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Phil's Newsletter

TGIF – Bringing this Weak Week to a Close

It's been this kind of week

The hits just keep on coming as bad news is suddenly bad news for the markets and even the promise of Draghi waving his money wand next week isn't enough to keep investors in equities.  $4.1Bn flowed out of US-based stock funds according to Lipper while $4.3Bn went into bond funds – driving TLT all the way to $135, where we decided to initiate a short position in our Short-Term Portfolio.   

Our STP finished the day yesterday up 92.5% and we're still very much on the bear side, up 16.6% for the week ($16,600) while the S&P fell 3.3% – AND THAT IS HOW YOU HEDGE!  Yes, our bigger and bullish Long-Term Portfolio lost 1.8%, but that was "only" $8,600 so our net for the week is up $8,000 as our BE THE HOUSE – Not the Gambler strategy continues to pay off for the first two weeks of 2015.

Of course $8,000 a week is $400,000 a year (+66% to our $600K start), so it's not likely that we will be as much on the right side of trades all year as we were this week, but it's a fantastic example of how well our balanced portfolio approach works under extreme market conditions.  We made only a couple of minor adjustments (like adding the TLT shorts) but, for the most part – we don't have to do anything to get that performance when we call the direction right.

Monday is a holiday in the US, so we're certainly not inclined to flip bullish today – or even neutral, for that matter.  All of our weak bounce lines were broken, which is what we feared would happen on Tuesday, when we set them.  Fortunately, our 5% Rule™ prevented us from capitulating during the run-up last week and now we are reaping the rewards on the way down!  

Last Friday, for example, we mentioned that our Members had added $13,000 of TZA longs to our Short-Term Portfolio and TZA has rocketed up from $12.33 (a trade idea we published for free for
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Thursday Freak-Out – Swiss Franc Jumps 20% in One Hour!

Embedded image permalinkHoly Crap!!!  

I'd love to say I'm that good as we were up early this morning (1:54) in our Live Member Chat Room and all seemed quiet with the Futures heading higher and I said to our Members:

Oil hit $50 just after midnight, /NG topped out at $3.37, gasoline at $1.385 and the markets spiked up almost 1%.  India cut their reserve rates 0.25% – a total surprise.  Also, positive notes from China and /NKD is up from 16,600 yesterday to 17,200 just now (and I like /NKD short on that line with tight stops above).

Just two hours later, ALL HELL BROKE LOOSE and the Nikkei dropped 300 points (now more) and those /NKD shorts gained $1,500 in just two hours.  That one was more luck than skill as the Swiss National Bank made a VERY SURPRISING announcement that they were removing their 3+-year currency peg to the Euro and that sent the EUR/CHF pair from the usual 1.20 all the way down to 0.85 before stabilizing at about 1.02, down 20% in minutes!  

Embedded image permalinkNeedless to say, hedge funds who made the very usual, very normal short bet on the Swiss Frank are F'd this morning.  As the Euro had been very weak recently, there were a large amount of short bets on the Franc (CHF) in expectations of the SNB stepping up their Euro-buying program to get back to their usual 1.20 goal.  

But nooooooooooooooooooooo!  They went the other way by 20% and, as I reminded our Members this morning, those wrong way currency contracts (and there are 1M of them on this chart) lose $1,100 PER PENNY move.  That's $22,000 on a 0.20 move in CHF x 1M = $22Bn in losses this morning for currency traders.  Someone is gonna have some 'splainin' to do!  

I already sent out a detailed tweet on the subject earlier this morning, so you can delve further into the subject at your leisure.  For now we should contemplate the…
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World Bank Wednesday – Global GDP Outlook Cut By 10%

SPX WEEKLYThe World Bank has downgraded the Global Economy.

According to today's report, the Global Economy will slow to a 3% growth rate, down 10% from the previously projected 3.4% calculated in June.  That's a pretty alarming rate of decline in the 2nd half of the year, don't you think?  The report adds to signs of a growing disparity between the U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output. Risks to the global recovery are “significant and tilted to the downside,” with dangers including a spike in financial volatility, intensifying geopolitical tensions and prolonged stagnation in the euro region or Japan.  

“The global economy today is much larger than what it used to be, so it’s a case of a larger train being pulled by a single engine, the American one,” World Bank Chief Economist Kaushik Basu told reporters on a conference call. “This does not make for a rosy outlook for the world.”

The bank sees average oil prices falling 32 percent this year, a decline that’s historically associated with a boost to global GDP of about 0.5 percent. Yet the impact on growth may be smaller in 2015 and 2016 because of other headwinds including weak confidence that encourages saving rather than spending, and a “significant” income shift from oil-producing countries to those that are net consumers, the World Bank said.

In other words, all those things we have been telling you to worry about were actually things you should have been worried about.  As I mentioned to you in Friday Morning's post, we added back $13,000 worth of TZA (ultra-short Russell) spreads in expectations of negative economic news this week.  Those spreads have a $17,000 upside (130%) if the Russell fails to hold 1,170, which is right where we bounced off yesterday (the -2.5% line).  

SPY  5  MINUTEWe'll see if that line holds up today, as well as our two remaining Strong Bounce Lines (see yesterday's post for predictions that came true) of Dow 17,460 and Nasdaq 4,656.  As we…
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Tricky Tuesday – Failing at the Strong Bounce Lines Once Again

Wow, I'm getting dizzy.  

I'd say the market is like a roller-coaster but there are no roller-coasters that make moves this crazy.  Unfortunately, all this zig-zagging up and down is only serving to exhaust the erstwhile dip buyers, who haven't been getting quite the easy ride they've become used to over the past few years.  

More importantly, we are NOT making our Strong Bounce Lines per our 5% Rule™, which has kept us from chasing these bounces as we just haven't quite gotten over the hump at:

  • Dow 17,280 (weak) and 17,460 (strong)
  • S&P 2,006 (weak) and 2,027 (strong)
  • Nasdaq 4,608 (weak) and 4,656 (strong) 
  • NYSE 10,560 (weak) and 10,670 (strong) 
  • Russell 1,172.50 (weak) and 1,185 (strong)

As you can see, only the Dow has really cleared it's goal by any significant amount with the S&P right on the line and the NYSE and Russell pulling up the rear.  All should be over at the open as we're getting a 1% pop in Europe, where inflation is so low that investors are CERTAIN that Draghi will come and save the day a week from Thursday (22nd) at the next scheduled meeting.  

The Euro is
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Monday Market Movement – Clutching at Bullish Straws

INDU WEEKLYWhat an "impressive" recovery we had last week.  

After starting out down 750 Dow points we took 500 of them back overall, which gives us a still-constructive picture on the weekly chart – much better than the dreaded head and shoulders formation we would have had if we had finished around 17,500.  

So that should make the chart people happy and this morning the Futures are up a bit, even though oil is down 2.5% as Goldman Sachs took advantage of a sleepy Monday Morning to come out with a MAJOR DOWNGRADE ON OIL that calls for $41 oil in 3 months, down from their previously totally wrong forecast of $70 (for WTIC). 

Since GS was "only" off by 42% in their previous forecast, of course their current forecast is moving the markets as the beautiful sheeple stampede out of long positions.  We're thrilled to see GS send oil to new lows as it makes it cheaper for us to buy longs.  Last week alone 35 rigs were shut down at Bakken (61 overall) and, as we already calculated in our ongoing oil study, the average rig pumps 1,000 barrels a day, which means 61 rigs takes 427,000 barrels out of inventory starting next week.

Embedded image permalinkGS knows this and they know the bottom is much closer than April – they just want to force the retail buyers (including their own clients) out of long positions so they and their preferred clients (the top 0.01%) can load up on longs and make a fortune when oil does come back.  

You can see on their chart (left) that they are still projecting a $65 average for 2016 but GS knows (as do we) that the average investor has more like a 3-month time-frame, at most, and has no interest in what will happen a whole year from now – even if it could make them 50% if they simply make an investment now.  

Fortunately, at PSW, we teach our Members not to be sheeple and, as I often say to our Members: 

"We don't care IF the game is rigged as

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How to Make $100,000 In 12 Months Trading Stocks, Options and Futures

You're here to make money, right?  

We do a lot of educational posts on various topics but, once in a while it's a good idea to put these concepts to some kind of practical use.  Recently we discussed "How to Get Rich Slowly" and, in that post, we talked about the great value of making a consistent 20% annual return and, to start the year off, we've put up over 20 long-term trade ideas for our Members in our Live Chat Room, as well as some in our Top Trade Alerts (Members Only). 

Our entire Long-Term Portfolio was up 20% last year, as was our Income Portfolio when we closed it and our smaller, Short-Term Portfolio managed to bring that net up over 25% for the year.  As always, our goal is to make 20% a year and it's OK not to make 20% EVERY year, what you really want to avoid is losing money.  Warren Buffett wasn't a famous investor in 1965 – or 1975 for that matter and, in fact, 1973 and 1974 were poor years for Berkshire – but they avoided losses – and that's the key!  

Buffett is also a value investor who plays the slow and steady game in accumulating wealth.  Not every year is going to be a big winner and not every year will beat the S&P because we HEDGE our bets and the same hedges that stop you from losing too much on the way down, stop you from winning too much on the way up.  That's OK though, because it's the CONSISTENCY that makes you rich.  While virtually unknown in 1975, by 1985 Warren Buffett was known as one of the greatest investors of all time.  

Why is that?  Did he do anything different?  No, not at all.  What Buffett did was simply to continue to grind out those wins and let the magic of compound returns do the rest of the work for him.  As you can see from the chart on the left, even making 20% for 10 years doesn't seem that dramatic (500% total gain, avg 50% a year) but, give it 10 more years and you
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Federally Fueled Friday – Massive Rebound, Will It Stick?

RUT WEEKLYWow, what a comeback!  

Maybe the 4th time will be a charm as we once again attempt to break that top line on the Russell (along with our other indexes).  Of course, if you zoom out to a monthly chart, you'd see that this saw-tooth patten can form what they call an "island top", which is a signal of possible rally exhaustion.  

I know we're exhausted with all these ridiculous "rallies" that are spurred by talk of more stimulus whenever we threaten to fail a support line.  

After getting burned in 2009, the Fed (and all the Feds) are simply terrified of a sell-off getting out of control and so, they have backed themselves into a corner of having to placate the markets every time they have so much as a sniffle, lest it turn into pneumonia.  

As I've noted to our Members, when we have 5 days of selling with 782M shares transacted (SPY) while the S&P loses 5% and then you have 2 days of buying with 269M shares transacted – can you really call that a recovery?  More than 3 times more money went out than went in and our original premise was that there was weak support due to low volume in the first place.   How would 2 days of low-volume buying have fixed that?  If anything, our support is shakier now than when we started

As I noted to our Members in this morning's Live Chat Room:

This is why I have to keep making bearish calls – there is MASSIVE manipulation going on – you can't trust anything and it's OK if we don't make money on the way up – that we can always recover from – what we really want to avoid is LOSING money in a crash and blowing a fantastic opportunity to bottom fish because we're scrambling to get out of things that we chased because we were too impatient.  

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Thrilling Thursday – Evans Promises QE Through 2018


Un-F'ing believable as Evans went uber-dove last night at 10 and sent the global markets (and our Futures) flying higher.

Fed’s Evans: U.S. Might Not Hit Target Inflation Rate Until 2018 - Federal Reserve Bank of Chicago President Charles Evans said Wednesday the U.S. might not hit the Fed’s target inflation rate until 2018 and he doesn’t advocate raising interest rates until 2016.

There's also this spin on the Fed Minutes:

Fed Gives Subtle Hint to ECB

Today, in the minutes to that meeting, we learned in fact that “many participants regarded the international situation as an important source of downside risks to domestic real activity and employment.” But we were also told that although “some participants had lowered their assessments of the prospects for global economic growth, several noted that the likelihood of further responses by policymakers abroad had increased.” In other parts of the statement, too, there were references to “market participants’” expectations that European monetary policy would be eased.

Thus, what is widely thought to be the FOMC’s consensus view – that a sovereign bond-buying form of quantitative easing from the ECB is desirable, because it would offset the liquidity-crimping effect of its own plans to tighten in U.S. monetary policy in the months ahead – was expressed as the expectations of faceless “participants.” The Fed can’t be accused of meddling in a foreign country’s sovereign policy concerns, but at the same time the message seems clear that if the ECB doesn’t act, many U.S. central bankers believe they could be left in a difficult situation. The question now is: What impact will this extremely subtle message have on the ECB, at its own, hotly anticipated policy meeting on Jan. 22?

So, it's the same old BS where now we are all going to spend two weeks anticipating all the possible ways Draghi can save us all by waving his monetary magic wand – even though the Fed is not actually doing anything new.  

We'll see if the strong bounce lines stick now, but I'd take it with a huge grain of salt when we get there on more of this idiocy.  Of course, you can fool some of the people all…
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Whipsaw Wednesday – Bouncing Into the Fed Minutes

Wheeee, that was fun!  

As you can see, we've already come very close to re-testing our December lows but we were happy enough with the gains on the TZA calls (that I mentioned yesterday morning) that we cashed in our April $13 calls at $2.20, up 0.50 (29%) from the morning open – another nice way we help you hedge against the downside at Philstockworld.  

By taking off our largest, shortest-term hedge at 12:10 in our Live Member Chat Room, we flipped our Short-Term Portfolio much more bullish as well as adding $22,000 (for 100 contracts) to our pile of cash.  That left our Short-Term Portfolio up 92.2%, gaining another $10,500 for the day while the market fell (as we predicted, of course).  By using layered hedges in our portfolio, we are able to take advantage of quick drops while still maintaining longer-term protection.  

While it's nice to make 29% when the market drops 1.5%, that was nothing compared to our suggestion to go long on Natural Gas Futures (/NG) at $2.825 as we got not one, but TWO entries at that level with TWO 10-cent moves of +$1,000 each.  

Even better, in the Live Webinar we invited you to at 1pm, we entered 10 Oil Futures Contracts and I demonstrated our technique that worked the net basis down to $47.50 and, this morning, we stopped out of that set with a $10,000 gain –  not bad for a FREE Webinar!  

As I said, we can teach anyone how to do this (just check out our testimonials) but it's not a trick – you actually have to learn our techniques and practice.  As I said yesterday, it's just a combination of using sound Fundamentals to identify market opportunities combined with good trading techniques that take advantage of those opportunites.  This morning, for example, we called the top on oil in our Live Member Chat Room at $48.60, then got back in at $48 and now (7:48), it's back to $48.40 for another $400 PER CONTRACT gain in one hour.  

This is why we love playing the Futures, it's a profession…
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Testy Tuesday – 17,600 on the Dow and 2,020 on S&P Must Hold

SPY  5  MINUTEWow, what a downer yesterday was.  

Our Members were loving it as we reviewed our Short-Term Portfolio on Friday afternoon and it was up just 68.7% for the year at $168,680 and, of course, we were bearish into the weekend.  Those same positions, with no adjustments, finished the day yesterday up 81.7%, at $181,680 – gaining $13,000 on that little dip – not bad for a "down" day!

Today we expect a bit of a bounce in the market but we already had our fun this morning playing oil long in our Live Member Chat Room beginning at 5:18 am with a bullish trade idea at $48.80 on /CL (Oil Futures).  We already stopped out of that at $49.25 for a nice $450 per contract gain – enough money to buy a nice breakfast while we wait for the markets to open.  

We also went long on /NG (Natural Gas Futures) in our Live Member Chat at $2.825 this morning and, already we're up to $2.90 on those for a $750 per contract gain on those contracts.  This is why we love trading the Futures.  We'll discuss Futures trading in our Live Webinar today at 1pm (EST) and, since this is our first official one of the year, it will be FREE to join AT THIS LINK.  If you want to learn more about how we make these trades – come join us!  

As I said yesterday, we simply trade on the Fundamentals but it's also important to learn how to make those trades and to have a trading discipline.  We discussed some scaling techniqes this morning and you can learn more about that by checking out our Strategy and Education sections but, to learn advanced techniques like Futures Trading, the live Webinars seem to be most effective

I can tell you what we're trading in the morning post (this newsletter has 17,720 active subscribers) like, for example, this morning we will re-enter a bullish position on oil (/CL) back at $48.85 and stop out at $48.75 and re-enter on a cross back over $48.85 (same plan as I told you yesterday) and then again at $48.50 - baiting our hook with $100 worms while…
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Chart School

Moving Averages: Month-End Preview

Courtesy of Doug Short.

Here is an advance preview of the monthly moving averages I track after the close of the last business day of the month. At this point, before the open on the last day of the month, three S&P 500 strategies are now signaling "invested" -- unchanged from last month. Two of the five of the Ivy Portfolio ETFs, Vanguard FTSE All-World ex-US ETF (VEU) and PowerShares DB Commodity Index Tracking (DBC), are signal "cash" -- also unchanged from last month.

If a position is less than 2% from a signal, it is highlighted in yellow.

Note: My inclusion of the S&P 500 index updates is intended to illustrate a popular moving moving-average timing strategy. The index signals also give...

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Zero Hedge

5 Things To Ponder: Ascending Contingencies

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Lance Roberts via STA Wealth Management,

I spill a lot of digital ink pointing out potential investment risk to investors. As I have stated in the past, the reason I do this is because the media expends a great amount of effort to avoid such a discussion because it does not attract viewership/readership. (Also, since their advertisers are primarily Wall Street related firms - suggesting an individual carry more cash is not financially beneficial.)

However, there are two problems with my approach. Because I share my view of risk with you, I am considered a "bear." F...

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Phil's Favorites

Financial Blogger Profile of "Mish" on Equities.Com

Courtesy of Mish.

Daniel Banas at Equities.Com interviewed me last week via phone for their profile series on "the most distinct and noteworthy voices in the world of financial blogging."

The interview transcript follows. First a few words ...

I am honored to be on that list.

The interview kicked off with a question on how I got started. I have commented on this before, but the short story is I was out of work, hanging around stock message boards, and Bill McBride (Calculated Risk) created the first template to my blog. Bill had just started his own blog and within a few years we became two of the top three economic blogs in the US.   

Somewhere along the line Barry Rithotz at the Big Picture ...

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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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In the News: An ETF Rush to Bet on Insiders

Courtesy of Sabrient Systems and Gradient Analytics

( by Todd Shriber): "Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW's insider sentiment strategy." [Editor's note: KNOW tracks the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM)]. Read article


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Market Shadows

What Would You Do?

What Would You Do?

Courtesy of Paul Price

Suppose you had the technical ability and raw materials to print up counterfeit dollars, euros or yen that were identical to the real things. Assume you could spend them as fast as you could create them with no fear of any repercussions.

Would you prudently print up only as much fresh currency as you needed for your current lifestyle? Would you create just a bit more than that to help relatives or those in need?

It is most likely you’d have your printing press running 24 hours a day, seven days a week. Becoming the richest person in the world would confer great power upon you.

You could rationalize this action because you plan to use the money for good purposes. Imagine the warm feeling you’d get by giving every person in America one million do...

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Swing trading portfolio - week of January 26th, 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

Jitters After Bitcoin Exchange Suspends Services

So as I was saying yesterday (Bitcoin: The Biggest Clown Show In History?), Bitcoin has several obstacles on the path to potential success as an alternative currency. But I forgot to mention hacking and theft at Bitcoin exchanges and other technical problems. This is related to the lack of government backing and the fact that the value of Bitcoins is based entirely on confidence.  

Jitters After Bitcoin Exchange Suspends Services 


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2015 - Biotech Fever

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

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...

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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 



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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...

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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.

Market Shadows >>