Phil's Newsletter

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
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Faltering Thursday – Fearing Fed’s Forthcoming Failure

I'm not going to talk about the Fed.  

I already told you last week what the announcement would be and, in our Option Opportunities Portfolio over at Seeking Alpha, our outlook on the Fed combined with the activity we were observing over at the COMEX led us to go long on gold as it fell down to $1,100 in addition to the obvious futures trade idea we had in PSW's Live Member Chat Room to go long on Gold Futures (/YG).  For the futures challenged, our trade idea was simply to use the Gold ETF (GLD) instead:

  • Buying 10 of the GLD Oct $104 calls for $3.58 ($3,580)
  • Selling 10 of the GLD Oct $108 calls for $1.39 ($1,390)

That net $2,190 position pays back $4,000 if GLD is over $108 at October contract expiration (16th) but already the Futures have paid off like a gold strike as we shot up to $120 for a $664.40 PER CONTRACT gain.  The margin requirement on gold futures is just $1,826 per contract, so it's a nice, efficient way to play!  Meanwhile, in our OOP, GLD is already at $107.31 and the spread is at net $2,580 – up $390 so not quite as exciting as the Futures trade but that one stopped out already so we'll see which makes more next month.  

This stuff isn't complicated folks, we read the news and, when we think we know what's going to happen next AND we can see an opportunity to make a nice trade to take advantage of it – we go for it.  Ulike Rothstein, however, we don't "bet it all" because we are constantly presented with opportunities like this and, since we understand the value of "How to Get Rich Slowly," we are very happy to CAREFULLY work our way in and out of positions that maximize our gains while minimizing our risks.  

Our Option Opportunity Portfolio was originally called the 5% (Monthly) Portfolio with a goal of making 5% each month but the title tested as confusing so it was renamed.  I am, however, happy to announce that, as of yesterday's…
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Wednesday: Wages (or lack thereof) are Killing this Country


For what, I don't know.  Who cares if the Fed raises rates by 0.25% or not?  We all know it's coming and whether it comes tomorrow (it won't) or October (it will) has nothing to do with the health of the economy or earnings for the last 3.5 months of 2015.  

We know the Fed can't lower rates below 0, so they have nowhere to go but up and it's just a matter of when, not if, rates are going to rise.  No jobs will be gained or lost, no factories will be opened or closed, no ditches will be dug or filled in based on what the Fed does tomorrow.  The Fed has not in any way, shape or form done anything to help the real economy in 7 years – why start now?  

Yes, they've made interest cheap so you could refinance your house and buy a new car (ie. take on more debt for the Banksters who own the Fed) but they've also destroyed the value of savings and incentified our Corporate Masters to leverage, merge and lay off workers, which has the net effect of driving wages to record lows in relation to Corporate Revenues and Profits:

Do you see that red line on the top chart?  That's ZERO – you can't go much lower than zero unless you figure out how to get the employees to pay you for the privilege of coming to work (I know, we shouldn't give them any ideas!).  NO Corporate profits are shared anymore, workers are paid as little as possible and given no credit whatsoever for a company's success and, thanks to drastic cutbacks in pensions and benefits – they are discarded like a broken machine after a lifetime of service to the company.  

It's no wonder Bernie Sanders is striking a resonant chord among the voters.  While most candidates have tin ears when it comes to the state of the real economy, Sanders knows how bad conditions are for the majority of the people in this country and he's willing to point the finger at the people who are grinding them down.  

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Zero Hedge

Xi's Roadmap To The Chinese Dream

Courtesy of ZeroHedge. View original post here.

Authored by Pepe Escobar via The Asia Times,

China's Belt and Road Initiative - the New Silk Road - will spark the country's development and turn the dream into reality...

It all starts with Hong Kong as a major BRI financing hub.

Now that President Xi Jinping has been duly elevated to the Chinese Communist Party pantheon in the rarified c...

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Phil's Favorites

Bearish Fund Traders Head For Early Hibernation


Bearish Fund Traders Head For Early Hibernation

Courtesy of Dana Lyons, with introduction by Zero Hedge 

'Speculators' have never been so confidently complacent that 'all is well'.

Speculative positioning in VIX futures and options remains at its most short in history as traders refuse to back away from 'what works' as realized volatility collapses to its lowest in over 60 years......

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Chart School

Gold Cycle Update

Courtesy of Read the Ticker.

Why has gold not fallen below $1000 (well so far), what is the golden canary telling us?

Previous Posts:
SP500 Kitchin Cycle says trouble brewing - Update
SP500 How much higher ?

In short, the old heads out there know there is a ying for a yang! Currently the SP500 screaming higher, massive debt, low very !VIX. But as well all know this wont last forever, and the flip side could be very scary. Hence the hedge into metals, and building of the 4.5 year gold base, and as a ...

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Full Transcript Of Donald Trump Interview With Maria Bartiromo [PREVIEW]

By VWArticles. Originally published at ValueWalk.

Please see below for the full transcript of FOX Business Network’s Maria Bartiromo. The interview with President Donald Trump today that will be airing across FOX Business Network’s (FBN) Mornings with Maria (6-9AM/ET) and FOX News Channel’s (FNC) Sunday Morning Futures 10AM/ET).

]]> Know more about Russia than your friends:

Get our free ebook on how the Soviet Union became Putin's Russia.


Part 1 - Sunday, October 22nd  on FOX News Channel’s Sunday Morning Futures (10-11AM/ET)

Part 2 - Monday, October 23rd on FOX Business Network’s Mornings with Maria (6-9AM/ET)


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Insider Scoop

There Could Be 109% Upside In uniQure As Company Advances Gene Therapy Into Clinical Trials

Courtesy of Benzinga.

Related QURE 32 Stocks Moving In Friday's Mid-Day Session Wall Street's M&A Chatter From October 19: Uniqure, Ulta, Sally Beauty,... more from Insider

Digital Currencies

The World's Largest ICO Is Imploding After Just 3 Months

Courtesy of Zero Hedge

Earlier this summer, Tezos smashed existing sales records in the white-hot IPO market after the company’s pitch to build a better blockchain for cryptocurrencies made it one of the buzziest ICOs in the world. As we noted at the time, the company capitalized on that buzz by courting VC firms and other institutional investors with a $50 million token pre-sale. After the company opened up selling to the broader public, demand soared as investors greedily bought up tokens in spite of glitches that threatened to derail the sale early on. By the end of its weeks-long token sale in July, Tezos had sold more than $230 million.

Now, Tezos is proving that authorities in the US and China were on to something when they decided to crack down on the ICO market, which has become a cesspool of...

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Mapping The Market

Puts things in perspective

Courtesy of Jean-Luc

Puts things in perspective:

The circles don't look to be to scale much!


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Circadian rhythm Nobel: what they discovered and why it matters

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


Circadian rhythm Nobel: what they discovered and why it matters

Courtesy of Sally Ferguson, CQUniversity Australia

Today, the “beautiful mechanism” of the body clock, and the group of cells in our brain where it all happens, have shot to prominence. The 2017 Nobel Prize in Physiology or Medicine has been awarded to Jeffrey C. Hall, Michael Rosbash and Michael W. Young for their work on describing the molecular cogs and wheels inside our biological clock.

In the 18th century an astronomer by the name of Jean Jacques d'Ortuous de Ma...

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Members' Corner

Day of Last Dances

News today has been relentlessly terrible. A horrific mass murder happened last night in Las Vegas. (Our politician's abject failure to address gun control is beyond sickening.) And today, reports that Tom Petty died of a heart attack, followed by reports that Tom Petty is not dead, and now reports confirming that Tom Petty has passed away. 


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Swing trading portfolio - week of September 11th, 2017

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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NewsWare: Watch Today's Webinar!


We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...

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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.


EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...

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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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As Seen On:

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 >>