Phil's Newsletter

S&P 2,000 Tuesday – Turnaround or Turn Down?

SPY  5  MINUTEWould it be too early to call the year yet?  

"As goes January, so goes the market" is something a lot of traders believe and we're off to a rotten start, for sure but mostly we just gave back the gains I thought we never should have gotten last week anyway – so NOW we're back to 2,000 on the S&P (/ES on the Futures), we'll see what's real and what's not.  

We went long on /ES at the 2,000 line and /TF (Russell Futures) at 1,100 and we made a big call yesterday in our Live Member Chat Room, to cash in those SQQQ March $15 calls ($5.44), from that spread I mentioned in yesterday's post and that flipped us BULLISH into the close, where we were rewarded by the "stick save" (so far). 

That's a really great feature of using spreads to hedge like we do because we can flip our whole portfolio from bearish to bullish by simply taking the profit ($5,220 in this case) of our short leg off the table and now we've gone from slightly bearish to slightly bullish and all we have to do to get bearish again is buy another bear leg.  Hopefully, we won't need to and SQQQ will top out at $20 and the short calls will expire worthless and we'll make another $5,550 on that leg.

Of course, as I mentioned yesterday, we have huge short positions on Amazon (AMZN) and Netflix (NFLX) so, to some extent, we were locking in some of our gains by flipping bullish on the Nasdaq to cover a possible bounce in those two.  I don't think either one of them are done going down but Apple (AAPL) looks like it's going to hold $100 and AAPL counts WAY more in the Nasdaq than those overpriced jokes.  

We were hoping AAPL would go a bit lower as we only have one bull call spread in our Long-Term Portfolio.  Our plan was to sell some short 2018 puts when AAPL got down to $100 – preferably the $95 puts for $15, which would give us a very comfortable
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Options Opportunity Portfolio – 2016 Preview

What a crazy year 2015 was!

We began tracking this new virtual portfolio back in August and, in less than 4 months, we closed 80 option positions on 20 stocks (or ETFs) so pretty active in the beginning.  At one point we were up 20% but the net gain on the positions we've closed ended up at just $9,572 or +9.5% from our $100,000 opening balance.  

Since that pace was more hectic than we had intended and the market was very choppy, we moved towards longer-term investments which have the downside of being "expensive" to set up – in that the portfolio will tend to reflect the worst-case scenario for buying or selling options based on the bid/ask spread – no matter how unrealistic the pricing is.  This is, however, something options players need to learn to understand when they are looking at their positions – and we'll discuss that in detail as we examine each of our open positions:

Notice first that we have $98,672 worth of cash on hand.  We started with $100,000 and, using just $1,328 of our original cash, we now control a substantial amount of positions.  On the margin side, we are using $48,700 out of $200,000 of ordinary margin (not Portfolio Margin, which would be much more) and, generally, we don't want to use more than 1/2 of our margin – saving the rest for emergencies.  

At this stage in the process, we're not so much concerned with the BALANCE of the positions as we are to whether or not they are on or off track for their goals.  Options trades can swing wildly in value as premiums fluctuate as well as the price of the underlying security – your job as an options trader is to understand the VALUE of your options so you can identify which ones are misPRICED and learn to take advantage of the differences.  

  • BBY – If BBY is over $31 on Jan 15th, the short puts expire worthless and we make the whole $900.  As it stands, we're about 1/2 up and on track to make $450 more.  

  • Since we liked

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Mandarin Monday Meltdown – China Halts Markets to Stop the Bleeding

And we're long!  

Sorry if that's confusing but I want to make our position clear before I begin ranting.  This morning, I put out an Alert to our Members saying:

This morning's catastrophe is being blamed on that poor Manufacturing Report from China and the Shanghai fell so hard they had to shut it down (down 6.86% in the end).  Since limit down on any stock is 10% – that means a huge portion of the market went limit down before they stopped trading.  

The Manufacturing report was Saturday morning and Middle Eastern markets didn't freak out about it.  I think mostly this is all the BS window-dressing reversing and I do like ES long over the 2,000 line (now 1,995) for a bounce and YM 17,000 and TF1,110 (now 1,108.5, so only on a cross over with tight stops).  Same rule as usual, wait for 2 to be back over and then go long on the laggard and very tight stops if any of them fail.

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The Last 15 Hours of 2015 – A Year We Could Have Skipped Entirely

Whether we finish over or under 2,060 on the S&P no longer matters.

The broader NYSE is DOWN 800 points (7.2%) for the year but you won't hear that from your Corporate Media – because it doesn't suit the narrative of their Top 1% Masters – who want retail investors to jump into the market and buy the stocks they are still trying to unload in a thin market.   

What really  matters at the end of 2015 is that, despite MASSIVE intervention by ALL of the World's Central Banks, the markets have gone net nowhere for 12 months.  If the market were a coma patient, they'd be discussing pulling the plug and just letting it die, right?  At what point is a thing no longer worth saving?  Like any good "death panel," we should be deciding whether or not taking massive artificial means just to keep the market flat is worth the cost.

Of course, there's the problem.  The cost of artificially maintaining the markets falls on the Bottom 99%, who's children and children's children will be burdened with the deficit bills we are running in order to keep the stocks held by the Top 1% from falling faster than they can liquidate their positions.  

US Public Debt per Taxpayer - Apr 2015

Although Obama has done a fantastic job of slowing the growth in our debt (getting close to $19Tn total now), the damage was already done and still our Government refuses to tax our Top 1% people and Corporations, who are the sole beneficiaries of all this aid.  Sure, you can argue that retirees had Trillions invested in pension funds that were also tied to the market but very few individuals had more than the $70,000 it took to bail them out – an amount they are now burdened with as debt.  

In fact, less than 20% of all stock market wealth is held by the bottom 90% (income cut-off is $120,000/yr and over $750,000 total wealth) and barely 5% by the botom 80% – those that earn less than $60,000 per family.  Debt, however, is distributed evenly by population so it disproportionately falls on the poor and, of course, when they have to cut social programs to pay…
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Final 48 Hours of 2015 – Black Swan Preview

INDU WEEKLYRick Santelli summed up the stock market action very nicely:

"I don't know how they do it? Plunge Protection Team? Abenomics? Japanese buying futures? No matter what The Dow will not be allowed to end the year in the red…"

How they do it is a process called "Ramp and Camp", where the US indexes are pushed higher in very low-volume trading in the Futures (and Jim Cramer explains how easy it is to fool the retail suckers here), which is the "ramp" and they the TradeBots are set on auto-pilot and do just enough to hold the indexes at the desired levels, also taking advantage of any retail interest they generate to sell to the suckers as they come in to hold the bags.  


Notice most of the volume for the day comes right at the open and then again in the selling into the close.  The most surprising thing about manipulating the markets is how cheaply it can be done!  Speaking of manipulated markets: Remember 6 months ago when China halted the sale of half of stocks on the Shanghai Stock Exchange?  Major shareholders were banned from selling  $185Bn worth of stocks, which will finally hit the market on Jan 8th – I'd circle that day on your calendar!  

China is. by far, the blackest of all possible swans in 2016 – it's a story we predicted would kill the markets this year and it's still early innings on our China watch.  Another interesting black swan issue brought up by MarketWatch is the possibility of a Sovereign Wealth Fund cashing in its assets.  After all, the whole point of SWFs is to put money aside for a rainy day and how much of the $4.3Tn controlled by SWF's is from oil countries that are weathering the worst Financial Storm in their history?

MarketWatch agrees with my note from yesterday, that one of the biggest potential black swans of 2016 could be the death of the unicorns. Rounding out their unexpected potential catastrophes of 2016 could be…
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Final 3 Days of 2015 – Looking Ahead

Things are looking up this morning.

Europe has come back from Boxing Day with a nice 1.5% pop in Germany, Italy and France while the UK and Spain are up about 1% as well.  11,000 is the bull line on the Dax and 10,500 is the bear line – so we're bouncing around in-between at the moment, just as we are on the S&P between 2,000 and 2,100 and the Dow between 17,000 and 18,000.  

On the whole, it's all just one big consolidation – but what are we consolidating for?  None of your time should be spent looking at the index charts this week – not when the volume is less than half of what it is on normal days.  Yesterday on SPY, for example, just 66M shares were traded and the average volume is 118M.  That was the lowst full-day trading of the year and it followed Christmas Eve's 48M so the two days together barely added up to a "normal" day.  

What you should, however, be concerned about is how FAKE the action was as it drove the McClellan Oscillator well into overbought territory.   The McClellan Oscillator is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues.  It's a momentum indicator, similar to MACD that gives us an idea of whether or not a rally is broad-based enough to be sustained and, clearly, this one isn't. 


What we have going on at the moment is good, old-fashioned window-dressing – aimed at painiting a picture of 2015 that will be sold to potential investors in 2016.  The brokers need you to put your money in the market so they can charge you fees – that's how the game is played and it really helps their sales pitch if the market wasn't negative the year before so all stops are pulled out to get us green at the end of the year.  

Related imageCase in point – while JPM and other big banks have already raised the deposit rates they pay to their Top 1% clients, the only increase that was passed down to the
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Final Four Days of 2015 – Wrapping it Up

2015 was a tough year for traders.

Not for investors, mind you, we did great but trading and trend following was a tough road to follow in 2015 as so many of the "usual" tricks didn't pan out as expected.  A lot of that is because our governments have been lying to us – even as they do their best to manipulate the economy.  You can't trust the data, you can't trust the reports and you can't trust what they say they will do or know when they will actually do it.  That makes for a rough trading climate

As Fundamental investors, we've been worrying over the same question all year, which is: "would we have an economy at all without the non-stop flow of funds coming from our Central Banksters?"   So far, we haven't been given the chance to find out because the money keeps pouring in and it seems to make the markets happy – at least for a little while…

In Japan, however, where the Government embarked on a MASSIVE stimulus program called "Abenomics" back in Dec of 2012, the effects of a stimulus that dwarfs that of the US, China or Europe in terms of percentage of GDP (over 15% in Japan) has already faded out with Household Spending already going right back off a cliff:

That's because, unlike Americans, Japanese people understand math and they KNOW they don't have enough money to retire with – so they stop spending money and no matter what further steps the Government takes to punish the savers (negative interest on savings, constantly devaluing the currency, etc.), it's not enough to convince Japanese families to forego their future in return for some short-term pleasures.  

The December data we're getting out of Japan is, in fact, horrific:

  • Household Spending plunges 2.9% YoY – worst since March (post-tax-hike)
  • Jobless Rate jumps to 3.3% (from 3.1%)
  • Industrial Production drops 1.0% MoM – worst in 3 months
  • Retail Trade tumbles 1.0% YoY – biggest drop since March (post-tax-hike)
  • Retail Sales plunges 2.5% MoM – Worst drop since Fukushima

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Secret Santa’s Inflation Hedges for 2016

Merry Christmas!

I hope you get everything you want this holiday season and, most importantly, I hope you have time to spend with your family.  I love waiting for my kids to wake up on Christmas morning to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?

I have something I can give you for the holidays as well.  Not peace on Earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your portfolio, which also can be used to help balance your home's budget against unexpected cost increases.  

This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher. 

We haven't felt the need for inflation hedges since 2011 as the Fed has kept us in a somewhat DEflationary cycle but our 2011 hedges were good for 300-600% returns and we're simply going to repeat the same, simple concepts here to set up good, rational hedges against inflation to insure a financially healthy and happy 2016:

Idea #1 – Hedging for Home Price Inflation

Let’s say you have $40,000 put aside for a deposit on a home but you’re not sure it’s the right time to buy.  On the other hand, let’s say you are worried that home prices will take off again (I doubt this but you never know).  XHB is the homebuilder’s ETF, currently at $34.49 and they bottomed out at $31.62 in August and still well off the highs for the year of $39 right before the flash crash.  

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Merry Christmas from Philstockworld!

Why it’s almost Christmas Eve, Mr. Scrooge!  

The Global markets are closed tomorrow and we’re bound to have a very slow half day today – if you are looking for a continued Santa Clause rally on today’s trading, you are very likely to be disappointed.  Today is a day for relaxation and reflection.  Remember, the words of Jacob Marley, who said:

Business! Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!

Marley was a man who worked and worked until the day he died and regretted it every day after.  If you don’t believe in an afterlife and you don’t believe in leaving behind the World a better place than you found it, at least find some time for yourself so people don’t call you "a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner" after you’re gone.  

I was inspired by an old post on Barry’s site titled "Give and You Will Receive" listing 13 good ways we can all give every day. 

’Tis the season of giving and…
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Wednesday Warning – Put/Call Ratios Go Ballistic into Year End

Here's an indicator that has successfully predicted major market corrections:

It's the so-called "Smart Money Indicator" which tracks the number of bearish put options vs the number of call options with the expectation that options traders have some clue as to what the market is doing – as they tend to be more serious investors (the ones that survive, that is).  Of course, it also gave a false warning , like it did in 2003 and 2012 and last fall, when we first went over the 2:1 line but now it's just getting silly and open put contracts now exceed call contracts by 3:1 for the first time ever. 

Once again, I'm not saying we should join them and get all bearish – I wish it were that simple.  Unfortunately Fundamentals have been thrown out the window in this Global QE environment and all I can do is warn you that it's not a good time to be betting the market goes higher and the smart move is to have a ready supply of CASH!!! on the sidelines – just in case the market completely collapses.  

We're well-hedged and very cashy in our Member Portfolios and thank goodness for that because, according to Bespoke, the average stock in the S&P 500 is 20% BELOW it's 52-week high.  That would be called a correction but, as I've noted before, there are 8-10 stocks that have accounted for all of the S&Ps positives this year.  Other than those few headline stocks, EVERY SINGLE SECTOR is off 10% or more this year:


The smart money is in CASH!!! We are in CASH!!!  Cash is good, it's not some failure on your part if you don't see anything good to invest in and you sit on the sidelines.  This is something I have to work very hard to teach our new Members – that sometimes the only winning move is not to play.  Yes, while you are in cash you will see things you wanted to buy going up and you will regret it.  That's because human nature is to focus on "the one that got away" rather than the stocks you actually would have bought that tanked.  Think of every…
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Zero Hedge

"Short Everything That Guy Has Touched" - San Fran's Lending Standards Put The Last Housing Bubble To Shame

Courtesy of ZeroHedge. View original post here.

A perfect storm of low interest rates and a booming tech economy, which has pumped out an endless number of tech millionaires rewarded for amazing ideas like the ability to morph one's face with a squirrel, have culminated in a substantial housing bubble in Silicon Valley and the surrounding areas. 

As recently observed here and ...

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Phil's Favorites

New Milestone: Trump and Hillary Converge at 58% Unfavorable Rating; Neocons for Hillary

Courtesy of Mish.

This election is quite likely to come down to which party is more motivated to vote for someone they do not like.

For the first time in Gallup polls, Trump’s Image on Par With Clinton’s, at an equally poor 58% unfavorable rating.

The numbers for both candidates, based on interviewing conducted July 18-25, are 37% favorable and 58% unfavorable. In all previous Gallup updates stretching back to last July, Clinton’s net favorable has been higher than Tru...

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Chart School

S&P 500 Snapshot: A Fractional Decline on Fed Wednesday

Courtesy of Doug Short's Advisor Perspectives.

Fed Wednesday turned out to be a ho-hum event for the US equity markets. The combination of parsing the FOMC statement, analyzing earnings and fretting about the growing glut kept our benchmark S&P 500 in a relative zombie state ... especially for a Fed Wednesday. The -0.12% closing loss extended the fractional up-down pattern of daily closes to ten sessions. And speaking of oil, WTIC fell 2.33% today and is now 18.65% below its interim high on June 8.

The yield on the 10-year closed at 1.55%, down five basis point from the previous session.

Here is a snapshot of past five sessions in the S&P 500.

Here is a daily chart of the index. We've highlighted the unusually narrow pattern over the past ten sessions, both in clo...

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Mapping The Market

Illusion of Choice

From Jean-Luc:

Looks like we are down to about 10 companies for our consumer goods:

Just like banks, airlines and cable companies! 

The Illusion of Choice in Consumer Brands

Explore the full-size version of the above graphic in all its glory.

If today’s infographic looks familiar, that’s because it originates from a well-circulated report that Oxfam International puts together to show consolidation i...

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Tesla Motors Inc And Mobileye NV Divorce - What Does It Mean For Investors

By Jacob Wolinsky. Originally published at ValueWalk.

It is a busy week for Elon Musk – Tesla Motors Inc (NASDAQ:TSLA) says it will need to raise more money for its new plans (shocker), the Gigafactory – by some metrics the largest manufacturer in the world is opening soon and Musk is making wild predictions about revenue on Model 3 sales (although little about earnings), and Tesla and Mobileye NV (NYSE:MBLY) parted ways yesterday in news which caused MBLY stock to tank before a bit of a recovery. With all the news it is hard to cover everything so below we will focus on the MBLY news and what it means for both companies. Many analysts note that Tesla is a small percentage of revenue for Mobileye so why focus on either? Because the news could be important and these co...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

The Fed Might Make a Big Mistake This Week (Money)

It’s virtually certain that at the end of their two-day meeting on Wednesday, Fed officials will leave interest rates exactly where they are—at near-record-low levels.

Commodities ‘At Bottom,’ Says World Bank as Rebound Seen (Bloomberg)

Commodities will probably rebound next year as demand strengthens, according to the World Bank, adding its voice to those including ...

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Digital Currencies

Judge Rules Bitcoin Isn't Money Because It "Can't be Hidden Under A Mattress"

Courtesy of ZeroHedge. View original post here.

By Everett Numbers via

In a landmark decision, a Florida judge dismissed charges of money laundering against a Bitcoin seller on Monday following expert testimony showing state law did not apply to the cryptocurrency.

Michell Espinoza was charged with three felony charges related to money laundering i...

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Kimble Charting Solutions

Junk Bonds at important inflection point, should impact stocks!

Courtesy of Chris Kimble.

Junk bonds have been quality at sending Risk On and Risk Off message to the broad stock market. Below looks at Junk Bond ETF JNK over the past decade.

JNK finds itself at an important price point below and what it does in the upcoming couple of weeks could become a big influence on the Risk On/Risk Off trade.



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Swing trading portfolio - week of July 25th, 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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All About Trends

Mid-Day Update

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

Click here for the full report.

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

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This Is Why Biotech Stocks May Explode Again

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

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

This Is Why Biotech Stocks May Explode Again



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


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PSW is more than just stock talk!


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

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

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

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Help One Of Our Own PSW Members

"Hello PSW Members –

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

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

Thank you for you time!

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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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