Phil's Newsletter

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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Which Way Wednesday? Markets Drift Higher on Low Volume

SPY 5 MINUTEUp 1.25% is very impressive.  

Unless, of course, you look at the volume, which is what we usually get on a holiday.  This is why, for the most part, we are sitting on the sidelines with plenty of CASH!!! – as these low-volume market moves do not make us very confident that the "rally" will hold once activity picks up.  As noted by Dave Fry last night:

As markets were weak the previous two weeks it was the perfect time for a short squeeze and we’ve seen this numerous times over the past many months. There were also some supposed bullish comments from the IMF and (yes, them again) Greece as the Germans caved for another rescue.

But, another true thing is there was little volume in trade Tuesday, and this means little participation which to me is a negative.

We knew this going into the close, of course and I said to our Members last night (6:56 pm): 

As long as the Dollar is over 94, the Nikkei can hold up but 16,900 is our shorting line on /NKD (you are on your own in /NIY). On the others, /NQ is a great short at 4,398 because 4,400 should be tough to cross – so a good stop.  Matches with 2,080 on /ES (another good short) and 17,850 on /YM and 1,125 on/TF so those are the confirming lines.  

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Twisty Tuesday – Markets Gyrate Wildly While VIX Stays Low

What a ridiculous market.  

We're right back where we were on April 29th (2,060 on the S&P), which is still 2% below the 2,100 line while 3% (2,040) seems to be holding up well so we're consolidating at – you guessed it – the 2.5% line (2,050).  This is right where our 5% Rule™ expects us to be and we haven't broken down yet – but that doesn't mean we're not going to, so we're still loving our hedges, which are keeping our portfolios fairly neutral in all this chop

Similarly, the DAX fell from 10,500 to 9,800, which is -6.66% (thanks Lloyd!) and, as we know from the 5% Rule™, that's an overshoot and we expect a 20% (150 points) weak bounce  to 10,650 or a 40% (300 points) strong bounce to 10,100 and we're not going to be impressed by the "recovery" until the 10,100 line is held for more than a day and a rejection at 10,100 would be a bad sign:

See, isn't that easy?  The Must Hold line on the Dax is 11,000 (same as the NYSE) so 10,450 is the true 5% drop so we're really not impressed, in the bigger picture, until the DAX is over 10,500 so 10,100 should be EASY to pop back over if they are really on the way back to 10,500 and, if the DAX can't get back to it's -5% line, why would we be bullish on the S&P where 5% off the top (2,100) is 1,995 when it's already over that?

TA should follow your bullish investing premise, in the very least.  The bullish story is that the US is recovering (it is, slowly) and Europe is recovering and Asia will muddle through but if Europe's top index is 5% below it's Must Hold line (2,050 is 11% over the S&P's Must Hold at 1,850), how is the S&P going to justify being 20% higher than our German cousins?  Don't we all pretty much sell our goods and services on the same planet?

Amazingly, for all these wild market swings, volatility is very low – almost half of where it was in February, when the S&P tested our Must Hold line at
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Meaningless Monday Market Movement

Why do we work 5 days?  

Market trading on a Monday is like going to a kids softball game when only 4 or 5 kids show up for each team yet they insist on playing anyway and the parents sit on a metal bench for 2 hours watching kids chase balls around.  There's a human tendency to follow a plan – even if the plan already looks like a disaster.  This just happened to my daughter's game on Saturday and I KNOW everyone would have rather gone out for pizza instead but it was on the schedule and would count in the league standings so we went through the motions – but no one, not even the kids, considered it a real game.  

The markets are like that on Monday.  Half the traders are still in the Hamptons and the ones that show up aren't into it and volume is usually 2/3 or less than that of a regular day and even the news isn't awake yet and very little data is scheduled (how often do you promise to have a report ready Monday morning?).  Still, we go through the motions but I'm not going to pretend it matters – let's just try to enjoy a nice sunny day.

Europe is happy this morning as the Greeks have agreed to yet another round of Draconian austerity measures.  Well, everyone but Italy is happy, because they are next on the EU chopping block.  Though thousands of protesters rallied outside Parliament yesterday, the Greek lawmakers bowed to Germany's demands (over IMF objections) and slashed $6.2Bn (3% of GDP) worth of spending, mostly coming from pension cuts while, at the same time, increasing the amount workers must contribute into the dwindling pensions.  

I have long warned that Greece is simply a petri dish in which the powers that be test just how much crap the people will take before they revolt – so far, it's an amazing amount of crap!  What has "worked" for Greece (ie. allowed them to pay usurous creditors 20% interest on bonds) is now being pushed on Italy who, like Greece tried to do, are pushing back by electing a union leader to represent them at the EU.  Most likely, he will fail as…
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Option Opportunity Portfolio May Review – Up 19.3% In 30 Days!

What a great month it's been!  

Like the Fed, we've made very few adjustments to our portfolio but the ones we have made have been very effective and, more importantly, we added a lot of hedges that locked in our gains at very near our highest levels (45%) and we were relatively unaffected by this week's weak action.  We started the portfolio on August 8th as an experiment with the people at Seeking Alpha to see if we could create a fully documented portfolio that makes a steady 5% monthly return.  We failed to do that.  

Though we are up just about 45% in our 9th month, the returns have been far from steady.  As it turns out, our Butterfly Portfolio (one of the 4 virtual portfolios we use over at PSW) is still the champ and, to that end, we are incorporating more of those long, boring plays into the OOP from now on – as the goal was to have a low-risk $100,000 portfolio.  The mistake we made was trying to make 5% in our first month, which we did but we were over-exposed when the market dove – bad timing as our first month coincided with a huge market drop that lasted through September.

Nonetheless, we got back on our horse and followed our "Be the House – NOT the Gambler" strategy and made a lot of smart bets and got ourselves back on track.  Actually, this is a good time for a strategy note.  Over at Philstockworld, we have an Education and Strategy section where we discuss our methods of scaling in and out of positions (something I also teach in our Live Trading Webinars) and it would be very educational for you to review our Options Opportunity Portfolio – 2016 Preview, which details each of our positions at the time and how much money we expected to make from each one.  Although the BALANCE of the portfolio was just $101,571 at the time, the key quote was this:

Notice first that we have $98,672 worth of cash on hand.  We started

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Non-Farm Friday – Is America Working?

It's Non-Farm Payroll Day!  

Much more exciting than Cinco de Mayo, which we properly celebrated with quesadillas and sangria last night.  We celebrate Non-Farm Payroll Day by checking our Futures levels (we're short per our morning Alert to Members) and having some coffee – not as much fun but it can be more profitable.  This is one of those days when it's great to have a Futures account as the markets don't open for a whole hour after this major market-moving report is released.  

As you can see from the chart above, after fixing the disaster of the Bush collapse, Obama's job-creation record has been amazing – the best since Clinton (still the champ with 20M jobs created) and the monthly gyrations up and down are really not a big deal in the grand scheme of having now 6 years where we're averaging 200,000 jobs added per month (14.4M jobs).  

UNFORTUNATELY, we still haven't done enough to reverse the downtrend in total compensation – a number which takes into account hours worked, salaries paid, etc.  Total Annual Compensation has dropped by 15% of our GDP ($3Tn) since 1970 and workers of the World have failed to unite to reverse this trend in any meaningful way (raising minimum wages to $15 over 5 years is a small start).  

As members of the investing class, we can take comfort in knowing that screwing over the workers is VERY profitable for the Corporate Masters who pushed this disparity into overdrive since 9/11, increasing Corporate Profits by 120% in the past 15 years.  So hurray for us, I guess – unless of course you have someone you care about who has to work for a living – then it really sucks for them…

Of course, it's not all good news when you don't pay your workers enough to live on.  For one thing, they can't afford to buy homes and home sales are a very important driver of our economy.  Of course, as investors, we simply shift our money away from home builders and into REITs who own a lot of apartments and out of
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Thursday Fun – Weak Bounces Boost Bullish Bets

Let's talk about the 5% Rule™.

For details, you can read this post, but today we're going to focus on the very simple concept of bounce lines.  Under our 5% Rule™, we expect moves of 1.25%, 2.5% or 5% on major indexes to have 20% (of the move) corrections along the way, with a greater chance of a correction more likely as we cross each line of resistance.

It's the 5% Rule™ that led us to make a long call in yesterday's Live Trading Webinar, as we tested the -2.5% lines on our indexes EXACTLY WHERE WE PREDICTED THEY WOULD BE IN OUR MORNING POST (should be 2,047.50, not 1,947.50).

That's right, using our 5% Rule in the morning, I was able to say in our morning post at 8:33 am:

We have a PMI report at 9:45 and ISM Services at 10 along with Factory Orders and, at this point, expectations are low all around so we'll be looking for a bounce at Dow (/YM) 17,550, S&P (/ES) 2,040, Nasdaq 4,300 (/NQ) and Russell (/TF) 1,110 along with /NKD 15,900 but if any 2 are below (including whatever you are playing) – GET OUT! 

SPY 5 MINUTEThe S&P bottomed for the day at 2,039 at 2:05 pm and is already back to 2,055 for a $750 per contract gain in the /ES Futures.  In our Live Trading Webinar, we played the Nasdaq Futures (/NQ) over the 4,300 line and made a very quick $168.50 in 5 minutes and then we chose to play Gasoline Futures (/RB) and made a just as quick $580 after another 5 minutes of hard labor at our keyboards.  Making $748.50 in 10 minutes is good money so we took it and ran and went on with our Webinar at that point but the lines, like the song, remains the same – ready to be played any time we get a good test. 

This post isn't about showing you how to make money trading the Futures – we do that all the time in our Member Webinars (replays available here) and, of course, every day in our Live Member Chat Room.  This…
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Trump Victory Scares Global Markets

President Trump!  

Just think about what that will mean for America.  Then keep on thinking about it because we are only one Hillary scandal away from a Trump Presidency now that Ted Cruz has quit the race, leaving the GOP no choice but to rally behind The Donald at their conventon on July 18th.  Then it's just 4 months until the November 8th election when we can look forward to Trumps agenda, which includes (out of 76 campaign promises so far):

  • 1. Build a wall along the southern border that's taller than the arenas where Trump holds his rallies, taller than any ladder and one foot taller than the Great Wall of China. This "artistically beautiful" wall will be constructed out of hardened concrete, rebar and steel, and it will be "the greatest wall that you've ever seen" — so great that the nation will likely one day name it "The Trump Wall."
  • 4. Get rid of Common Core because it's "a disaster" and a "very bad thing." Trump says he wants to give local school districts more control and might even eliminate the Department of Education.
  • 6. Get rid of Obamacare and replace it with something "terrific" that is "so much better, so much better, so much better."
  • 10. Defund Planned Parenthood.
  • 18. Prosecute Hillary Clinton for her use of a private e-mail server while serving as secretary of state.
  • 23. Strengthen the military so that it's "so big and so strong and so great" that "nobody's going to mess with us."
  • 27. Target and kill the relatives of terrorists.
  • 46. Put billionaire hedge fund manager Carl Icahn in charge of trade negotiations with China and Japan, and pick an ambassador to Japan who is "a killer," unlike the current ambassador, Caroline Kennedy.
  • 54. Simplify the U.S. tax code and reduce the number of tax brackets from seven to four. The highest earners would pay a 25-percent tax. The corporate tax rate would fall to 15 percent. Eliminate the "marriage penalty" for taxpayers and get rid of the alternate minimum tax.54. Simplify the U.S. tax code and reduce the number of tax brackets from seven to four. The highest earners would pay a 25-percent tax. The corporate tax rate would fall to 15 percent.

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Turnaround Tuesday – Yesterday’s Gains Gone Before the Open

What a silly market!  

I warned our Members in the afternoon to be wary of the low-volume rally and, of course, we stayed the course on our bearish hedges (see last week's posts), which kept us from enjoying yesterday's move up but will serve us well this morning as we're right back to Friday's lows.  Today's excuse for the sell-off is more bad data from China (what other kind is there) with yet another negative (below 50) PMI reading.  

Even worse, China's financial regulator is clamping down on shadow banking.  China’s banking regulator is cracking down on financial engineering that Chinese banks have used to disguise Trillions of dollars in risky loans as investment products.  The clampdown, which will force banks to make provisions they previously avoided by disguising loans as investments, is designed to deflate one of the fastest-growing areas of the vast shadow banking apparatus, where bad debts are increasing.


Of course, let he who is without debt cast the first bond – the US has run up 160% of our GDP in debt since 2000, while China has 200% of their GDP into debt.  At least they got 7% GDP growth for 17 years (119%) out of all that spending while our GDP has grown less than 50% over the same period.  Still, since the GDP is growing then every year China is adding on even more stunning amounts of it as they continue to spend, spend, spend to paper over a weak economy (and again, so are we).  

What worries me most of all is the acceptance of the idea that China only has $1Tn worth of bad loans, which would be 3% of $35Tn.  Anyone paying attention to the China property bubble or Chinese earnings can see the number is easily 3-5x that amount and, in China's smaller economy ($8Tn) – that's a lot of money!  

It's certainly not a good idea to rely on Chinese analysts to tell you what's going on – over the course of the past year, their targets for the Shanghai and Hang Seng markets have
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Monday Market Movement – Yen Still Climbing vs Dollar

One again the BOJ does nothing over the weekend.  

That's put many, many traders on the wrong side of the strong Dollar/weak Yen bet and it's also pushed the Nikkei back to our long line at 16,000, which is where we expect support from the BOJ – whether overt or covert.  As I said in a Bloomberg interview last week:

I think 105 is a line that will be defended by the BOJ in whatever way they can, for as long as they can and the 16,000 line is also being defended at the moment so it's great fun to play in the Futures but as soon as we get to around 18,000 or 116 on the Yen, we flip to shorting the Nikkei and long on the Yen (short USD/JPY) because both those levels are unrealistic, no matter how hard the BOJ tries to push us over those lines. 

The BOJ's problem is they can't fight the constant flow of money coming into Japan from Asian investors looking for safe-havens to park their cash.  What are the alternatives?  As bad as Japan is, it's less scary than their home countries so investors tend to buy Euros (Francs, etc.), Dollars and Yen but, as a reserve currency, the Yen is just 2.5% of the Global Float (Dollar 63%, Euro 24%) yes, when people are allocating cash – they tend to put a disproportionately high percentage into Yen (vis a vis allocating by reserve status) and that is what causes the Yen to be too strong, no matter how much the BOJ tries to weaken it.  

Now Japan has been placed on on official US Government watch list for currency manipulation and that's forcing the BOJ to tread cautiously before making any additional currency moves and, as I said in another interview last week (hasn't aired yet), we're not expecting any real action from the BOJ until after the upcoming G7 meeting.

Without specific action to…
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Pakistan And Russia Boosting Military Ties With 2017 Drills

By Polina Tikhonova. Originally published at ValueWalk.

Pakistan and Russia are letting go of their Cold War-era grievances and actively strengthening their economic, military and diplomatic ties, while India – Pakistan’s top enemy – is becoming enraged over Pakistan’s friendship with Russia.

Image: Flags of Pakitsan and Russia

Amid the news of U.S. President-elect Donald Trump’s bizarre phone call with Pakistan PM Nawaz Sharif, Cold War-era foes Islamabad and Moscow are melting the ice between them. On Thursday, the Russian Defense Ministry confirmed that R...

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Phil's Favorites

A Big Swirling Italian Mess


A Big Swirling Italian Mess

Courtesy of John Mauldin, Mauldin Economics

“Move to Italy. They know about living in debt: They don’t care.”

– John Lydon

“Italians were eating with a knife and fork when the French were still eating each other.”

– Mario Batali

Italians are headed to the polls this Sunday (and thus this letter is reaching you a little earlier than usual) – but no one is quite sure what is on the ballot. On the surface, the voters are considering whether to approve constitutional reforms that should make the government operate more effectively (or not, depending on your point of view). But many people think t...

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Zero Hedge

Official Washington's "Info-Wars"

Courtesy of ZeroHedge. View original post here.

Authored by William Blum, originally posted at,

On November 16, at a State Department press briefing, department spokesperson John Kirby was having one of his frequent adversarial dialogues with Gayane Chichakyan, a reporter for RT (Russia Today); this time concerning U.S. charges of Russia bombing hospitals in Syria and blocking the U.N. from delivering aid to the trapped population.

When Chichakyan asked for some detail about these charges, Kirby replied: “Why don’t...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Ten Good Pieces of Economic Data From All Around the World (Bloomberg)

It's been a big week for bullish economic data across the globe, from South Korean exports to European manufacturing figures. 

The most important number of the week comes tomorrow: November's U.S. jobs report.

Why 2016 May Be the Year of 'Peak Housing' for Can...

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Kimble Charting Solutions

Interest rates could peak here, says Joe Friday

Courtesy of Chris Kimble.

The talk over the past couple of months has been, interest rates are rising and the Fed will raise rates very soon. Joe Friday feels a big test is in play, before one can say the “rate trend has changed!”

Below looks at the yield on the 10-year note, over the past 20-years.


The yield on the 10-year note has remained inside of falling channel (1), creating lower highs and lower lows, for the majority of the past 20-years. The top of the channel is bein...

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Chart School

Semiconductors Hit Hard

Courtesy of Declan.

Internet troubles have limited me tonight, but the one chart I want to show is the near 5% loss in the Semiconductor Index.  Having escaped relatively unscathed from recent day's selling it was a whirlwind of action for the index today.

This had obvious consequences on the Nasdaq. The Nasdaq did relatively well to suffer just over a 1% loss.  However, there were 'sell' triggers for On-Balance-Volume and Directional Index. There was also an acceleration in the relative underperformance of the index to the S&P. ...

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Members' Corner

Second Hand Stink?

Courtesy of Nattering Naybob.

In what seems to be a recurring scatological humor theme, aka our "Toilet Thursday's" or "Thursday's in the Loo" of the past few weeks, we follow up on The Story of Poo-Pourri.

In Second Hand Stink?, men are not so subtlety reminded that an odiferous fog wafting from the bedroom loo, can indeed kill the moment. 


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Swing trading portfolio - week of November 28th, 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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Digital Currencies

Largest US Bitcoin Exchange Is "Extremely Concerned" With IRS Crackdown Targeting Its Users

Courtesy of ZeroHedge. View original post here.

Last Thursday we reported that in a startling development seeking to breach the privacy veil of users of America's largest bitcoin exchange, the IRS filed court papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform Coinbase.

The government’s request is part of a bitcoin tax-evasion probe, and se...

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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...

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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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