Phil's Newsletter

Testy Tuesday – Double Bottom or Look out Below?

This is not a pretty chart.  

Especially when you have these big, long, red lines heading down that are getting longer every day, which indicates that panic is growing and sellers are no longer waiting for a bounce to dump what's left of their holdings.  Nonetheless, we are playing for the bounce this morning (see our 7:29 Alert) as we tested some critical bounce lines in the Futures but we're not expecting much – just a bit of window-dressing in an attempt to save the quarter.

Should the window-dressers encounter heavy selling – it will be time for some new, aggressive downside plays (see yesterday's post for examples) because, as you can see from the Big Chart, the Russell and the NYSE have already broken below our August lows and the only reason the Dow seems to be holding up is that Nike (NKE) alone is responsible for 250 Dow points since the mini-crash.  

Subtract NKE from the Dow and we're at 15,750, right in line with the other indexes which is why we focused our attention this morning on the Nasdaq, which is dominated by Apple (AAPL), which is 15% of the index and rose from $95 back to $115 for a nice 21% gain which we then multiply by 15% to get 3.15% times the Nasdaq 4,554 is 143 Nasdaq points which would bring it down to 4,411 – right back to where we were also.  

Of course it's not fair to subtract ALL of NKE or AAPL but it gives you an idea of how distorted even our major indexes can be on the actions of a single stock, which tells you nothing about the overall health of the index.  What we can see, though, is that 788 more NYSE stocks made new lows than new highs yesterday and that's certainly not a healthy sign by any measure.  Keep in mind that 2,250 stocks made new lows on 8/14 so these 788 new lows are lower than that – now you get the picture, right?  

To put is simply, another down day today would add to the total and that would send an incredibly
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Monday Manufacturing Malaise – China Down 8.8%

Embedded image permalinkHow is this a GDP that's growing by 7% a year?

That's the -10% line we're testing on China's Industrial Profits, which is the worst decline since the Government has been releasing the data (2011).  “Companies are facing enormous operational pressures,” said Liu Xuezhi, a macroeconomic analyst at Bank of Communications Co. in Shanghai. “The momentum of growth is weak, and the downward pressure on the economy is relatively large.”   

I know the conventional wisdom is that, if we pretend China is not having a crisis for long enough, the crisis will go away but this is rapidly spilling over to other Asian economies and is now affecting Europe too.  This is like when everyone in your family but you catches the flu and you just KNOW you're going to get it – the only question is when.  Coal mining profits in China, for example, are down 64.9% from last year so either they have converted 60% of their economy to renewables in 12 months or their economy is slowing considerably.

Keep in mind this is AFTER 5 interest rate cuts in the past year along with reduced reserve-requirements for the banks AND currency devaluations.  As noted by Asia Analytics: 

 "The Chinese central bank can drop the price of money all it wants and shovel ever more cash into the banking system, but the problems facing the Chinese corporate world are more about the lack of customers than the lack of credit, more about insolvency than illiquidity."

This is happening on our planet folks – not off in some distant galaxy!   It amazes me how little concern people seem to have about what's going on in China – as if we learned nothing at all 7 years ago – not even to be a little bit cautious.  Well, I'm not going to try to convince you – I put up "Hedging for Disaster – NOW Are You Ready to Listen?" and the rest is up to you.  I can only tell you what's going to happen in the markets and how to profit from it – that's the extent of my powers.  
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Hedging for Disaster – NOW Are You Ready to Listen?

SPX DAILY3 weeks ago, we told you how to protect yourself from a market downturn.

21 days is not a lot of time to test and investing premise but it's good to take a look at our progress on this relatively small market dip (that we accurately predicted) so perhaps you'll take the necessary precautions to avoid taking losses in the next leg of our downturn.  My biggest regret in 2008 was "trying not to be so gloomy" so now I'm going to keep reminding you to hedge (or better yet, get to CASH!!!) – all the way down to the bottom.

As you can see from Dave Fry's S&P 500 chart, we're barely down on the S&P from where we were on September 4th, so you'd think our bearish hedges wouldn't pay off – BUT YOU'D BE WRONG!  Why?  Because, like our long market conditions, our bearish hedges follow our Be the House – NOT the Gambler™ strategy, which allows you to make money in relatively flat markets too.  Let's take a look at the hedges we showed you that day (Sept 4th) from our Short-Term Portfolio:

These are simple option trades called "bull call spreads" – something our PSW Members learn in their first week of trading stock options.  This isn't an educational post so we'll go right on to the results portion of the discussion:

  • The ultra-short S&P (SDS) Sept $21/24 bull call spread expired on 9/18 at $2.48 – up 50% from the $1.23 net we showed you on 9/4 (5th column from the right was that day's prices).  With 50 contracts, the position we showed you made $6,150 in 3 weeks.  
  • The ultra-short Nasdaq (SQQQ) Sept $21/24 bull call spread expired on 9/18 at $1.48 – up 169% from the 0.65 net we showed you on 9/4.  With 50 contracts, the position we showed you made $4,150 in 3 weeks.  
  • The ultra-short Nasdaq (SQQQ) Jan $18/30 bull call spread closed Friday at $4.50 – up 45% from the $3.10 net we showed you on 9/4.  With 50 contracts, the position we showed you made $7,000 in 3 weeks.  
  • The ultra-short Russell (TZA) Oct $11/14 bull

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Fed Up Friday – Janet Saves the Day!

And up we go again!  

After failing the 16,000 line early yesterday, the Dow has now come back 450 points (2.8%) thanks to Janet Yellen's bullish outlook in yesterday's "do-over" speech at Amherst.  “The message from Yellen yesterday was that it’s not that bad, and we’re still going to hike,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “That was what the market needed to hear.”  

Of course, this was no surprise at PSW as I had already said to our Members Tuesday Morning (7:56) in our Live Chat Room: "Interesting timing (Yellen's 5pm Thurs speech) knowing Durable Goods are out that day.  She's scheduled for 5pm, so maybe a market-booster into the week's end. "  

In fact, in our Options Opportunities Portfolio, we called the top in gold as it topped $1,155 and cashed out the trade we discussed in yesterday morning's post, getting $6.95 for our long Gold ETF (GLD) Oct $104 calls and buying back the short $108 calls for $3.40 for net $3.55 ($3,550), which was up a very nice 62% ($1,360) in just two weeks.  That's why we call it the OPPORTUNITY portfolio!  

By the way, this is the last 5 days to sign up at our introductory rate.  As of October 1st, rates go back to the normal $199 a months but you can still lock in the very low annual introductory rate of $792 between now and then – we just made almost double that on a single trade!  

In fact, just yesterday morning, when I was telling you how great that trade was, it was only at $3,000, so we added another $550 (18.3%) in a single session!  Options are certainly a tool you want to have in your trading tool belt.  Sure, anyone could have seen that GLD would bounce off $105 and go back to test $110 and you could have made 5% playing the stock.  But you would have had to have bought 710 shares of stock for $74,550 to make the same $3,550 we made by investing just $2,190 in…
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Thursday Failure – Indexes Test Some Critical Levels Pre-Yellen

SPX DAILYShall we keep pretending? 

Clearly that's the plan of the MSM, where you'd think we were in some kind of rally while critical index levels are falling by the wayside right and left on a daily basis.  This is very much like 2008, when the Global Economy was collapsing and an endless stream of a-holes came on TV to tell you not to worry – and they kept people from worrying – until it was too late.  

Amazingly, after looking at that clip, CNBC is still on the air but Jon Stewart is not.  Now we face another serious crisis and we have 3 financial networks: Fox, CNBC and Bloomberg and none of them can seem to find any guests who don't think we shouldn't be worried about:

And I don't want you to think I spend hours digging up bad stories – those are just today's headlines!  If it were not for the DESPERATE attempts of the G8 Central Banksters to prop up the markets, I'd be gung-ho bearish but,…
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Which Way Wednesday – Super Mario to the Rescue?

Up and down we go.

Where we stop, no one seems to know.  Mario Draghi is speaking at 9 am this morning and, now that the Fed has put off their rate increase, the ball is in his court to do SOMETHING to stop the collapse of the European markets.  Not only have the indexes fallen 5% this week (and today bouncing the obligatory weak 1% ahead of Draghi's speech – as we predicted yesterday in "Back to Bouncing"), but the Euro has fallen 2.5% – leaving no escape for any asset class in Europe.  

Former Goldman Sachs Managing Director Draghi is already in the process of giving $1,300,000,000,000 to EU Banksters (including his alumni, of course) and, like Janet, they want more, More, MORE!  It's very possible yesterday's horrific 3% drop in the EU markets was nothing more than an engineered cry for help by the Banksters, giving Draghi the excuse he needs to enrich his friends further without too much public outcry. 

There's really nothing left to do but cry for European Citizens, who have seen Draghi devalue their life's savings by 25% since he took power in November of 2011.  And yet they are "puzzled" as to why there's no inflation when the buying power of every European has been reduced by an average of 6% a year for the last 4 years.  Hey, I know, let's give more money to rich people – that will fix everything! <end sarcasm font>

Somebody actually said to me on Seeking Alpha yesterday: "Trickle down works like this: the rich buy large houses, this puts carpenters to work, then they buy appliances/furniture, which helped to create Home Depot and Lowe's, they have landscapers, house cleaners, nannies, etc. – all created from their wealth."  

After I stopped laughing, I did try to point out that a lot more people are employed building 300 $330,000 homes than a single $100M home but our problem isn't the lone commenter on SA – it's the fact that ALL of our Governments are following this horribly flawed plan to "fix" the Global economy when all they are actually doing is upwardly distributing wealth
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Tumblin’ Tuesday – Back to Bouncing

SPY  5  MINUTEWell that was obvious. 

As I noted in yesterday's morning post, yesterday's light-volume rally was nothing but a paint job to con the suckers back into the market and the dips that fell for the scam have already been parted with their money this morning as the indexes are down 1.5% already, now down 5% from Thursday's highs.

This is why we have our 5% Rule™ over at PSW – it keeps us from falling for this BS.  Rather than looking at the squiggly lines as they move up and down, we prefer to focus on the FUNDAMENTALS and we only change our price targets when the Fundamentals actually change, not day to day based on the previous day's price action – that would be kind of stupid, right?  

Sure we watch the technicals because about 80% of the market trades on technical signals.  If the market traded based on phases of the moon, we'd watch that too because the fact that people follow it becomes A (one) Fundamental factor but never THE Fundamental factor.  Because we watch the movement of the masses from the outside – it's very easy for us to predict which way the herd will stampede but please – don't confuse our analysis of voodoo for our endorsement of it!  

In the morning post, I said the S&P needed to bounce to 1,970 to impress us and, as you can see from the chart, that's right where it got rejected in the morning and now we're back at the lows.  Rather than shorting the index in our Live Member Chat Room as it topped out, we looked at a bear call spread on Amazon (AMZN) buying the Jan $600 puts for $73.50 and selling the Jan $500 puts for $23 for net $50.50 on the $100 spread.  If AMZN is below $500 at Jan expiration (15th), the spread makes $49.50 (98%).

Of course we already have our disaster hedges (see last Thursday's notes), so this was a more aggressive bet where we put our foot down on Amazon's ridiculous $250Bn market cap on less than $100Bn in sales and no profits at all (and this is year 21, not year 2!).  One of
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Monday Market Movement – Make or Break for the Nasdaq

Sometimes, you hit a critical point in the markets.

This week, the Nasdaq, which is the only index we have that hasn't had a death cross, has to break over its 200-day moving average at 4,971 and over the 50-day moving average at 4,957 in order to reverse the bearish trend of our major indexes breaking down.  If the Nasdaq can't do it – don't expect the other indexes to manage the trick on their own so it's all up to the Nasdaq, which means it's all up to Apple – because (AAPL) alone is 15% of the Nasdaq 100 (QQQ).  

As you can see from our Big Chart, the Nasdaq itself more than 20% above our Must Hold line at 4,000 and that outperformance is almost entirely due to AAPL's 100% run since we called these levels back in 2013 for this year's end.  With the Dow, NYSE and Russell pretty much at the lines we expected, the question is whether the Nasdaq and S&P are outperforming and likely to correct or whether the other indexes are underperforming and likely to catch up. 

NDX WEEKLYClearly AAPL argues for the Nasdaq Must Hold line to be raised and then we should probably bump the S&P as well, where AAPL is almost 4% of that index.  Usually, we don't make adjustments for individual components but Apple is so outsized, it's hard to ignore.  

For it's part, the Nasdaq took a very sharp, very nasty dive on Aug 24th – so sharp that there was no way to get out of positions in time as the index collapsed 10% in less than an hour led down, of course, by AAPL, which also fell 10% that morning.

3,800, where the Nasdaq found support, is the -5% line on our Big Chart and that line has, so far, been support for all our indexes as we've corrected.  Unfortunately, the market Fundamentals do not lead us to think we should be any more than 5% over our Must Hold levels, so we're still looking for a bit more of a correction before we get comfortable doing our bargain shopping.  Not that we haven't done a bit already – we've picked up a dozen…
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Trickle Down Mythology Exposed

Are we still falling for this crap?

Apparently, all the GOP candidates believe that, a joke made by Will Rogers in the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy" (pg 184)  What Will Rogers actually said, in context, was:

They (Republicans) didn't start thinking of the old common fellow till just as they started out on the election tour.   The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickled down. Put it uphill and let it go and it will reach the dryest little spot. But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow. But it will at least have passed through the poor fellow’s hands. They saved the big banks but the little ones went up the flue

Sound familiar?  That's pretty much the same game plan they ran during the S&L crisis under Bush the 1st and again in the more recent crisis under Bush the 2nd and now Bush the wants-to-be-3rd is telling us how his brother did a pretty good job while he was in office – as if none of us were there to witness the truth!  But this article isn't about whether or not Americans are stupid enough to elect another Bush while we're still cleaning up the last one's mess.

This is about whether or not Americans are stupid enough to let ANY candidate bullshit them with what Bush I originally called "Voodoo Economics" before joining team Reagan and embracing the WORST ECONOMIC POLICY EVER!  Someone really needs to explain to these complicit journalists, who haven't checked a fact since the Carter Administration, that IT WAS A JOKE – "trickle down" was a derogatory term to describe the obvious supply-side disaster of Hoover, Reagan and the Bushes – it wasn't supposed to become the Republican religion!  

This chart from the St. Louis Federal Reserve illustrates what has happened since the mid-70s as Wages (red) have fallen 7% as a percentage…
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Falling Friday – Our Futures Play Makes Members $100 Per Minute!

Wheeee – this is fun!  

Remember, I can only tell you what is going to happen and how to profit from it – that is the extent of my powers – the rest is up to you.  Yesterday afternoon, for example, I sent out this tweet (from our Member Chat Room) that we had decided to short the fake-looking Fed rally at Dow (/YM Futures) 16,800 and Russell (/TF Futures) 1,190.  

As you can see from this chart, we NAILED the top at 1,190.  This example had 2 contracts at an average of $1,187.80 and we caught a very quick ride down to 1,175 where the profit on two contracts was $2,500 on /TF and $2,000 on /YM and I sent out another tweet at 3:30 noting we called for taking the quick gains off the table – making $2,500 in 25 minutes – nice work if you can get it.  

But that's the point – you CAN get it all the time.  On July 25th I published "Using Stock Futures to Hedge Against Market Corrections," where we discussed this very strategy for taking advantage of volatile swings like we had yesterday.  In fact, just this Tuesday, we had a Live Trading Webinar (replay available here) where we talked about Futures Trading Techniques (and we shorted the S&P!).  

You can also protect your portfolio with options and ultra-ETFs of, our preferred method – options on ultra ETFs – as we discussed in Sept 4th's "Hedging for Disaster" (you know, the one we're having now) as well as, of course, yesterday's morning post, where we told you the Fed would not be easing and we discussed the very obvious Gold ETF (GLD) spread, which ended the day at $2,830 – up $640 (29%) for the 2nd day in a row (you're welcome).  

Of course our TZA, SDS and SQQQ hedges (also discussed in yesterday's post but from the 4th) are all doing great, of course – and it looks like they'll be doing even better today as the Futures indicate down another 1%.  The good news is though, that we can still use the bounce lines we predicted for you way back
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Phil's Favorites

Blodget on Market History


Outside the Box: Blodget on Market History

By John Mauldin

I remember the first time I walked into Henry Blodget’s new startup, Business Insider, back in 2009. Twelve fresh-faced kids were crammed into a room about the size of my bedroom, pounding away on laptops, creating a new destination website. He took me over to a corner; we sat down in front of a few cameras; and he began shooting question after question at me, later turning the session into a series of interviews.

You walk into his office today and it’s still packed wall-to-wall with fresh-faced kids (the older I get the younger they look), but the offices are much larger, and it seemed to me last time that there had to be at least 150 people in them. But the interviews are still quick-paced, even if they’re now conducted in a special room, with upgraded equipmen...

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Zero Hedge

"Neutralizing" John Lennon: One Man Against The "Monster"

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by John Whitehead via The Rutherford Institute,

“You gotta remember, establishment, it’s just a name for evil. The monster doesn’t care whether it kills all the students or whether there’s a revolution. It’s not thinking logically, it’s out of control.”—John Lennon (1969)

John Lennon, born 75 years ago on October 9, 1940...

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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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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Zambia Seeks to Restore Confidence With Budget Amid Power Crisis (Bloomberg)

Zambian Finance Minister Alexander Chikwanda is seeking to restore confidence in the economy to help reverse the world’s worst currency, record borrowing costs and sliding growth. The two things that matter the most to the outlook are the copper price and power supply, which he has little control over. 

The World Bank is betting on mass migration driving the global economy (Business Insider)

The impact of&nb...

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Kimble Charting Solutions

S&P 500…Stuck in this zone, welcome to the “Chop House!”

Courtesy of Chris Kimble.


What do S&P 500 bull and bears have in common? There opportunities are being limited by a tight range!

I started sharing with members several weeks ago that the patterns suggested the S&P would be in a “Chop House” environment for a while and that I doubted bulls nor bears would be that happy of campers.

In this type of an environment, unless you are really quick, nimble and accurate, its a time and place to take it easy and let this play out. For the majority of traders, the distance between the close on 8/25 at 186 and the close of 200 on 9/16...

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Whitney Tilson On LL, EXACT, And Martin Shkreli


Whitney Tilson On LL, EXACT, And Martin Shkreli

Courtesy of Value Walk

1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:

  • The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
  • I think this is the beginning of the end for the company.
  • My price target for the stock a year from now is $3, so I shorted more yes...

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Chart School

Yesterday's Losses Reversed

Courtesy of Declan.

Bulls can be happy with today's progress. What weakness emerged today was reversed by the close, a change on yesterday's action where sellers dumped in the last few minutes of trading. Volume climbed to register an accumulation day.

The S&P finished at the 50-day MA, but beyond that there is plenty of room beyond that to run to the next level of resistance at 2,045. Technicals are net bullish.

The Nasdaq pushed off its 20-day MA and has another 50 points of maneuver before it gets to its 50-day MA.  Technicals are not yet net bullish, but they are close.


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Sector Detector: Searching for solid support in the face of global headwinds

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

Courtesy of Sabrient Systems and Gradient Analytics

Uncertainty about the health of the global economy led investors to flee U.S. equities during Q3, primarily driven by worries about China's growth prospects and the Federal Reserve’s decision to not raise rates. Sure, there are plenty of real and perceived headwinds, but on balance it seems that a recession here at home is not in the cards. And when you consider sentiment and the technical picture, it appears that a continuation of Friday’s bounce is in store. The question remains as to whether the seasonally strong Q4 will be able to propel the bulls through levels of resistance that have built up.

In this weekly update, I give my view o...

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Swing trading portfolio - week of October 5th, 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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Baxter's Spinoff

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

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...

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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. 


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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 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!

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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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.

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