Phil's Newsletter

Will We Hold It Wednesday – S&P 2,060 Edition

12-2-2014 7-53-20 PM SPHigher and higher we go! 

The rest of the World seems a bit tired but the S&P, Dow and Nasdaq are like the energizer bunnies of the Global Indexes as they keep going and going and going

Earnings don't matter, Fed policy doesn't matter, news doesn't matter – IT just doesn't matter! – and that's something I haven't had to say since the bad old days before the last crash.  Still, here we are again, just 6 years after a catastrophic market collapse – ignoring wave after wave of negatives as if they JUST DON'T MATTER.  

Well, it's true in a way, nothing really matters – until it does.  For example, did you know, on Friday, that our nation's debt passed the $18Tn mark?  Even I was surprised by that one as our debt just topped $17Tn last November so adding another Trillion in a year seems kind of quick, don't you think?  Don't worry though – there's 150M workers so all we have to do is each come up with $113,333 each and we're all sqare.  

If we DON'T all come up with a quick $113,333, then we may have a problem as the interest on $18,000,000,000,000.00 at even just 2% is $360Bn per year, which by itself is $2,400 for each working American.  The reason the top 1% tell us not to worry about the debt is because $2,400 isn't very much to people who earn $2M+ per year but, for those of you earning the average $48,000 a year – it's 5% of your salary.

Notice the projection for the next 6 years takes us to $23Tn and let's say interest rates head up to 4% – then, suddenly, the annual interest is about $1Tn per year and that's now $7,500 per working American – just to pay the interest!  We could default, but there goes your Social Security as we've already robbed that lock box of close to $3Tn to fund our (so far) $18Tn debt.  

We'd also be defaulting on the $5Tn the Fed has lent us.  So screw them, right?
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Technical Tuesday – Big Chart Bonanza

Lots of interesting chart levels today:

As you can see from our Big Chart, the damage has been done over the past week as the Russell has once again failed at the Must Hold line, as has the NYSE and now we're watching 17,600 very closely on both the Dow and the Nikkei (which we're shorting this morning at 17,800 on /NKD Futures) and the Nasdaq has been rejected at the 20% line (ridiculous anyway) and the S&P will test its 10% line at 2,035.

SPX WEEKLYWhile I'm not a big proponent of TA, we still pay attention to it as the majority of traders are using it and that makes it a self-fulfilling prophesy as so many people trade off the same lines that the lines appear to have some meaning.  

In truth, those lines are no more a barrier to stock movement than the lines on the highway are to stop you from changing lanes.  You might generally stay within the lines but, every once in a while, you simply cross them.  

The fact that you USUALLY don't doesn't lead you to conclude that they are a wall, does it?  Why then, when looking at a chart, would you conclude that arbitrary lines are a floor or a ceiling to movement?  Surely the stock doesn't know where those lines are.  

12-1-2014 7-50-00 PM FlashAAPL sure didn't know where it's line was yesterday as that stock had a mini "flash-crash" and plunged to $111.50 (6.3%) in the first 21 minutes of trading yesterday and then spent the rest of the day recovering half of its losses.  

There were stories about weak IPad sales but nothing particular worthy of a panic sell-off and, in fact, BCS upped their target on AAPL to $140 before the market opened - certainly nothing worthy of AAPL losing $40Bn in market cap in less than 30 minutes!  

AAPL's drop took the Nasdaq with it, of course, as well as other high-flyers like BABA – as traders simply start dumping first and then try to find out why they are doing it.  Fortunately, at PSW, aside…
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Monday Market Movement – Russian Markets Collapse With Oil Prices

Sorry Vlad! 

Putin played the Game of Thrones this year in Ukraine and, like many in the TV show, he's lost it all in his grab for power.  As you can see from the RSX chart on the right, the Russian market (which Vlad had about $50Bn tied up in) is down 10% in two days and heading off another cliff today in what we, at PSW, refer to as a Homer Simpson Sell-Off.  

Russia is, of course, an oil-based economy and Mr. Putin's holdings are very much tied up in the oil and gas sector with a 4.5% stake in Gazprom, 37% of Sturgutneftegas and 75% of oil trading firm, Gunvor, which is facing massive losses as oil has collapsed from the FAKE top at $107 we called for you on June 20th all the way down to $63.72 this morning.  Following our suggestion to short them there (in our Live Member Chat Room that morning) would have put you up $43,000 per contract at this point – not bad for 6 month's "work"!  

Of course, we have been in and out of oil shorts over and over and over again in the interim but always with a bearish bias until we hit our $80 prediction and, since then, we've gotten more cautious and even made some LONG-term bullish bets but the bottom seems to be lower than even I predicted back in June ($70) though it may just be an over-reaction to the OPEC meeting – we'll have to see.  

Meanwhile, there's no good news on the demand front as China's PMI kicked off the Global slump this morning with a 50.3 reading, down from 50.8 in October and the lowest since March while the private HSBC reading put them at 50 – not expanding at all.  That was followed by Moody's downgrading Japan's (we're short) Credit Rating and that is a REALLY BIG DEAL for a country that is 260% of their GDP in debt.  

When you are 260% of your GDP in debt, a 1% rise in your borrowing costs means you need 2.6% MORE of your GDP just to

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#BlackFriday – Oil Collapses as OPEC Meeting Ends in Chaos

Oil is failing $70!  

$66 is a 40% (strong) retracement from the $110 top we saw just over a year ago but this time may be different as OPEC ended their meeting with no agreement to reign in the massive over-supply of crude that's spilling out onto the markets, even in the face of continuing declines in consumption.  

This is good news for consumers on two fronts - especially in the US, which has been miles behind the rest of the World in fuel economy.  What we're seeing in play now is the lasting effect of the Obama Administration's Aug 2012 mandate that has required automakers to double the average fuel economy of new cars and trucks by 2025 to 54.5 miles per gallon and, already, by 2016, we are on track to hit 35.5 mpg on the average.

As the biggest guzzlers of gasoline in the World, the US was consuming 10.5Mb of gasoline per day when Obama took office in 2009 and already we are down 14% to 9Mb/d, which is a 14% decrease in oil consumption.  1.5Mb/d is 1.7% of the entire World's 88Mb/d oil habit but that number too is shrinking as it doesn't pay for auto manufacturers to make high-mileage cars just for the US, so the entire global fleet has been using less and less for 4 years now. 

Getting to our goal of 54.5 mpg over the next 10 years will cut another 53% off our current consumption.  If that feat is replicated Globally, we're taking about knocking back another 15Mb/d – at least! 

And it's a double-win for consumers as their cars not only consume 14% less gas but that gas itself is now less expensive.  During the Bush era, for example, gas was $4.00 per gallon and cars were getting 22mpg so the average citizen driving 15,000 miles a year was using 682 gallons of gas for $2,728 in fuel costs.  Now, even at the early stages of the Obama Fuel Act, at 33 mpg it's only 454 gallons of gas and, at $2.85 per gallon, it costs just $1,294 to drive for the year – a $1,434 annual savings PER CAR!  

Not only that, but think how much less pollution…
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What, Me Worry Wednesday – Thanksgiving Edition

Complacency surrounding the stock market could lead to a mad, mad world.Let's not worry.

We're in the midst of a fantastic bull run so why ruin it with rational thinking?  Barry Ritholtz used to be a rational guy but now he shills for Bloomberg (#8 on the Forbes 400 with $35Bn) and posts things like "Current Dow rally below average in both duration and magnitude" in order to encourage the beautiful sheeple to keep BUYBUYBUYing what his boss is SELLSELLSELLing

I've warned before about how the smart money is leaving in droves while the dumb money piles in.  Back on Sept 8th (S&P 2,010), for example, I wrote "Clear Proof of Massive Market Manipulation", saying:

It's pretty similar to what happened every day last week, with a high-volume (relatively) sell-off followed by a recovery on almost no volume into the close, giving us the impression that the markets are flat


It is unbelievable, as in – something that should not be believed by intelligent people.  When you see a magician on stage sawing a woman in half or levitating – you might be amazed at what a good trick it is but you don't start believing in magic, do you?  What if that magician asks you to bet your retirement on the fact that he is really levitating people or that his assistant can medically be cut into pieces and reassembled?  

You wouldn't risk your money on such obvious fakery, would you?  You wouldn't give your hard-earned money to a person whose job it was to deceive you, would you? THEN WHY ARE YOU PUTTING YOUR MONEY INTO THIS FARCE OF A MARKET?

SPX WEEKLYI know, I even crack myself up when I read this stuff in retrospect.  Anyway, it wasn't so funny to people who didn't…
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Tip Toppy Tuesday – Markets Make Record Highs on Record Low Volume

SPY  5  MINUTEAnother day, another new high.  

Yawn.  We'd be a lot more impressed if all the gains for the day didn't come pre-market – in the even thinner-traded futures, followed by a day of choppy trading on anemic volume.  

Still, it is what it is and what it is is another new high and another record monthly gain and we don't know why but we made $10,000 yesterday in our Short-Term Portfolio as our bullish positions (because we thought we were too bearish last week) came through for us in spades.  

$10,000 is, of course, a ridiculous amount of money to make in a single day in a $100,000 porfolio.  In part, it's a reflection of the extreme volatility in the options chains, as those prices fluctuate wildly.  Since we sell a lot of premium when the VIX is high, we benefit when it gets low again.  Also, we're getting closer to January and we have a lot of January plays where time is on our side – it's not really an accident, this is how we set up our trades – they are simply working out better than we expected them to.  

Now we're up 70% for the year again and we have to consider whether or not we should take the money and run or just let them ride.  To some extent, we're protecting the much larger gains in our $500,000 Long-Term Portfolio, which is up 26% for the year ($130,000), which puts our $70,000 gain in the STP into the proper perspective.  

If we cash the STP, then the LTP is unprotected (as it's all bullish) and that's not acceptable but we COULD decide to cash out our longs and that would leave us VERY BEARISH in the STP, probably over-protecting the LTP but that might be a good thing into January.  

So, let's consider our STP longs and what we should do with them:

20 USO Jan $29 calls at $1.05, now $1.30 – up 23.8%

We just bought these last Thursday and our premise remains (success at the OPEC meeting this weekend – I guess…
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Monday Market Movement – Drifting into the Holidays

SPY  5  MINUTEIt's a short week.  

That means we won't expect much volume and that's good because the volume we had on Friday was all downhill from the open.  Friday's volume was almost double the other days of the week and you can see how the TradeBots took full advantage of the gapped up open – courtesy of China and Draghi's 1-2 combo stimulus.  

This morning, we're drifting up again – resetting the pins for another knockdown but probably not into the end of the month (Friday), as "THEY" want to post what will end up being one of the strongest months in the market OF ALL TIME!

That's right, we're getting all-time great returns (as evidenced by our Top Trade Alerts) and the hits just keep on coming as more and more stimulus is poured on the fire.  That's giving us the third highest p/e in the S&P's history, higher than the crash of 1901, higher than the crashes of 1966 or 2007 but still not quite as overpriced as 1929 and, of course, a far, far cry from the dot com crash of just 14 years ago, when YHOO was $300 a share:

S&P Shiller PE annotated

Of course, if we were to throw out the ridiculous 1,000x valuations of the internet darlings of 2000 and we look at the AVERAGE 15.7x for the S&P, then we're simply 80% overvalued to the norm.  That's not so terrible, is it?  Oh wait, I'm sorry, that's actually pretty much the definition of terrible…

If you are paying a company 27 times what they earn, then it will take you 27 years to get your money back.  That's a 4% return on your investment.  With rates artificially low (now negative in some countries), 4% returns on capital seem pretty good, so money flows into the markets but, as we discussed in Member Chat this weekend, we're getting more and more divorced from the Global realities that USUALLY matter to the markets.  Dangerous waters.  

Still, at the moment, the market is like one of…
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Thanksgiving Top Trades Review – Using Options to Reduce Risk and Increase Profits

Happy Thanksgiving (almost)!  

We added a new feature last month called Top Trades™ (Members Only) so I thought it would be a good time to see how we're doing as well as give a few tricks and tips to our new subscribers.  Top Trade Alerts are sent out once or twice a week via EMail and Text Message from our Basic and Premium Live Member's Chat Room.  These trades are just a very small portion of what we discuss during chat each day, but hopefully a good representative sample.  Let's see how they performed so far:

We already reviewed our first Top Trade Alert™ in Thursday's post and our first 7 ideas are already up a combined 3.7% for the month but, officially, GSK was the actual Top Trade that day, and it's already up 6.1% for the month – a great way to get started!  Also on Thursday, we checked out out 2nd Top Trade Idea for CAT and, with Friday's 4.27% gain, the stock is already up 9% in a month but, of course, we don't just play boring old stocks at Philstockworld – our option trade Idea was:

As a new trade on CAT, I'd sell the 2017 $80 puts for $7.30 for a very nice $72.70 net entry.  That's more than the $5.60 dividend you'd make owning the stock for 2 years and a 26% discount if put to you.  That's great as a stand-alone play or it can be paired with the $100/115 bull call spread at $5.50 and you still have a net $1.80 credit (so net $78.20 entry – 20% off) but 100% of the upside over $100 for the next two years.  

As of yesterday's close, the $80 puts were $5.70 (up 21.9%) and the bull call spread is now $7.35 for net $1.65 plus the original $1.80 credit is $3.45, up 191% in a month on the option play.  Isn't that more fun than just making 9% on the stock?  

This is what we teach our Members at Philstockworld.  Rather than
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Free Money Friday – Draghi and the PBOC add Fuel to the Fire


Europe is up 2% with no signs of slowing at lunch as Mario Draghi kicks it up a notch, saying the ECB is ready to "step up the pressure" and expand its asset-purchase programs if inflation fails to show signs of quickly returning to the ECB’s target.  BAM!!!

“We will continue to meet our responsibility—we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.  If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” 

That was enough to send the Euro plunging 1% ($1.24) as the Dollar jumped over the 88 line for the first time since 2010, when the Global Economy was collapsing and we looked like the only game in town.  Well, China wasn't going to take that lying down so, of course, the PBOC, in the middle of the night on Friday in China, suddenly decided to cut their own rates by 0.4 to 5.6% and they lowered their deposit rate by 0.25, to 2.75% effective tomorrow.  

“All the targeted easing measures or the mini stimulus measures to cut the cost of financing are in fact ineffective,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong, who correctly forecast one interest rate cut in the fourth quarter of this year. “So the only way to really reduce the cost of financing is through cutting the benchmark rate.”

Today’s move suggests a shift toward pro-growth policies that may fuel even more debt. An unprecedented lending spree from 2009 to 2013 led to a surge in debt on a scale that’s triggered banking crises in other economies, according to the International Monetary Fund.  China’s total
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Faltering Thursday – Trouble at the Top of the Range?

INDU WEEKLYThis low-volume rally is a joke.  

As I pointed out to our Members in yesterday's Live Chat Room, volume on the up side of that v-shaped recovery has been 1/2 of what the volume to the downside was (comparing the last 3 weeks to the 3 before it), which means this "rally" is nothing but hot air – with very little support underneath.  

And I know you get tired of hearing me say it and I get tired of saying it but, one thing I learned in 2008 is that you can't warn people often enough to be more cautious.  Yes we lose subscribers when we go to cash (not much to trade) but, when the markets do pull back – my subscribers still have money!  

And it's not like we can't make money with our cash.  Just yesterday, we posted 7 bullish trade ideas for our Members, 3 of which we added to our virtual portfolios and one of which, a long on /SI at $16, made $2,500 per contract in 30 minutes and another $1,500 per contract this morning – that's not a bad way to sit on the sidelines, is it?  

We don't ALWAYS have to be invested.  We still have many long-term positions, it's just that we also have a lot of cash in case those long-term positions get cheaper and we decide to buy more.  In fact, a few of yesterday's plays were just that – buying more of stocks that we've been liking all year as they go on sale.  

This morning our Futures are at 17,600 on /YM, 2,040 on /ES, 4,200 on /NQ and 1,155 on /TF and we can go long on the laggard when (and IF) two of them are over and get out when 3 are below as a bullish play for the normal morning pump – that's how we make a quick $500 for you at Philstockworld!  

Copper is bouncing off $3 again, that's also a good play, one that already made $1,250 per contract at $3.05 when I recommended it in Tuesday morning's post (which you can have delivered

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News You Can Use From Phil's Stock World


Financial Markets and Economy

European Stocks Little Changed With Industry Rotation on Hold (Bloomberg)

European stocks were little changed, as a recent rotation out of so-called defensive sectors and into shares seen benefiting from economic growth eased. Utilities and real estate companies climbed with banks, while miners trimmed recent lofty gains.

Yuan Rises for a Second Day as Fixing Signals Government Support (Bloomberg)

China’s yuan rose for a second day after an unexpectedly strong central bank fixing spurred specul...

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Zero Hedge

Frontrunning: December 6

Courtesy of ZeroHedge. View original post here.

  • Trump heads back out on road for 'thank you' tour (AP)
  • For Europe’s Unity, 2017 Will Be a Year of Reckoning (WSJ)
  • Oil dips as OPEC, Russian output rises ahead of production cut (Reuters)
  • The Pessimist's Guide to 2017 (...

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The Beauty of Old (Investment) Ideas

By David Merkel. Originally published at ValueWalk.

One of the great draws in reading investment writing is the lure of “hot tips.”  Everyone wants an investment idea that they can put a lot of money into that will reward buyers (or shorts) with a quick and large score.  Thus most publications try to lure you in with articles like these, whether they will work or not.

Photo source: Tumisu, Pixabay

We live in an era where market players scour as much fresh data as possible to make money, because there is validity to the idea that only fresh, previously unknown information can produce excess returns.  ...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Dow Sets Record as Bank Stocks Rally, Investors Shrug Off Italy (Bloomberg)

U.S. stocks climbed and the Dow Jones Industrial Average set a record as a rally in financial and technology shares reversed a dip in early trading after Italian voters rejected a constitutional referendum.

Japan's Labor Shortage Is Worst in the Leas...

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Phil's Stock World's Las Vegas Conference!


Come join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017.            

Beginning Time:  8:00 am Sunday morning

Location: Caesar's Palace in Las Vegas


Caesar's has tentatively offered us rooms for $189 on Saturday night and $129 for Sunday night. However, we have to sign the contract ASAP. We need at least 10 people to pay me via Paypal or we may lose the best rate for the rooms. (Once we are guaranteed ten attendees, I will put up instructions to call the hotel for individual rooms.)

The more people who sign up,...

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Members' Corner

Once In A Lifetime?

Courtesy of Nattering Naybob.

Discussion, critique and analysis of the potential impacts on equity, bond, commodity, capital and asset markets regarding the following:
  • Dec 4th Italian Constitutional Referendum
  • Referendum Result; Market Reaction
  • Political Reaction; Opposition Party Reaction
Last Time Out
Since the end of World War II, 71 years have passed during which, the "perfect" balance has resulted in 63 different Italian governments, or more often than most change shoes.  Instead of being a real second legislative check, that balance is seemingly a weapon of mass distraction and instrument of political vetoes whi...

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Swing trading portfolio - week of December 5th, 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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Kimble Charting Solutions

Inflation indicator testing multi-year breakout cluster!

Courtesy of Chris Kimble.

Some tools are used to measure inflation or lack of. Some look at the price of Crude Oil, Doc Copper or the Commodities Index (CRB) to determine if inflation or deflation is in play. Since 2011, most commodities have created a series of lower highs and lower lows and for many, it has been easier to make the case of deflation than inflation, is in play.

Below looks at another tool, that is often used to determine if inflation or deflation is in play. This tool we are referring too is the TIPS/TLT ratio-


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Chart School

Weekly Market Recap Dec 4, 2016

Courtesy of Blain.

The week that was…

The market needed a pause after the frenetic post election rally, and it finally arrived this week.  The pullback was mild as bulls would like.  This week’s “fear of the week” was Italy’s political referendum which happened today… and was rejected.

Italian voters were asked in a referendum to approve changes to the country’s constitution, which have been called the most sweeping since the end of World War II. The proposed reforms would cut the Senate’s size by two-thirds and reduce powers held by the country’s 20 regional governments. Italian Prime Minister Matteo Renzi believes the changes will aid efficiency in parliament.

The reforms could also “make it easier to implement important legislation (such as measure...

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Digital Currencies

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

Courtesy of ZeroHedge. View original post here.

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

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

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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...

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Epizyme - A Waiting Game

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

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...

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All About Trends

Mid-Day Update

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

Click here for the full report.

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

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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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