtime’s&nbs...

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GNC Suspends Dividend: An Important Lesson on Dividend Safety

By Simply Safe Dividends. Originally published at ValueWalk.

GNC (GNC) surprised many income investors when management recently announced that the company’s dividend will be suspended.

After all, GNC has been in business for more than 80 years, maintains a payout ratio below 40%, generates solid free cash flow, and even increased its dividend every year since it began paying one in 2012 – including an 11% boost just last year.

These are some of the qualities we look for when evaluating companies for our Conservative Retirees dividend portfolio.

None of these strengths mattered, however.

GNC’s double-digit yield was wiped out immediately, adding insult to injury after the stock’s 70%+ decline over the past year.


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Swing trading portfolio - week of February 20th, 2017

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


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Digital Currencies

How to Use, Trade, Store and Invest in Bitcoin Digital Assets - Step by Step, Part 1

By Reggie Middleton

(Originally published on Zero Hedge)

I will teach novices and experts alike how to fit Bitcoin into an investment portfolio safely and with the optimum risk-adjusted potential - along with step-by-step guides, instructions and tutorials.

This first part of the series starts with the basics, obtaining and managing your bitcoin.

What is Bitcoin?

First off, we need to know what Bitcoin is since most media pundits and even experienced financial types truly do not know. Bitcoin (capital "B") is a protocol driven network (very similar to that other popular protocol-based network, the Internet). This network is a blank tapestry upon which smart and creative actors can paint a cornucopia of applications (just like applicat...

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Kimble Charting Solutions

Fear Indicator; Hitting highest levels in history, says Joe Friday

Courtesy of Chris Kimble.

Markets have been on a steady rise and the same can be said for Inverse Fear ETF (XIV). Below looks at Inverse Fear ETF (XIV) since the lows in 2011.


What a difference a year can make! One year ago this week, XIV was testing rising channel support, as relative momentum was hitting levels last seen at the 2011 lows.


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Members' Corner

Save Your Relationship?

Courtesy of Nattering Naybob.

Once again it's "in the Toilet Thursday" or "Thursday's in the Loo".

Our last episode How to Poop At Work? answered the question, what to do when your at a big fancy pants meeting, when out of nowhere, you need to download a brown load?

This week's installment, Save Your Relationship, demonstrates that people will do just about anything to save their relationshits...


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Mapping The Market

NSA May Be Withholding Intel from President Trump

By Jean Luc

These GOP guys were so worried about Hillary's email server and now we find out that we had something close to a Russian mole in the White House. In the meantime, Trump keeps on using his unsecured phone, had high level conversation in his resort in front of dinner guests! It's getting so bad that rumors are now circulating that the NSA is not sharing information with the WH:

NSA May Be Withholding Intel from President Trump


….Our spies have had enough of these shady Russian connections—and they are starting to push back….In light of this, and out of worries about the White House’s ability to keep secrets, some of our spy agencies have begun withholding intelligence fro...

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Phil's Stock World's Las Vegas Conference!

Learn option strategies and how to be the house and not the gambler. That's especially apropos since we'll be in Vegas....

Join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017            

Beginning Time:  9:30 to 10:00 am Sunday morning

Location: Caesars Palace in Las Vegas


Caesars has offered us rooms for $189 on Saturday night and $129 for Sunday night but rooms are limited at that price.

So, if you are planning on being in Vegas (Highly Recommended!), please sign up as soon as possible by sending...

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The Medicines Company: Insider Buying

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

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene




Insider transaction table and buying vs. selling graphic above from

Chart below from


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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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FeedTheBull - Top Stock market and Finance Sites

About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>