Phil's Newsletter

Happy Martin Luther King Day!

It's Martin Luther King day so the markets are closed.

It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision.  Here's a great video of the actual event.

It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

  • Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
  • Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
  • It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
  • The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
  • Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.   
  • Never forget that everything Hitler did in Germany was legal.
  • We will remember not the words of our enemies, but the silence of our friends.
  • The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
  • A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
  • A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
  • One of the greatest casualties of

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Flip-Flop and Friday – Markets Yo-Yo Lower

China is really falling apart!

The Shanghai Stock Exchange dropped another 3.5% today to finish well-below 3,000 at 2,900 – ending at the low of the day.  That puts the index officially in bear market terrory (again), now 20.5% off it's December 22nd high of 3,651.  The latest fall in China’s stock market followed a state-run media report that some Chinese banks were no longer accepting stocks as collateral for loans. At the same time, official data also showed weak demand for bank loans.  

It doesn't matter if it's true or not – what matters is people are in the mood to panic – so it doesn't take very much to start a stampede – as we saw yesterday when our own markets stampeded up for the same no reasone they stampeded down the day before and now our Futures are down 1.5% on a combination of China concerns and now the 5% drop in oil we're seeing as that sector panics over Monday's release of Iranian oil – which will add about 500,000 barrels a day of unneeded oil to the already saturated markets.  

We extensively discussed oil and other commodies in Tuesday's Live Webinar for our Members (replay available here) and I explained why it was not done going down at the time, so I won't re-hash it here but we are finally getting to the point where we might take a long poke on the Ultra-Bullish Oil ETF (UCO), which is now under $8, not much below USO, which is now under $9.  We'll keep an eye on that in our Live Member Chat Room next week.  

Speaking of keeping an eye on things – you are very welcome for yesterday's call to go long the Russell at the 1,000 line (and yes, we did it again this morning).  One of the huge benefits to having cash on the sidelines is we have plenty of margin left over to play the Futures and make these quick in and out trades – without having to risk the overnights.  

And thank goodness we didn't risk the overnights because the Russell has round-tripped all the way back to 1,000 this morning and, since we're not too proud to double-dip…
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Fearful Thursday – Are the Markets DOOMED? Breaking Down the Dow

I told you we would be DOOMED!!!  

That's right, in Monday morning's post I said:  

Unfortunately, it's too late for the Russell, which already blew through that line and is back at 1,050, where it MUST HOLD or we are DOOMED!!! 

That's right, DOOMED!!!, and I'm not afraid to say it.  Panic is in the air and the VIX hit 27 on Friday, just shy of the August high and that means people are FREAKING OUT and the markets can be very dangerous when that happens.  

RUT WEEKLYNow we will be watching the 1,000 line on the Russell and, if that fails – we could be looking at another 5% drop for the S&P – all the way to about 1,760 before the next time we'll want to play for a bounce.  As I pointed out in my Morning Alert to our Members, none of this is a surprise to us as we called for cashing out when the S&P was at 2,085 back on August 13th (see: Thoughtful Thursday – Contemplating the S&P 500) and, I've repeated it every time the S&P hit 2,100 since.  

Why?  Because the VALUATIONS of the actual S&P 500 components did not support 2,100 for the index, that's why!  This isn't rocket science folks – over time, value does tend to win out over price – and certainly over Technicals…  At the time (8/13), I had concluded:

Over the last year, those overseas revenues have been in rapid decline and we're not picking up the slack at home so there is NOTHING here that justifies the S&P trading at an all-time high – especially when it's 10% higher than last year's trading range with a negative overall growth rate (mostly energy/commodities dragging it down).

So, upon further examination, there is no change to our stance of being short the markets at these levels which, on the Futures this morning, are 17,400

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Weak Bounce Wednesday

Not too exciting so far.

As we predicted on Monday, the 5% Rule™ is in play and we have, so far, held the line at the bottom but now we need to see if our bounces are weak (+1%) or strong (+2%) into Friday's options expirations.  It's entirely possible, since it benefits the most Fund Managers, that we pop 2.5% and end up even for the month – right back where we started when they sold all those option contracts on Dec 18th.  

NYMO  DAILYYes, that's right, the markets are a manipulated joke but, as long as you understand and accept that – you can play along with the manipulators and make some good money.  Clearly the markets are a bit oversold here and, oddly enough, it's the overwhelming level of doom and gloom coming from the MSM that makes us want to go long now.  

After all, what are they telling you to worry about?  China, the Fed, Oil, Commodities, Terrorism, North Korea, Junk Bonds, Brazil, Puerto Rico…  These are all things we've been talking about all year when we went SHORT at S&P 2,100.  Now that we're back to 1,900 (down 10%), I'm a lot more comfortable that the market is now taking into account these risk factors.  None of these problems are new folks – the media simply stopped ignoring them this month.  

As I mentioned yesterday in our Live Webinar, we KNOW the energy sector's earnings are going to be a disaster – that's a given.  How much of that will spill over to bad debt for the banks is something we'll find out this week as JPM, BLK, C, PNC, FRC and RF all give their earnings reports (Thursday night and Friday morning).  If they manage to be relatively unscathed by the collapse in commodities and the collapse in China – then the main reason to panic will quickly fade into the background.

MW 3 toasterFor those who watched the Obama's final State of the Union Address last night (and here's the 2 min version) it was starkly apparent that the American people have been hammered with negativity about our economy from a dozen
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Turnaround Tuesday – Turkey Terrorism Tests the Tape

SPY  5  MINUTEI told you so.  

I titled yesterday's post "Meaningless Monday Market Movement" and, despite the gyrations, it certainly was.  Now the real action begins and we'll see if we can hit those bounce lines (see yesterday's post).  There was apparently a suicide bomber in Instanbul this morning and many people were killed at a market but, as is often the case these days, the markets are shrugging it off and moving higher – up about 1% at 8am in the Futures

We did lose the 1,050 line on the Rustle and, if we don't get it back today we are DOOMED!!!,  but I think "THEY" have other plans.  Still, that line will be critical to watch this morning – weakness there (or NYSE 9,600) will mean it's another one of those narrow, manipulated rallies where the headline stocks are run up to get the suckers (that's you) to think it's time to buy the f'ing dip again.

However, I don't want to confuse the issue – I think we're oversold and I think we should get a nice bounce here.  I think a lot of stocks have over-corrected and I think there are plenty of good things to buy out there – that's why we published a Watch List for our Members on Thursday with 24 stocks we like.  The idea of a Watch List is that, when the market does turn back up, we can pick up the lagging stocks on our list.  No need to jump in early – usually 4 or 5 of 24 value stocks at least will be slow to regroup – even in a huge rally.  

American Express (AXP) is on our list.  We like them at $64 but, as you know, we teach our Members never to pay retail prices for a stock.  As I mentioned yesterday, when the VIX is high it's a great time to sell puts and you can sell the AXP 2018 $55 puts for $5, which would net you in at $50 (23% off the current price) if AXP is below $55 (15% below the current price) come Jan 2018.  If AXP does not fall 15%, you keep the $5 without ever having to own the stock.
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Meaningless Monday Market Movement

INDU DAILYGet ready for not much

All is relatively calm this morning as traders try to digest last week's exciting events.  The S&P has lost 120 points (5.8%) to start the year and it's a pretty light data week with the Fed's Beige Book tomorrow and that's about it until Friday, when we suddenly get busy with Retail Sales, PPI, Industrial Production, Empire State Manufacturing, Consumer Sentiment and Business Inventories.  Until then, we can pretty much twiddle our thumbs

Until then, anything not down is good as we have had some UGLY market action and it will be bullish to simply not re-test the August lows.  Unfortunately, it's too late for the Russell, which already blew through that line and is back at 1,050, where it MUST HOLD or we are DOOMED!!!  

RUT WEEKLYThat's right, DOOMED!!!, and I'm not afraid to say it.  Panic is in the air and the VIX hit 27 on Friday, just shy of the August high and that means people are FREAKING OUT and the markets can be very dangerous when that happens.   

As you know, our Members are safely in CASH!!! because I annoyed them for the entire 4th quarter warning them not to buy into the BS rally but, as a trading exercise, we took our virtual Long-Term and Short-Term Portfolios and BALANCED them out, so they have been unaffected by the market sell-off.  

Our Short-Term Portfolio finished the week at $377,002 (from a $100,000 start on 11/26/13) and our Long-Term Portfolio dropped to $649,779 (from a $500,000 start on 11/26/13) for a total of $1,026,781, which is UP $22,619 on our paired portfolios since our Dec 13th Review.  Not bad for a market that's off to the worst start in history in 2016, right?  

BALANCE is the key to our strategy.  The primary function of our Short-Term Portfolio is to protect and hedge the Long-Term Portfolio, so that we make money in down markets that we can use to turn around and buy more stocks that have gotten cheaper.  And we have been buying more for our Long-Term Portfolio though, as I mentioned on Friday, we're still being very cautious until we see the
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Feng Shui Friday – China Rearranges Markets to Fake Harmony

All fixed!  

Well, not really.  As you can see on this chart of the Shenzhen 300 Chart, we fell 5%, then 2% more, then 5% more, then 2% more – that's 14% and then, this morning, we rose from 3,285, where the market was halted on Thursday, back to close at 3,361, which is only up 2.3% or less than a 20% weak bounce off the 14% drop.  

Our 5% Rule™ dictates a 2.8% bounce would be "weak" and that would take us from 3,285 to 3,377 and, since we were rejected there – it's actually a bearish sign!  I already sent out an Alert to our Members this morning and I even tweeted it so all can read it HERE as it's a very important warning on not getting sucked into any BS about things being "fixed" into the weekend.  Pertinent to this post, I noted:

There's nothing here to get excited about technically.  Fundamentally, China is a drag until it stops and, after that, it's up to earnings, which are going to be TERRIBLE in the Energy sector and probably not good in the Retail sector and Housing has been lame and Materials have been a catastrophe so what exactly are we hanging our hopes on?

Embedded image permalink

Looks like we have plenty of discounted stocks to shop for but the sale isn't over yet, so no need to rush.  This morning we get the Non-Farm Payroll Report for December and that will tell us nothing but we'll see how the markets react – which will tell us something.  If NFP doesn't do the trick, then Fed super-dove Williams will regale us his economic outlook at 11:30 and, if that doesn't work, uber-hawk Lacker can turn doveish at 1pm and really confuse people.  

So it looks to be an interesting day but it's all about earnings now and that starts in a couple of weeks but already our friends at Goldman Sachs have lowered their S&P earnings forecast by $3 to $106 for 2015.  Now,
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Thursday Thoughts – Have I Mentioned How Much I Like CASH!!! Lately?


It's almost a joke how many times I said that last quarter to our Members and in our morning posts.  I have said "CASH!!!" (with the exclamation points) 210 times in the past 90 days in our Live Member Chat Room in answer to various questions about what I thought would be a good position to be in into the end of 2015.  Our Member Portfolio are over 80% CASH so we are able to enjoy this little correction and, in fact, today we'll be doing a bit of early bargain-hunting using our famous "How to Buy Stocks for a 15-20% Discount" strategy.

While we're not sure the market is done going down (see chart below), we are sure that we can give ourselves 20% additional discounts to the current prices (like our AAPL trade idea yesterday) and, with the S&P already down around 1,940, 20% further down is 1,552 – and that's a level we feel strongly would be good long-term support (1,850 is our target low).  So 1,940 is close enough for us to dip our toes in and commit perhaps 10% more of our cash.  

Of course, we also have our hedges.  In fact the SDS hedge we featured back on Dec 4th is 100% in the money and on the way to pay back the full 477% on cash as we move towards January expirations.  I won't even tell you how much money our Futures short ideas from that same post are now up – if you weren't in them you will just cry.  Even our long idea from that post: WYNN, which was picked for our institutional clients is actually up from that day – despite the poor market surrounding it.  In fact, the short sale of 1,000 2018 $45 puts for $9.30 is up $90,000 already as the puts dropped to $8.40 – not bad for a month's work.

That's just a play using our simple "discount" strategy and I mentioned at the time that we had put together a Buy List for 2016 and now those stocks are finally coming down to levels where we're willing to pull the trigger on
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Waterfalling Wednesday – Down 5% in First 3 Days of 2016?

Down 5% already? 

This has been one ugly week already and we're only at the beginning of day 3!  Our Futures are, at the moment (8am), down almost 2% and, as you can see from the chart above, our major indexes were already down 3-4% so now we're testing our 5% lines across the board in the 5th session since 12/29, when I warned you that:

What you should, however, be concerned about is how FAKE the action was as it drove the McClellan Oscillator well into overbought territory.   The McClellan Oscillator is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues.  It's a momentum indicator, similar to MACD that gives us an idea of whether or not a rally is broad-based enough to be sustained and, clearly, this one isn't. 


What we have going on at the moment is good, old-fashioned window-dressing – aimed at painting a picture of 2015 that will be sold to potential investors in 2016.  The brokers need you to put your money in the market so they can charge you fees – that's how the game is played and it really helps their sales pitch if the market wasn't negative the year before so all stops are pulled out to get us green at the end of the year…  

There's a whole lot of chasing going on as we close out 2015 – we're not chasing anything until we see how 2016 comes out of the gate.  For now, we remain "Cashy and Cautious" into the New Year. 

THIS (what is happening now) is exactly the kind of thing I am worried about when THAT (what happened last week) is going on.  Unfortunately, I will have to suggest that you also read last Wednesday's "Black Swan Preview" now that we are, in fact, plunging to our doom and perhaps take some of my 2016 concerns more seriously.

One date we were watching was Jan 8th, which was the day large shareholders were to begin to be able to sell stocks again over in China.  That date has been extended
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S&P 2,000 Tuesday – Turnaround or Turn Down?

SPY  5  MINUTEWould it be too early to call the year yet?  

"As goes January, so goes the market" is something a lot of traders believe and we're off to a rotten start, for sure but mostly we just gave back the gains I thought we never should have gotten last week anyway – so NOW we're back to 2,000 on the S&P (/ES on the Futures), we'll see what's real and what's not.  

We went long on /ES at the 2,000 line and /TF (Russell Futures) at 1,100 and we made a big call yesterday in our Live Member Chat Room, to cash in those SQQQ March $15 calls ($5.44), from that spread I mentioned in yesterday's post and that flipped us BULLISH into the close, where we were rewarded by the "stick save" (so far). 

That's a really great feature of using spreads to hedge like we do because we can flip our whole portfolio from bearish to bullish by simply taking the profit ($5,220 in this case) of our short leg off the table and now we've gone from slightly bearish to slightly bullish and all we have to do to get bearish again is buy another bear leg.  Hopefully, we won't need to and SQQQ will top out at $20 and the short calls will expire worthless and we'll make another $5,550 on that leg.

Of course, as I mentioned yesterday, we have huge short positions on Amazon (AMZN) and Netflix (NFLX) so, to some extent, we were locking in some of our gains by flipping bullish on the Nasdaq to cover a possible bounce in those two.  I don't think either one of them are done going down but Apple (AAPL) looks like it's going to hold $100 and AAPL counts WAY more in the Nasdaq than those overpriced jokes.  

We were hoping AAPL would go a bit lower as we only have one bull call spread in our Long-Term Portfolio.  Our plan was to sell some short 2018 puts when AAPL got down to $100 – preferably the $95 puts for $15, which would give us a very comfortable
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Zero Hedge

The First Casualty Is Truth

Courtesy of ZeroHedge. View original post here.

Submitted by Sprott Money.

The First Casualty is Truth
 Written by Jeff Thomas (CLICK FOR ORIGINAL)

In the fifth century BC, Greek dramatist Aeschylus said, “In war, truth is the first casualty.” Quite so. Whenever national leaders decide...

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Phil's Favorites

EU Approves Deal With Turkey (Then All Hell Breaks Loose)

Courtesy of Mish.

On May 4, Brussels gave its approval to visa-free travel for Turks. That approval still needs to be ratified by a weighted average of ministers as well as the European parliament.

Just a few hours after the Brussels green light, Turkish president Recep Tayyip Erdogan sacked Ahmet Davutoglu, the prime minister who negotiated the deal with German chancellor Angela Merkel.

In between, Renzi and Merkel held a love fest with an extremely skeptical France on the sidelines.

Final result: Uncertain but is Merkel pulling her hair out as her scheme is set to collapse.

My, how things change in a day.

EU Set to Approve Deal With Turkey

Flashback May 4: ...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Oil Patch Bankruptcies Hit $34.3 Billion (Value Walk)

The number of oil patch bankruptcies continues to rise, and the number of companies filing for creditor protection is accelerating, that’s according to according to law firm Haynes and Boone LP’s May Oil Patch Bankruptcy Monitor.

Oil Price Drop Vanquishes Cutting-Edge Projects (Wall Street Journal)

The wo...

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Donald Trump - How the Ghost of Watergate Haunts This Election

By Jacob Wolinsky. Originally published at ValueWalk.

Donald Trump – How the Ghost of Watergate Haunts This Election

There is a line of reasoning in political circles that says Barack Obama created the phenomenon of Donald Trump.

I aver that Donald Trump is a creation of the post-Watergate media. Collectively we have made running for office so abso...

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Chart School

Market Recap May 5, 2016

Courtesy of Blain.

Indexes opened up but once again buyers failed to show much spirit and we saw minor losses as most sat on the sidelines awaiting tomorrow’s employment data.  The S&P 500 fell 0.02% and the NASDAQ 0.18%.   It was a quiet day on the news front.

The NASDAQ continues to drift along our trendline in blue which connects multi year lows.  So if there is a strong reaction to the employment data tomorrow we should see the NASDAQ either bounce off this level or break through it.  It is probably going to take a very weak number to push the NASDAQ through a level like this so one might be apt to expect a “relief bounce” of some sort.  This was the NASDAQ’s 10th down day out of 11.

“An oversold bounce is likely to interrupt the pullback in the SPX today, 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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Digital Currencies

"I Can Only Say I'm Sorry" - Self-Professed Bitcoin "Creator" Can't Provide Proof, Backs Out

Courtesy of ZeroHedge. View original post here.

Two years after Newsweek wrote an inaugural article upon returning to print in which it "unmasked" bitcoin creator Satoshi Nakamoto and which turned out be a hoax (the author "found" Nakamoto using a white pages search), earlier this week the world was fixated on the story of another self-professed bitcoin "creator", this time Australian entrepreneuer Craig Wright, who &quo...

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Kimble Charting Solutions

S&P 500- Reversal patterns taking place of late at resistance

Courtesy of Chris Kimble.

How many of you like “Choppy/Sideways” markets? I humbly suspect that most don’t. They do present some short-term trading opportunities for sure, nothing wrong with that. From a trend perspective, I would understand if some think a sideways pattern is boring.

Below takes a close look at the S&P 500 over the past couple of years.


The S&P 500 has spent the last couple of years, forming...

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Cantor Says Relypsa's Veltassa Metrics Look Favorable

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

Courtesy of Benzinga.

Relypsa Inc (NASDAQ: RLYP) shares have plummeted 51 percent year-to-date, under pressure from debt-financing related concerns. Cantor Fitzgerald’s Mara Goldstein reiterated a Buy rating for the company, while reducing the price target from $42 to $41. The analyst believes the 1Q16 results would be “a stabilizing force for the shares.”

Positive Data Points For Veltassa Launch

Veltassa metrics look favorable so far, including a low payer rejecti...

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Swing trading portfolio - week of May 2nd, 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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Mapping The Market

About that debate last night

Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,

The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now. 

And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now. 

Phil writes back,

I was expecting them to start throwing poop at each other &n...

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PSW is more than just stock talk!


We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more! features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

Thank you for you time!

FeedTheBull - Top Stock market and Finance Sites

About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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