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Phil's Newsletter

Monday – Live From Las Vegas!

What a fun weekend we've been having in Vegas!

We had a great dinner at Nobu on Saturday night (co-sponsored by TradeStation), followed by some poker and yesterday we had our first seminar day where we looked at the Global Macros, discussed trading techniques and made a few new picks for 2015.  That was followed by another great dinner at Rao's last night and this morning we are getting started at 6am Vegas time and will be doing live trading all day long.  We will be simulcasting in our Live Chat Room via WebEx – Greg will post a link when it's ready.

Meanwhile, all quiet on the Global front over the weekend or, at least, just the normal nonsense so the markets continue to drift along at the highs but it's a very busy week and we'll have to wait PATIENTLY to see how things play out.  We have 4 Fed Speakers this week but not too much data, which will keep the focus on the tail end of earnings.  So far, so blah on that front:

As noted by the WSJ:  "While profit gains have generally been solid, many blue-chip companies are posting weak sales growth or outright year-over-year revenue declines, causing worries about their long-term growth prospects. Others are reporting earnings increases driven by factors that don’t reflect sustainable improvements in their business, such as share buybacks and cost-cutting efforts."

Amplifying those concerns is a softening global economic outlook. U.S. multinational firms are now contending with slowing economic growth in key markets like Europe and China, and a strengthening dollar that threatens to further damp revenue by reducing the value of payments collected in foreign currencies when converted into dollars.

Few investors expect a sustained stock decline. But many traders and analysts say they fear future growth at U.S. companies won’t be robust enough to meet the high expectations currently implied by the above-average valuations on blue-chip shares. Friday’s employment report for October, which showed another month of modest job gains tempered by only slight increases in wages, underscored those concerns.

While earnings, so far, are up about 7.7% over last year…
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Non-Farm Friday – Fed Spins Us into the Weekend

Productivity was down and costs were up.

That's the news we got yesterday as we say a 30% drop in productivity, from 2.9% to 2% along with a drastic increase in unit quarterly labor costs – from -0.5% to 0.3%, which bumped the annual labor costs up by 60%, from 1.5% to 2.4%.  Not surprisingly, this led to employers cutting the number of hours worked by 0.2% to save some of the rising costs that they have been unable to pass on to consumers.

SPY  5  MINUTEThese are, of course, not great numbers but that didn't stop the market from flowing higher – kind of like that lava in Hawaii that can't be stopped.  Also like the lava – it's a fairly low-volume flow but, if you are bearish – it's very destructive! 

Keep in mind that we're hitting these highs only after a TREMENDOUS amount of stimulus from Japan and Europe on top of very doveish outlook from our own Fed (even though they have stopped increasing QE – it's not over by a mile). 

As tempting as it is for us to cut our bearish positions and join the party, here we face another weekend full of Global uncertainty, so we're going to stay covered and watch to see if the S&P can hit our 2,035 goal (see Wednesday's predictions) and actually hold it.  

Now that we're here, we'll be looking for the following retracements next week:

  • S&P 2,035 is our 10% line and we'll be looking for a pullback to 2,018 (weak) and 2,000 (strong).
  • Dow 17,600 is our Must Hold and that makes a weak pullback 17,250 and 16,900 would be a strong retrace.  
  • Nasdaq 4,600 is our 15% line and we're over that without a retrace (so far) to 4,480 (weak) or 4,360 (strong).
  • NYSE Must Hold 11,000 (it's been there before) and below that we look for 10,760 (weak) and 10,520 (strong) for pullbacks.  The fact that the NYSE is in a range such that even our strong pullback isn't 5% is a bullish indicator for the rest over the long-term and our long-term


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Thursday Failure at Dow 17,500 – Draghi Takes a Swing

SPY  5  MINUTEIt was another low-volume "rally" yesterday.

Hard to call it a rally when we spike off on no volume in pre-market and then spend the rest of the day selling off.  The much less-reliable Dow, on the other hand, put up a record high – all the way to 17,485 and now we're less than 1% shy of our Must Hold target – only two years after we set it and right on schedule for the end of 2014.  

As we discussed in yesterday's post, "If it's a real rally, the Dow should have no trouble at all at 17,500 and should be able to get to 17,600 before there is any serious pullback and, if that doesn't happen – the rest of our lines will tell the tale."  So Far, so good on the Dow as it gained 94 points yesterday (0.54%) but 17,484 is not 17,500 – hence today's headline, written long before the market opens (now 7:30).

What am I concerned about?  Well, so far is been all stimulus and today Draghi holds a press conference an hour before our markets open and, unless he has more red flags to wave at the bulls – all this excitement may calm down a bit.  Fed Gov Powell speaks at 1:30 and he's a bit bearish, followed by Mester this evening (7pm), who is more bearish.  

Tomorrows retail sales report is likely to be bad and Non-Farm Payrolls are a wild-card but Yellen speaks at 10:15 tommorw, so she'll be able to keep any sell-off shallow into the weekend.  We're not overly bearish – more like a "watch and wait" sort of thing at the moment as our Long-Term Portfolio is up 20.9% for the year and our Income Portfolio is up 18.1% for the year and the Short-Term Portfolio which hedges them is up a ridiculous 85.2% for the year.

All we are trying to do, at this point in the year, is to protect our gains into the holidays and tomorrow's NFP report is a major wild-card, as is Draghi's press conference this morning.  Our long-term portfolios are 5x larger than the STP so we error
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Red Wedding Wednesday – For Democrats

The bums have been thrown out!  

Democrats were decimated in the Senate, losing their majority, primarily as angry voters, who still face dire economic situations 6 years after electing Obama chose to CHANGE the last vestiges of his support:

The economy was voters’ most pressing concern as they cast their ballots in the midterm election, with seven of 10 rating conditions poor, preliminary exit polls showed. 

 

 

More than five years after the recession ended, ordinary Americans still feel pinched. Wages and incomes haven’t recovered even as corporate profits hit records, stocks have almost tripled and the nation’s output of goods and services grew more than $1 trillion from its pre-recession peak.

Amazingly, after getting a clear referendum on how awful the economy still is for the average American, the markets are up over half a point in the Futures, with the Dow (/YM) testing 17,400, S&P (/ES) 2,020, Nasdaq (/NQ) 4,175 and Russell (/TF) 1,175.  

Those will be our lines of capitulation if they break to the upside but, by the day's end, I expect cooler heads to prevail and they'll be our shorting lines too.

When there are no fundamental reasons to move up (and no, electing a different bunch of morons doesn't qualify as a fundamental) we look to our technicals and our 5% Rule™ to tell us what to expect.  Last time we whipped out the Rule, we used it to chart the move off the bottom in October – now let's see what…
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Mid-Term Tuesday – Elections Will Piss Off 50% of the People

"We the people, in order to form a more perfect union…"

 

"Representatives shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons…  When the right to vote  is denied to any of the male inhabitants of such State, being twenty-one years of age, and citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion which the number of such male citizens shall bear to the whole number of male citizens twenty-one years of age in such State."

On that basis, it seems to me, that Texas should be losing about 10% of the Congresspeople next year – as they have seen fit to exclude close to 1M of their citizens from being eligible to vote.  

Of course Texas is already being punished by plunging crude prices as oil hit $75.84 overnight and gasoline prices fell back to $2.06.  Low prices at the pump are bound to put consumers in a better mood but, in Texas, a lot of those consumers are in the oil industry or in towns dominated by the oil industry and that industry is in BIG TROUBLE with oil below $80.  

It's not just oil that's dropping, copper is off 4% this morning, barely holding $3.01 as there is NOTHING to indicate any rise in demand for materials in our weakening Global Economy.  

Nonetheless, Corporate Profits in the US are up 10% this year and, whether it's the result of FREE MONEY pumped in by the Central Banks or spending cutbacks that ultimately damage the economy or finanical engineering like stock buybacks that artificially inflate apparent earnings by decreasing the number of shares or, even if it's just good old inflation creeping into the pricing – who cares as long as they are making money?  


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Marvelous Monday – Back to our Highs, Now What?

RUT WEEKLYWhat an incredible finish! 

We have retaken most of our September highs after dropping about 10% in the first two weeks of October.  Technically, it LOOKS like a strong market but Fundamentally, we know that the boost is the result of Trillions of additional stimulus from Japan and Europe and, as I mentioned on Thursday, it's not that the US has STOPPED stimuluating the economy – we've simply stopped INCREASING the amount of stimulus – hardly a "taper."

So we're watching and waiting this week, especially ahead of the elecion.  We did a Portfolio Review over the weekend and all 5 of our Member Portfolios are looking very good into the end of the year so we don't want to rock the boat and we angled more bearish into the weekend, just in case but, on the whole BALANCE is our goal.

As we expected, weak Chinese data (see morning notes to Members) is putting a damper of Friday's rally already and, as you can see from our Big Chart, we're back at levels that have proven to be harsh overhead resistance for our indices.  

We're still waiting for the Russell and the NYSE to confirm by making their own new highs and Russell's pop to 1,174 on Friday was so fake that we did decide to short /TF (Russell Futures) below the 1,170 line this morning – we'll see how that goes as a fun bearish play.  

On the whole, last week's action had the Fundamentalists throwing up their hands and simply screaming.  Soc Gen's Albert Edwars summed it up nicely, saying:

“The amazing thing is how little interest there is with western investors about Japan and how it effects US or European portfolios

Notwithstanding the fact that it is the 3rd biggest economy in the world by a long way (the same size as Germany and France


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PSW October Portfolio Reviews (Members Only) – Final

SPX WEEKLYAnd we're back!  

Quite the recovery since last week so I figured we'd better take another look and go over our positions to make sure we're well-balanced.  We're UNbalanced in our recovery, with less volume and more height than we've had before.  Technically, we're looking bullish but, Fundamentally – there are still a lot of questions.  

We'll discuss outlook and such in the Member Chat Room over the weekend, this article is just to check our balances, not an extensive review like we had last week.  I'm on the way to Vegas today ahead of our Live Seminar next weekend (last chance to sign up), so I'm just going to note the items I think need adjusting this morning.

As an overview, last week our LTP was up 19.2% for the year at $596,170 and our STP was up 94% at $194,183 for a total of $790,353 (up 31.7% overall) following our aggressive strategy.  As of Friday's close, the LTP had climbed to 21.5% ($607,710 and the STP fell to 82.5% at $182,498 for a total of $790,208, essentially flat at 31.7%.  We turned more bearish on Wednesday and it may have cost us some gains but our aim into the end of the year is to lock in these profits, not "go for it."  

The more conservative Income Portfolio was up 2.4% last week and finished yesterday up 8.5% at $542,304.  Combined with the hedges in the Income Portfolio, that pairing is at $734,538, up 22.4% for the year and miles ahead of our 10% goal.

Our Butterfly Portfolio was as boring as its supposed to be, up 18.7% last week ($118,740) and up 18.1% today.  The $25,000 Portfolio slipped from $30,745 to $28,802 as we added two bearish plays that, so far, have not worked out.  

The reason we flipped more bearish this week was because we are back in the tops of our channels now AND we're heading into an election where, no matter who wins, half the people will be disappointed – that could lead to a small sell-off at least, along with a dozen other bad things that are going on in the world that we've decided to ignore again while the market engages in
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WTF Friday – Japan’s 80 TRILLION Yen Stimulus Dresses the Windows

She knows how hard her heart grows under the nuclear shadows

She can't just escape the feeling repeating in her head

When after all the urges some kind of truth emerges

We felt the deadly surges discovering Japan – Graham Parker 

Happy Halloween!

The shorts are certainly getting a scare this morning as the BOJ hands out another $124Bn (yes, we did the relative math in this morning's Alert to our Members) and that was more than enough to pop the Nikkei 5% in 90 minutes, with the /NKD Futures now testing 16,850 – almost catching up to the Dow for the 3rd time in 2 years.  

Unfortunately, each time the Nikkei has matched up with the Dow's gains, it's marked and overbought top and led to a sell-off so we were forced to officially reverse our long call on Russell Futures (/TF) from yesterday morning's post and flip short at 1,169 (with tight stops over 1,170).  That's OK though because a move from 1,132.50 to 1,169 on /TF is a profit of $3,650 per contract – not bad for a day's work, right?  

See, I told you we could pay for your trip to our Las Vegas Live Seminar next week with a Futures trade!  

Not that we advocate holding Futures positions overnight – it could just have easily gone the other way.  That's what Wednesday's TNA spread was for – the longer-term long position on the Russell, which will pop TNA well over our $80 goal this morning – that trade has a 316% profit potential in less than a month! 

Notice how we're popping out of the channel.  It would be one thing if we were doing it based on US earnings but doing on Japanese stimulus, coming at the last day…
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Fedless Thursday – Can the Markets Survive Without Free Money?

It doesn't matter what the Fed did yesterday.  

Let's make that clear at the start.  The Fed has been tapering all year but what they have been tapering is their INCREASE in bond buying and thank God they have because the Fed balance sheet is now over $4,000,000,000,000.00 – that's a lot of money!  

As noted in the chart above, $4Tn is the entire GDP of Germany or Japan, the level of stimulus has added up to 22% of our GDP since 2009 or about 4% a year.  Our GDP is only 2.5% WITH the 4% added stimulus – what will it be without it?  Fortunately, we don't actually have to worry about that because the Fed will be rolling that $4Tn over, at a rate of roughly $800Bn a year to keep the party going forevermore.  

Screenshot 2014-10-20 12.59.16This is what is misunderstood by – well pretty much everybody.  The Fed is not cutting us off, they are just not adding to the already biblical levels of stimulus we've grown accustomed to.  

As each Fed bond or other asset is redeemed, the Fed will still buy a new one to replace it.  And, since our Nation's NEED for money has decreased by 2/3 – it means they are now buying a SURPLUS $300Bn or more of assets each year.  Hmmmm, now who will that be bailing out I wonder?  

That's right, the Fed will continue to pump $300Bn or more each year into the coiffers of our beloved Banksters for many years to come.  The more Obama reduces the deficit, the more money (our money) the Fed can funnel to their Bankster buddies – what a fantastic system – don't forget to vote for more of the same on Tuesday!  .  

On the whole, we don't really give a crap.  We pretty much cashed out our Member Portfolios with huge profits for the year and that leaves us free to have fun day-trading and playing the futures while we get ready to enjoy our holidays.

Just this morning, in fact, I put out an Alert to our Members (and even
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Which Way Wednesday – Ridiculously Overbought Edition

NYMO  DAILYCheck out this chart:  

That's the NYSE McClellen Oscillator, which hasn't been this high (overbought) since July of 2011, when the S&P plunged from 1,345 to 1,123 (16.5%) in 4 terrifying weeks.  Yesteday's rally was a very low-volume affair 101.3M on SPY (about 60% of normal) and we were goosed by Peter Schiff on CNBC at 1:10 pm, claiming QE4 was right around the corner:

Ahead of tomorrow's decision by the FOMC, Peter Schiff ventured on to CNBC to discuss the economy, the fed, and gold… among other things. Schiff rightly fears that while the Fed may well stop QE3 tomorrow, QE4 will not be too long behind it as he notes, rather eloquently, that "an economy that lives by QE, will die by QE" as the Fed's total lack of willingness to allow stocks to fall (see Bullard 2 weeks ago) or a 'cleansing' recession leaves the nation's economy in far worse shape than it was before the Fed's intervention. Schiff calmly replies to the anchor's questions (as she proclaims "I am not on the side of the Fed but…"), gently explains his view on gold when challenged about his 'wrongness', but when a guest starts hounding him for being dangerous to CNBC viewers wealth… Schiff (rightly) loses it – must watch!

SPY  5  MINUTEAs noted by Dave Fry:

It seems bulls are confident the Fed will end QE on schedule and at the same time give bulls dovish comments about conditions (“don’t mess with us”!) going forward. Many pundits are discussing interest rates remaining unchanged for several years and longer.

That means companies like IBM can continue (another $5 billion share buyback announced today) their financial engineering to lessen float making it easy to report better earnings at the price of future innovation and company growth. But bulls don’t care about future growth, only what takes place now. Besides, this is the


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Phil's Favorites

Three and a half years since the last 10% correction

If the S&P 500 does not have a 5% correction this year, it will be the first time in 20 years. And it's been 3.6 years since the last 10% correction. And trailing and forward PEs are relatively high. In the low interest rate environment, higher-than-normal stock prices are the new normal, but how much higher? And should we expect a reset with the Fed's plans to ease the interest rate higher?

Three and a half years since the last 10% correction

Courtesy of 

Deutsche Bank is out with a piece of research this weekend mentioning the fact that the S&P 500 has just broken a record high thanks to a median trailing PE ratio of over 18 – the highest we’ve seen since...



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Zero Hedge

Grexit "Disaster" Looms As Greek Hospitals Run Out Of Sheets, Painkillers

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The default countdown is about to go under 10 days and it is becoming increasingly apparent that both Greece and its creditors have had enough.

Months of tense negotiations have gone nowhere and yielded exactly nothing and it now looks like PM Alexis Tsipras and FinMin Yanis Varoufakis may be willing to miss a June 5 payment to the IMF if it means proving they are serious about keeping their campaign promises and forcing the troika to the bargaining table. The implications of a missed payment aren’t entirely clear but Athens is keen to predict the worst as it tries to squeeze concessions from creditors. ...



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Chart School

eToro Review

Courtesy of Declan.

763 followers 76 copiers A solid jump in both followers and copiers from the start of the month. This was in large part to my top-10 ranking in their People screener. Having said that, last week finished very poorly for me. Overtraded and wa...

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All About Trends

Mid-Day Update

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

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Kimble Charting Solutions

King Dollar & Crude Oil reversing ST trends, says Joe Friday

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

King Dollar and Crude Oil have been have had little correlation over the past year, as each has traded in pretty much opposite directions.

Over the past 9 months King Dollar has had a historical rally and the opposite is true for Crude Oil.

Of late Crude hit its 23% Fibonacci resistance line, based upon last summers weekly closing highs and weekly closing low on 3/13/15.

Joe Friday just the facts….Crude oil is making an attempt to break short-term steep rising support this week and King Dollar is attempting to break short-term steep falling resistance.

Crude oil just experienced its 7th largest 2-month rally in its...



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Pharmboy

Big Pharma's Business Model is Changing

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

Understanding the new normal of a business model is key to the success of any company.  The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place.  Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.

Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants.  This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales.  However, in the c...



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Sabrient

Sector Detector: Bullish technical picture appears to trump cautious fundamentals

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

Courtesy of Sabrient Systems and Gradient Analytics

By Scott Martindale

Stocks closed last week on a strong note, with the S&P 500 notching a new high, despite lackluster economic data and growth. I have been suggesting in previous articles that stocks appeared to be coiling for a significant move but that the ingredients were not yet in place for either a major breakout or a corrective selloff. However, bulls appear to be losing patience awaiting their next definitive catalyst, and the higher-likelihood upside move may now be underway. Yet despite the bullish technical picture, this week’s fundamentals-based Outlook rankings look even more defensive.

In this weekly update, I give ...



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OpTrader

Swing trading portfolio - week of May 18th, 2015

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

 

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

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

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

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



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Digital Currencies

Nasdaq's bitcoin plan will provide a real test of bitcoin hype

 

Nasdaq's bitcoin plan will provide a real test of bitcoin hype

By 

Excerpt:

Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.

On Monday, the Nasdaq (NDAQ) stock exchange said it would ...



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Market Shadows

Kimble Charts: US Dollar

Which way from here?

Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching. 

 

Phil writes:  If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher.  Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8.  So, if anything, I think the pressure should be up, not down.  

 

UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

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

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

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