by Phil Davis - June 9th, 2014 7:43 am
Things are still looking up.
This morning, Japan revised their Q1 GDP Estimate from 5.9% to 6.7% as a huge splurge in consumption ahead of the sales tax increase shot Consumer Spending through the roof 3-6 months ago. It's a great indication of what insane amounts of stimulus can do (Japan is puming about 10% of their GDP into the economy vs. "just" 5% in the US and less than 2% in Europe). By contrast, Europe's GDP grew just 1% in that 18-country block and the US was down 0.1% during the same period.
Clearly stimulus works – so – the answer to everything is – MORE STIMULUS!!!
More stimulus, more stimulus and, when in doubt (or, when needing to hit your numbers) – even more stimulus! We saw the ECB get on that bandwagon last week and our Fed never stopped so, what can possibly go wrong in a global money-printing party. Other than this, of course (projections for Q2 in Japan):
Even Japanese traders wised up this morning as the Nikkei tumbled off the high of 15,235 back to 15,160 in the Futures (/NKD) but that's still high enough to give it an official 0.3% gain for the day. Other Asian indexes also sold off into the close, but not so much as to not print another bullish Monday as Chinese export growth (May) came in strong as well at 7%, after a very weak 0.9% in April.
This is what happens in a market that ignores bad news (the 0.9% disaster didn't take us down) and celebrates good news – there's literally nowhere to go but up! MSCI's All-World share index (.MIWD00000PUS on Bloomberg), which encompasses 45 countries and is generally seen as benchmark of global stocks, was up 0.1 percent at 426.77 points, just below its 2007 pre-financial crisis peak of 428.63 points.
This chart is interesting as it gives us a view of both p/e, which has been boosted by stock buybacks and M&A activity, as well as price to sales, which isn't. The capacity for both investors and analysts (not Dr. Ed) to ignore this kind of information astounds me,…
by Phil Davis - June 7th, 2014 8:24 am
What a rally!
While stocks certainly aren't "cheap" by any measure, we've been able to identify 20 that are still good values. We've been compiling this list and going over trade ideas for playing them in our Tuesday Webinars since May 13th and, of course, we've been posting them in our Live Member Chat rooms, so this is just a review to consolidate our trade ideas.
We cashed in our Long-Term Portfolio last week at what we thought was a top but so far – so wrong on that call! Since it's up 19% in just 6 months, we're not going to cry about missing the last 400-point move on the Dow (2.5%) – we'll just have to look ahead to deploying our cash again, following the same strategy that was so successful in the first half of the year, which was, essetially, our "7 Steps to Consistently Making 20-40% Annual Returns" system:
As we did in building our Long-Term Portfolio, we're not going to rush in and buy everything. We will do exactly what we did in January where, following our Fall Buy List, we simply added stocks from our list whenever they became cheap. While our Members are able to pick up our trade ideas as they are released, we don't always add them to our virtual portfolios right away. As with the first half's Long-Term Portfolio, we will track every entry and exit in both our Live Weekly Webcasts, as well as in our Live Member Chat Room and alerts will be sent to our subscribers (you can join here, Basic and Premium Members get full access).
Our picks were originally grouped by industry sectors but, for reference purposes, I'm going to list them alphabetically below – these are the original trade ideas (the Webinar dates where we discussed our picks are next to the symbol), most are still playable but some have already taken off :
by Phil Davis - June 6th, 2014 7:42 am
Is there any point to working?
For Americans, it's just the time we waste while waiting to consume. As more and more of our jobs are taken over by machines – why are we still hung up on working?
There is the small problem of distributing the wealth but, once our bosses let go of the idea of needing us to show up just to get paycheck – I think we can get our economy back on track.
What we need in America is for our vast consuming class to go pro – to demand to be paid to shop. Retailers already pay for ads to get our attention so why not cut out the middle men and just get paid to go shopping? Imagine how full the malls would be if people stopped working by choice, rather than by circumstance.
The last Superman movie, "Man of Steel" had $160M worth of promotions tied to it. The movie only grossed $291M and, at $10 a ticket, that means about 30M people saw the film. Rather than paying Warner Brothers to make another retelling of the Superman story, why don't the advertisers just GIVE $5 to everyone who sees the movie? More people would see the movie, so the studio would be happy – and that $160M would be spent in the economy, giving everyone a boost.
The top 100 movies last year grossed $11Bn last year so, if we figure they could pay out 50% of the box office, that's $5.5Bn = enough money to give $25,000 to 220,000 professional shoppers. If we apply this logic to other industries as well, we could put millions of pro shoppers to work right away and THEN there would be a demand for more jobs.
We certainly need to do SOMETHING because, as you can see from the chart above, China's spending patterns are falling off dramatically. Surprisingly, the money their Central Bank is pumping into the bank accounts of the top 1% isn't trickling down to the bottom 99% and even the top 1% are starting to cut corners because – SHOCKINGLY – when they don't hire and pay workers, the workers…
by Phil Davis - June 5th, 2014 8:27 am
For those of you who thought 0% was the lowest rates could go, Mario Draghi just redefined the game. Oddly enough, -0.1% is HIGHER than was anticipated so we shorted the Dow (/YM Futures) as it popped this morning to 16,750 (with tight stops above) for a number of reasons that we discussed in our Live Member Chat Room earlier.
For those of you who read yesterday's post (and our Subscribers get them via Email at 8:30 each day, with plenty of time to act ahead of the open), we called for shorting oil at $103.50 and this morning we're at $102.25 – up a very nice $1,250 per contract in less than 24 hours.
On our Futures shorts, there were quick profits at the open but, as you can see from Dave Fry's SPY chart, we raced back up and made new highs into the close.
Of course, for those of you following in our live Member Chat Room, we knew that was going to happen and, at 9:46, I said to our Members:
Wow, 16,650 (/YM) – that should be bouncy so don't be greedy! Can always re-enter if it breaks.
That non-greedy exit (up $250 per contract) saved us a lot of grief as the market came back and, fortunately, we kept our oil shorts for the day's really big pay-off:
As I said yesterday, I can only tell you what's likely to happen in the markets and how you can make money trading on that information – that is the extent of my powers - the rest is up to you. We are going to be giving another FREE Webinar this evening outlining our "7 Steps to Potentially Making 30-40% Annual Returns" and this may be the last day we accept new webinar clients this month – as we're just about a capacity.
by Phil Davis - June 4th, 2014 8:29 am
Yesterday was a close one!
We briefly failed our first test of 1,920 (see yesterday's notes) but another low-volume rescue kept us from fulfilling the "Wave C" predicion on this Elliot Wave chart – for now.
Not that I'm an Elliot Wave person, of course – my theory is that, if you are going to draw 5 points on a graph you can imagine all sorts of random patterns and SOMETIMES you will be right. About half the time, in fact.
I believe in bigger numbers and our own EXCLUSIVE 5% Rule™ says the S&P bottomed out at 800 (in 2009) doubled to 1,600 last Spring, consolidated there for a quarter and now has made a 20% move to 1,920 – just like it was supposed to since it bottomed in 2009 (see our many, many predictions over the years). In fact, it was March of 2012, with the S&P at 1,404, when we set our new goals for the S&P to 1,600. As I said at the time:
That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800. I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.
Once we did get the dip in June that we expected at the time (down 10%, back to 1,278 and, fortunately, we had wisely cashed out our Income Portfolio before things turned ugly) we were happy to go gung-ho bullish with our Buy List – the same kind of Buy List we just finised assembling in yesterday's Live Trading Webinar. In fact, right in that 3/17/12 post, I laid out this play to profit from our prediction:
For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan (2013) $146/154 bull call spread is $3 and you can sell the $110 puts for
by Phil Davis - June 3rd, 2014 8:25 am
That's 2 closes over 1,920.
It's almost enough to make us regret cashing out our Long-Term Portfolio last week. We didn't expect to call a perfect top, when you have a large portfolio it can take days to unwind your positions and, despite the very low volume – we'd like to thank all the retail bagholders who bought our shares at top dollar in the last few days.
Thanks Dave and Bill and Jack and Joe and – well, that's about it as volume is so low, there can't be more then 3 or 4 guys trading in this market!
Last June started off with low volume too – as well as record highs – and then we dropped 5% into July. We're simply taking our 119% cash and waiting for the dip – is that so bad?
Yesterday was only the 3rd lowest volume day of the year and the action was wonderfully fake around a PMI report that was released, revised and then revised again – all in the same morning!
In the end, they decided on 56.4, which was in-line with consensus but not before giving us a glimpse on how quickly this market can fail on bad news.
In our Live Member Chat Room, we took full advantage of the over-reaction on the bad news to go against the panicking sheeple and buy TNA (3x bullish ETF on the Russell) in a 9:57 Alert I sent out to our Members.
That trade was so obvious I tweeted it out as well (you can follow me here) saying:
Those calls came in cheaper (because our timing was perfect) at $1.50-$1.40 and they topped out at $1.70 and finished the day at $1.61 but should be cheap again this morning, which is why I'm mentioning them now as they make an excellent upside hedge – in case the market does better than we think.
by Phil Davis - June 2nd, 2014 8:32 am
I know it sounds like a broken record (kids don't even know what that means) to say "record highs" over and over again, but that's what the Federally fueled rally has given us – over and over again.
Certainly the Fed remains EXTREMELY accomodative but they also stand to lose hundreds of Billions of Dollars on their current bond-holdings if rates ever do rise (because they hold Trillions of low-rate bonds, which lose value if higher-rate bonds become available) – so how long can this game last?
It's not just the Fed, of course – other people do buy our bonds (and hold our bonds) and, right now, the people holding high-interest bonds (5%+) are sitting on a gold mine as they are far more valuable than 2-3% bonds. What happens when that begins to unwind? Suddenly there will be a flood of bonds hitting the street at 5%+ that the Government, who still borrow $50Bn per month, will have to compete with to raise capital. Doing this at the same time as the Fed is withdrawing their stimulus can be a disaster.
We were talking about inflationay pressure in Member Chat this morning and anyone who has a stomach has some idea of what the real inflation rate is in this World. This chart is from India, where inflation has "slowed" to 8.64% but last year's 15% average led to the ousting of the old government in the recent election.
Revolution is a slow process, especially in democracies – where the population has the illusion of choice. We are always enticed by the chance to "throw the bums out" in a few years but then, inevitably, the new bums are just as bad and then we want to throw them out too.
That's because you can't fix a broken system when everyone is playing just a slight variation on the same news. The way our own Government measures inflation is a joke, because 57% of the measured inflation rate is Owner's Equivalent Rent, which means, even if you are not buying a house, when your house gets more affordable (lower price, cheaper mortgage), that's considered to detract from the total rate of inflation of everything else with…
by Phil Davis - May 31st, 2014 8:44 am
May got off to a fantastic start.
In our first week alone (see Part 1) we had 47 trade ideas between our morning posts and our Live Member Chat room and, already, 42 of them (89%) are winners. Keep in mind the main purpose of these trade reviews is to look at the LOSERS and see if perhaps we have a better entry opportunity than we had before.
We missed on SDS (ultra-short S&P) but that was a hedge and we are still using it into June. We missed on PNRA and that's just a better opportunity to get in. We missed on TWTR and we already doubled down on that one and already cashed out with a profit in our Long-Term Portfolio (see our other review), not because we don't still like it but because we went to cash on our Long-Term Porfolio, since it was up 19% in 6 months and we decided to sit out the summer correction in CASH!!!
We don't know if our timing is perfect getting back to cash but even if we finish the whole year with the $98,430 gain we have now (out of $500,000) in the Long-Term Porfolio – we've certainly done our job. Can we do better? Of course we can – that's why we do these reviews – to see what's going right and what's going wrong so we can make adjustments along the way.
If CASH!!! turns out to be a mistake, then we can re-deploy it – that's not complicated, is it? I know that, as a trader, you feel like you are SUPPOSED to trade – especially those of us who are retired and, if we're not trading – we get kind of bored.
Well, we had 11 new trade ideas this Wednesday and Thursday alone (summarized in Friday's post) AFTER we went to cash – so it's not like we died, we just took adavantage of a positive turn in our portfolio to realize our virtual profits. After all, they aren't really profits until you take them off the table! Good poker players learn that the hard way…
by Phil Davis - May 30th, 2014 8:21 am
I hurt myself today
To see if I still feel
I focus on the pain
The only thing that's real – Nine Inch Nails
Were we wrong to cash out?
It's hard to feel bad about taking a 19% profit off the table after just 6 months (in our $500,000 Long-Term Portfolio) but we had another low-volume pump-job yesterday that sent some of the positions we closed up sharply and left us regretting our timing – just a little.
Still, the time to sell your positions is when other people are buying, not while everyone is panicking. We got great exit prices and, on the whole, it was fairly stress-free. S&P 1,920 was our predicted top and we pulled the trigger to take the money and run at 1,910 because, as experience has taught us – it doesn't pay to be greedy!
Last week and this week, I laid out my case for why the economy is not as good as it seems and certainly not good enough to be paying all-time highs for stocks. As you can see from the chart on the left – I'm certainly not the only one who thinks so as the "smart money" has flown out of the market this year, taking advantage of each record high to sell, Sell, SELL!!!
We were a little more patient, we moved our Conservative Income Portfolio ($500,000) to cash at the end of March and avoided the April sell-off and have since been buying bargain stocks in that portfolio. We had left our more aggressive Long-Term Portfolio ($500,000) on the table but this last leg of the rally left it up a ridiculous 19% for the year – and that's halfway to our best-case goal so it's a good time to take a break, step back, and see how the market handles early June.
It's not like we can't find anything to do with our cash. In additions to our usual Futures trading, we still have our Short-Term ($100,000), Butterfly ($100,000) and $25,000 Portfolios to play with and, since Wednesday…
by Phil Davis - May 29th, 2014 5:02 pm
And then there were 2.
Just two positions remain in our Long-Term Portfolio now, short puts we sold against HOV an EGLE that are "losers," so far. Of our other 29 virtual trades, which we finished closing today, only 3 have a loss, which gives us an 83% winning percentage – which is pretty much in-line with our usual performance for PSW Members (see our Trade Reviews).
If you want a quick summary of my reasoning for getting back to cash – it's the same one I had back in March, when we cashed out our Income Portfolio. I was interviewed on TV at the time, where I made my case for caution. Since then, the S&P is up from 1,890 to 1,920 and that rubber band is simply stretched too tightly for our liking now – so we cash out our more aggressive portfolio too.
Without further ado, here's our trade history in the Long-Term Portfolio, which died a sudden death on May 28th and 29th (there were a lot of positions to close) of 2014, at the age of just 6 months:
AAPL was our Stock of the Year pick, so that was a no-brainer and we were willing to allocate a much larger than usual block to it. ABX is one that can still work (and we will certainly be going back to this portfolio – in addition to our new Buy List, as we seek to redeploy our cash in the 2nd half of 2014) as are BTU, CLF and EBAY. EGLE is still open and the price is now correct, which is one of the reasons we ended up with more profit than we thought.
GLL taught us not to play GLL, the bid/ask spreads were ridiculous. HOV is our other still-open position, IRBT is new but we shut it down anyway (still playable) and LGF, LULU and RIG are still playable as new positions. We didn't shut everything down because we don't like them – we just wanted to be in cash through June 10th and, if the market is