Phil's Newsletter

China’s 11% Weekly Drop Finally Wakes the Sleeping Bears

Embedded image permalinkHow many times have I told you so?  

Remember, I can only tell you what is going to happen and how to make money trading it – that is the extent of my powers.  Yes, if you make me dictator for life, heads will roll (literally) and I could get this mess straightened out but, if you continue to elect the idiots you've been electing – all we can do is sit on the sidelines and make money trading against their incompentency.  

Our bearish Short-Term Portfolio, for example, was up 124.5% at 1pm, when we reviewed it in our Live Member Chat Room (you can join the fun right here) but finished the day up 136.2%?, gaining $12,000 in just 3 hours as the market continued to fall!  Why were we so bearish that a stock market crash gives us one of our best days of the year?  Because we pay attention to the stuff I wrote about above!  

Yes, as fundamental investors we are often a bit too far ahead of the curve and we failed to participate in the last legs of the great China rally because we already
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S&P Faces Critical Test at 2,060 – Will China Save Us?

SPX DAILYHere we go again!  

The S&P Futures are re-testing that 2,060 level, which is 20 points below the 200-day moving average and, more importantly, 35 points below the 50 dma, which means, if we finish down here, we can drag the 50 dma almost a full point lower and a few days like that can bend the line down and then we're heading into our 3rd major death cross sometime around the end of September.  

That's why we look for strong bounce lines off these critical support levels – if we don't get the bounces, the shape of the charts will change and that will turn sentiment more bearish and make it all the much harder for the indexes to rally in the Future.   All this is taken into account by our fabulous 5% Rule™ which, as you can see from yesterday's Big Chart – has really been driving the market lately.  

Last week, we discussed our outlook for the S&P by examining some of the major components and contemplating whether or not they could drive the market any higher and we concluded that Exxon (XOM) and Chevron (CVX) would be a drag on the S&P and the Dow with oil at $43.  A week later, oil is at $41 (we went long at $40.65 this morning in our Live Member Chat Room) and both companies have had a TERRIBLE week, with XOM down 2.75% and CVX down 5.75% (about the same as oil itself), both costing the S&P and the Dow heavily.  

Of course, we told you this would happen last Thursday, so don't act all shocked about it this morning.  In fact, yesterday's morning post called the action in the headline ("Whipsaw Wednesday – Monday Market Gains Gone in a Flash (Crash?)") and you can have those posts delivered to you pre-market, every day, by signing up right here.  

SPX WEEKLYLast week, the conclusion of our two-part study on the S&P was:

So, upon further examination, there is no change to our stance of being short the markets

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Whipsaw Wednesday – Monday Market Gains Gone in a Flash (Crash?)

RUT WEEKLYLOL, what a joke!  

Unfortunately, the joke is on us as Monday's silly low-volume rally has already been completely erased in this morning's Futures, which is fantastic news for people who joined us for yesterday's FREE Live Trading Webinar (replay availabe here), where we shorted the Dow Futures (/YM) at 17,477 and overnight we got a drop back below 17,000 for a $385 per contract overnight gain.

Futures trading is NOT complicated – it's actually more straightforward than options trading as you simply pick a spot on the chart and say "I think the index will go above or below that line."  The trick is getting the above or below part right but the rest is just placing a bet and crossing your fingers.  We do live webinars every Tuesday at 1pm and often teach Futures trading as it's a wonderful way to make quick adjustments to your portfolio (see "Using Stock Futures to Hedge Against Market Corrections").

In our Live Member Chat Room, we also picked up Russell Futures (/TF) short at 1,220 at the market open and there we caught a nice ride down to 1,205 for a $1,500 per contract gain.  On the S&P Futures (/ES) our line was 2,092.50 and those paid $50 per point down to 2,084.50, which is +$400 per contract and the Nasdaq Futures (/NQ) fell from our 4,545 line back to 4,525 and that was good for a $1,000 per contract gain.  

Aside from being a really fun way to pick up some extra money in an otherwise dull trading day, Futures can be very valuable hedges and they are not just used by traders but by companies as well.  In fact, despite oil averaging below $50 this year, many oil companies are getting far more than that because they sold their oil on the Futures markets at much higher prices:

That has somewhat shielded them from falling oil prices (oil averaged $85 last year) but now those hedges are running out and oil is still down below $43 (we're long) and you know these companies don't want to lock in that price but what if it goes even lower?  The next earnings cycle is early November for
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If China Drops 6% and no One Reports it, Does it Matter?

Embedded image permalinkThe Shanghai Composite fell 6.12% today (again). 

If this is the first place you're hearing about it, that's very sad and very scary because it should be the screaming headlines as China is our largest trading parner and the second-largest economy on Earth and those of us who invest in the Global Marketplace (and yes, that includes America!) should care very much what happens in China.

Since the last time China fell 6% in a day (which is a neat trick since they halt stocks that fall 10% so most of the stocks were halted to get that average), which was only 3 weeks ago, China has taken extraordinary measures to prop up the market yet they are already failing and once again we are rapidly approaching another test of the 200-day moving average, below which there is no real support for another 20% drop and even that will be tenuous at best as the Shanghai is still 100% higher than it was last summer – for no particularly good reason.  

Embedded image permalinkIn fact, looking at China's PMI Report, it's amazing that the markets are holding up so well as we spiral back to low levels of production not seen since 2008/9.  It's not just China, of course.  Globally, the average PMI reading in July was 51, just one point into expansion (or one point away from contraction, if you are a glass half-empty type) and, unfortunately, I have to remind you that the PMI is an OPINION report – in the US, it's a survey of just 400 Purchasing Managers and how they THINK the next 6 months are looking.  

Like any 400 out of 40,000 people who actually agree to be surveyed (margin of error is +/- 4.88), their OPINIONS may not represent the broader population and may have no relation whatsoever to what's actually going on.   After all, purchasing managers are members of the top 10% who have good jobs with good salaries and are bound to be more optimistic than the average person who has to work for a living and has no time to answer surveys.  

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Monday Markdown – Morgan’s Fragile Five becomes the Troubled Ten

Currencies are melting down all over.  

For a long time, Morgan Stanley (MS) has kept a list of emerging market currencies that were running the worst account deficits and faced the greatest risk of being devalued against the Dollar.  Those currencies are:  

  • Brazil's Real
  • India's Rupee
  • Indonesia's Rupiah 
  • Turkey's Lira
  • South Africa's Rand

It's been a good list and all of those economies have suffered considerably against the rising Dollar over the past few years but now China is giving some of these countries a double-whammy as they adjust their own currency and MS has added 10 names to their currency watch list (some overlap) and we should now also be concerned about:

  • Thailand's Baht
  • Singapore Dollar
  • Taiwan Dollars
  • South Korean Won
  • South African Rand
  • Brazil's Real
  • Chili's Peso
  • Peru's Sol
  • Colombia's Peso
  • Russian Rubles 

China is the top export destination for most of the countries on the troubled 10 list.  “It’s all about vulnerability,” said Hans Redeker, head of foreign-exchange strategy at Morgan Stanley. “Major victims of the policy change this time are currencies of countries with high export exposure and export competitiveness with China.”

Even with the yuan roiling markets, investors still see the Federal Reserve sticking to its plan to raise interest rates for the first time in nine years, threatening to lure capital away from emerging markets. Futures contracts show traders see a 75 percent chance the U.S. central bank will move by year-end.  “The biggest concern is that we are not going to turn the corner and the economic performance in China will continue to disappoint,” Redeker said. “Investors will watch China data closely and trade the yuan accordingly.

Asian Currency Crisis Continues As China Holds, Malaysia Folds, & Japan Heads For Quintuple Dip RecessionTo summarize, 8 countries have been added to the list of countries that are in deep economic trouble and none have gotten better (2 have just gotten much worse) and, for some reason, Japan isn't on that list even though the Yen…
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Goldman, JPM, RBS, Barclays and HSBC are Sorry they Took Your Money

2 Billion Dollars!

That sounds like a lot of money but this fine is nothing more than a slap on the wrist for the 8 (so far) banks that are settling lawsuits for BLATANTLY MANIPULATING (allegedly) the $5.3 TRILLION foreign-exchange market.

Sorry, that's $5,300,000,000,000 PER DAY of trading in FOREX, which means that manipulation of just 0.05% in a single day would have made $2.65Bn for the Banksters in question.  Does that put the $2Bn fine into perspective?  Do you think that's going to discourage them or perhaps encourage others to manipulate the markets, knowing that the fines – IF they get caught – barely amount to half a day's work while they are getting away with it.  Not only that, but this lawsuit has been dragging on since 2013.

A class of investors sued, claiming banks rigged the foreign-exchange market by manipulating foreign-exchange benchmark rates, fixing prices by agreeing to widen bid-ask spreads on spot trades and exchanging confidential customer information to trigger stop-loss and limit orders.  You know – Wall Street Banking 101.  

Meanwhile, China is rigging the currency markets on a daily basis (oh, and you must see this video of yesterday's port explosion!) and so is our own Fed and the Bank of Japan and the ECB and the Bank of England and every other Central Bank on the planet.  This is how the game is played people – no sense complaining about it – especially not when we can use it to our advantage!  

As you can see from this chart, China's CSI Futures are now trading in greater volume than the S&P or Euro Stoxx, even though their market capitalization is just 1/3 of the Nikkei – that's an active market!  No wonder our Banksters friends want to take their cuts when they can – just a nickel per transaction is over $1Bn, that's good business.  Despite all the games being played to prop up the markets in China, sentiment is clearly turning lower still.  

We talked about the contagion spreading from China to other Asian countries but it's moving faster than that and already…
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Thoughtful Thursday – Contemplating the S&P 500

This is Part II.  

I tweeted out part one (as well as Emailed an Alert to our Members) earlier this morning, so I'll take a break while you read that and get caught up

In case you are wondering, the image on the right is the explosion at China's Tianjin port last night that registered as a 2.9 earthquake and has killed dozens and injured hundreds.  It may have been an LNG accident or it may have been a chemical explosion but, either way, all 17 Republican candidates have vowed that we will not rest until the kind of laws that prevent cool explosions like this in the US are repealed so American businesses can fairly compete with China in industrial accidents.  

As to the markets, suffice to say you can read yesterday's post and be all caught up as we're right back where we started from yesterday morning.  Fortunately, we cashed in the EWJ shorts that we picked for our 5% Monthly Portfolio (see Seeking Alpha's Premium Research to join) and the 10 Sept $14 puts we bought on Monday afternoon for 0.90 hit our $1.35 target yesterday for a very nice $450 gain, which was 50% in just 2 days!  

That trade alone puts us 10% of the way to our +$5,000 goal for the month (5% of our $100,000 portfolio) and our other 3 trade ideas have contributed another $800 of their own so far (all this week) for a perfect start and $1,200 gained for the week (so far).   

Now, getting back to the broader task at hand – in our previous post we discussed whether or not the markets were going to continue to pull back or if, possibly, we are consolidating for a move higher and I said that, to make that call, we should focus on the S&P 500's top 25 stocks, which make up 44% of the indexes weighting.  Those stocks are:

As I noted earlier this morning, I think XOM, CVX, AAPL, PG, IBM, INTC, HPQ, WMT have made pretty good corrections while MSFT, JNJ, JPM, T, WFC, BAC, CSCO, KO, GOOG, PFE, PEP,…
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Weak Bounce Wednesday – Hoping Against Hope

"Woah, we're half way there

Woah, livin' on a prayer

Take my hand, we'll make it I swear

Woah, livin' on a prayer" – Bon Jovi 

That's right folks, we're halfway there!  

Halfway to our predicted 5% pullback on the S&P to 2,035 (our 10% line) and hopefully NOT halfway to our 5% line at 1,942.50 as that would probably lead to 10% corrections for the NYSE, Dow, Russell and Nasdaq as well.  I don't want to get too technical for fear of this article being rejected by SA editors so I'll just refer you to our Twitter feed, where we sent out bounce lines and Futures trade ideas earlier this morning from our Live Member Chat Room.  

I guess I can tell you about how well our Japan ETF (EWJ) short is doing as it was featured as our 2nd trade idea for our 5% (Monthly) Portfolio, which is a Seeking Alpha Premium Research product that we just launched this week.  We nailed the entry on 10 Sept $14 puts at 0.90 ($900) and already yesterday they popped to $1.10 for a $200 gain (22%) in two days – already paying two months of the $99 subscription fee on just one two-day trade!

Not only that but, as a bonus for our 5% Portfolio Subscribers (and, of course, our PSW Members), we laid out our trading strategy for conviction shorting the Nikkei (/NKD) Monday afternoon (3:05 pm, EST) as follows:

  • 1x short at 20,900
  • 1x short at 20,950 (avg 20,925 – stop out of 1 even)
  • 2x short at 20,995 (avg 20,960 – stop out of 2 even)

As you can see we NAILED IT for our…
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Technically F’d Tuesday – Death Crosses Hit Dow and NYSE Today!

Don't say we didn't warn you!  

Last Tuesday we told you commodities were collasping (check) and that Chinese weakness would spread to the region (check) and cause other Asian and Emerging Markets to begin collapsing (check) and, more importantly, that there was nothing we could do to stop the NYSE and the Dow from forming "death crosses," which are a very bearish technical indicator.

As of Friday morning, the 50 dma on the Dow was 17,842 and the 200 dma was 17,800, so 42 points apart and today, DESPITE the 241-point pop (1.4%) we had yesterday, the 50 and 200 dmas are now just 10 points apart and WILL cross today unless the Dow manages a 200-point gain for the day.  On the NYSE, Friday we were at 10,934 on the 50 dma and 10,916 on the 200 dma and this morning those averages are just 3 points apart but the NYSE can avoid a cross today by simply adding about 50 or more points.

SPY  5  MINUTEUnfortunately, that's not likely to happen as yesterday's rally was fake, Fake, FAKE! as the morning's comically low-volume prop job was followed through by one of the weakest sessions of the year, topped off by a sad little pop into the close that was so fake my 13 year-old daughter laughed when she saw the chart.

Our Members responded by pressing our Dow shorts, which began at 17,500 in the morning and were pressed to a 17,550 average into the close and this morning we cashed them out at 17,450 for a $500 per contract gain but we'll short again if that line fails or if we re-test 17,500, of course.

That was nothing compared to the Nikkei shorts, which we grabbed at 20,900 in a post I published to Seeking Alpha's Research section for our 5% Monthly Gains Portfolio.  The portfolio had an option trade we were taking advantage of but, in the post, as a bonus to Futures Traders, we had a call to short Nikkei Futures (/NKD) at 20,900 and already this morning we were able to exit at 20,600 for a $1,500 per contract gain!  

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Just Another Merger Monday

Berkshire Hathaway is buying Precision Castparts (PCP)!  

That is kind of encouraging as it's a big ($37.2Bn) bet on manufacturing but PCP manufactures aerospace parts and that is one of our only working sectors and PCP, as you can see from this chart, is 70% aerospace. BUT $32Bn is only a 20% premium to Friday's close with the stock at $193.88 so we're looking at about $233 if this deal goes through as advertised. You will hear some irresponsible journalists (let's fact it, most of them) calling this a $37Bn deal because they are adding in the assumption of debt but they don't subtract the assumption of assets and profits so this is an idiotic way to look at a merger deal aimed only at creating more excitement than there actually should be and to fool you into thinking things are better than they actually are.

Warren Buffett is no fool with his money and has owned a bit of PCP for many years and is taking advantage of the recent weakness in the sector to buy the whole company for far less than last year's highs at $275.  

PCP made $1.77Bn last year and $1.5Bn this year (they year ends in Q1) and is on track to do about the same ($1.5Bn) this year so $32Bn is a p/e of 21.3. This does NOT give other investors the green light to bid other companies up to P/Es of 33 or 103 – but they will because investors are idiots, so today will not be a day we chase any stocks.  

We can, however, chase PCP with an arbitrage play, but we won't know which until we see the market open and get an idea of the prices.  We will feature the trade idea live, over at Seeking Alpha's Premium Research Section, where our 5% Monthly Portfolio has just been launched.  

The real story is that Berkshire managed to find a bargain needle in this market haystack and, since there aren't many other good deals these days – they figured they may as well buy the whole company and make it part of Berkshire Hathaway (BRK-A), which is a $350Bn company with an overall p/e of 17.41.…
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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

25 Years of Stock Market Milestones for China (Bloomberg)

This year has been a wild ride for Chinese stocks, something that long-time investors have come to expect from a country that's seen 55 bull and bear markets since the ruling Communist Party first allowed equity trading in 1990. As the Shanghai Stock Exchange celebrates it's 25th anniversary on Thursday, here's a look at some of the key milestones on China's path from equity-market upstart to $7 trillion behemoth.

Oil rig count falls (Business Insider)

The US oil rig count ...

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Phil's Favorites

Kiss Christmas and Retail Stocks Goodbye


Connecting the Dots: Kiss Christmas and Retail Stocks Goodbye

By Tony Sagami

In my article from November 17, I touched on the growing number of retailers that report shrinking traffic and disappointing sales:

Our consumer-driven economy is not getting any help from suddenly sober shopaholics. In the most recent report, the Commerce Department reported that retail sales rose by a measly 0.1% in September. And it didn’t matter whether you wear Gucci loafers or Red Wing work boots.

Since then, the retail landscape has gotten even muddier.

The Commerce Department reported that retail sales increased by a miserly +0.1% in October, be...

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Chart School

Status Quo Maintained - Happy Thanksgiving!

Courtesy of Declan.

Holiday trading kicked into gear, although volume for the S&P managed to push into a technical accumulation day. Things are likely to remain quiet through to next week and any sharp moves at this stage have a high risk of failure.

The top performing index on the day was the Russell 2000. It managed to add another decent gain o keep the string of higher closes running. It didn't quite close above 1,200, but it may do so Friday (with the aforementioned caveat of holiday trading). Overall action in this index has been positive, and relative performance to other indices continues to improve.

The Nasdaq is also ready to break higher. ...

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All About Trends

Mid-Day Update

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

Click here for the full report.

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

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Kimble Charting Solutions

S&P 500 – Dangerous for bull case, if prices turn weak here!

Courtesy of Chris Kimble.


The S&P 500 remains inside of a rising channel that has been in place since 2010. The 5-year trend is up.

The 5-month trend is a different story, at this time.

Over the past 5-months, the S&P 500 has created a series of “falling weekly closing highs,” which is represented by line (1) above.

The S&P is testing this falling resistance line at (2) above.

If weakness takes place at (2) above, at falling resistance, it would be concerning price action for the bullish case!


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Sector Detector: Bulls wrest back control of market direction, despite global adversity

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

Courtesy of Sabrient Systems and Gradient Analytics

Some weeks when I write this article there is little new to talk about from the prior week. It’s always the Fed, global QE, China growth, election chatter, oil prices, etc. And then there are times like this in which there is so much happening that I don’t know where to start. Of course, the biggest market-moving news came the weekend before last when Paris was put face-to-face with the depths of human depravity and savagery. And yet the stock market responded with its best week of the year. As a result, the key issues dominating the front page and election chatter have moved from the economy and jobs to national security and a real war (rather than police ...

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Swing trading portfolio - week of November 23rd, 2015

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


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Digital Currencies

Bitcoin's Computing Network is More Powerful than 525 Googles and 10,000 Banks!

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

I've decided to build our startup - Veritaseum, a peer-to-peer financial services platform, directly on top of the Bitcoin Blockchain. Many queried why I would voluntarily give up a lucrative advisory and consulting business to chase virtual coins in cyberspace. That's exactly why I decided to do it. That level of misunderstanding of what is essentially the second coming of the Internet gave me a fundamental advantage over those who had deeper connections, more capital and more firepower. I was the first mover advantage holder.

You see, Bitcoin is not about coins, currency or price pops. It is a massive computing net...

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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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Whitney Tilson On LL, EXACT, And Martin Shkreli


Whitney Tilson On LL, EXACT, And Martin Shkreli

Courtesy of Value Walk

1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:

  • The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
  • I think this is the beginning of the end for the company.
  • My price target for the stock a year from now is $3, so I shorted more yes...

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Baxter's Spinoff

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

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...

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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 


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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!

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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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