Phil's Newsletter

Monday Market Movement – Topping or Popping?

It has not been a good year(s) for value investors.

Well, it's been a good year but not as great as it's been for trend followers betting on growth stocks.  I guess we're not true value investors, because we've had a pretty good year but certainly we could have done better holding our noses and buying more MoMo stocks.  Most of Q2 earnings are behind us and there aren't too many red flags – other than the great big one that shows value to be at an all-time low, and I don't mean value investing, but the VALUE of the stocks we're investing in.

Just because you buy and expensive stock and it gets more expensive, doesn't mean it was worth what you paid for it.  This is part of the "greater fool" theory that marks stock bubbles – you can always find someone to be a greater fool than you were – until you can't – then the bubble pops.

We don't know when these sky-high valuations will come to an end, which is why we rely on hedging, more so than shorting.  With hedging, we maintain our long positions but we use some of the long profits (about 25%) to lock in our gains without sacrificing any additional upside to come (or, at least not 75% of it).  

What's really annoying about this stage of the rally, however, is that stocks that look cheap relative to traditional fundamental metrics such as profit or cash flow have fallen so far out of favor that Goldman Sachs in June questioned whether the markets are witnessing the death of value investing. 

Since that call, the market has gained another 2.5% but, as you can see from the chart, we're back at levels we haven't seen since the 4th quarter of 2015 and the S&P topped out then at 2,116 but fell precipitously to 1,810 by Februray.  That's 306 points or just shy of 15% in 3 months but we're only just getting to the top – we may drift here for a while or, maybe this time is different and the people dumping value stocks (ie. stocks that are a good value) in favor of "growth" stocks (ie. stocks that don't actually have earnings to…
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Non-Farm Friday – Is America Working?

209,000 jobs.

That's pretty good, only 183,000 new jobs were expected and June was revised up by 9,000 more jobs (231,000) with unemployment now down to 4.3%.  More importantly, the Civilian Labor Force is growing, now about 160,500,000 (of which, about 7M are unemployed).  Average weekly earnings are up to $909.42 from $884.42 last July so up $25 (2.8%) but let's call it $100 per month and $1,200 per year more times 153.5M workers is $184Bn more Dollars in the economy this year but last year we only had 151.5M workers so 2M workers making 52x $909.42 ($47,290) is $94.6Bn new Dollars so, overall, let's say the working economy is up about $300Bn or 1.5% of our GDP.

That's not hard math, any economist can do it.  Any analyst can do it but, where you do need some kind of Quantum Mechanics is to try to explain how $300Bn of new salary money (most of which went to the top 10%) translates into the kind of buying power that would send the US markets $10Tn higher – that's 30:1 leverage!  

Of course, that makes sense as the market multiples on earnings have gone up considerably along with expectations but where I feel we're running ahead of reality is by looking forward and even assuming we add $600Bn of wages in the next 12 months – we're still miles behind what would be needed to support this bullish premise.  Also, consider that $600Bn more wages would be a 5.6% increase, which would then put cost pressure on businesses (until the robots are ready) and that would drag the economy.

So it's hard to paint a more enthusiastic picture than the one that's already been painted because, as noted by Calvin, "Alexander contemplated his victories and he wept, because there were no more Worlds to conquer."  What will we do for an encore when we only have 7M people left who are unemployed?  At this pace, in 3 years, they will all have jobs and we will have 0% unemployment.  What is the World the market expects down the road to justify a 20% improvement in 9 months?

The market is still benefitting from a benificent Fed and a lack of alternatives to invest
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Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000

So far, so good.

After a quick rejection, the Dow is drifiting along under the 22,000 line and it LOOKS bullish but let's remember that it took big moves by Caterpillar ($10), Goldman Sachs ($10), JP Morgan ($8), Boeing ($30) and Apple ($7) on earnings to give the Dow it's last 500 points.  That's a tough act to follow for sure.

And it's been a sort of a feedback loop because each earnings win pops the index, which raises all the Dow components and then the next one hits and reinforces the gains from the last win and then the index makes a new high and more money pours into the ETFs, etc.  All very nice if you are bullish but the rally, on the whole, has come on fairly low volume and, now that earnings are over, we'll have to wonder what catalysts is going to take us over 22,000 (our shorting target), let alone hold us up here.

Over in Europe, they have earnings too and the Europeans were not as impressed with earnings as the US investors were.  In fact, Germany's DAX is down 5% from their June highs along with the Euro Stoxx Index, which fell from 3,650 to 3,450 while the S&P added 50 points (2%).  

Major Global Indexes don't usually diverge from each other that much and the Nikkei has been trending down as well so someone is delusional and it's probably the country that elected a reality show host to be their President – I'm just saying…

The Dow is up 600 points since it's June high and that's 2.8% but, more importantly, since the election, the Dow is up from 18,000 so 4,000 points is 22% and I have to ask you – has Trump made things 22% better in 9 months?  And we're not taking about a 22% rebound after a sell-off, the Dow had already gained 50% since 2012 (4 years) from 12,000 to 18,000 so this 22% is just a cherry on top of all that fudge and whipped cream that was already piled on the QE sundae that had already taken us from 6,000 to 12,000 in the 4 years before that. 

Granted we were at
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Whipsaw Wednesday – The View from Dow 22,000

Wheeeeeee – This is fun!  

Dow 22,000 is our shorting spot (predicted last week) and we hit that that yesterday after Apple (AAPL) announced their earnings and popped $10 after hours, adding 85 points to the Dow.  This gave institutional sellers the perfect cover to dump everything else and the index is back below 21,950, despite Apple's help.  50 points on the Dow (/YM) Futures is $250 (you're welcome) but we can do much better than that and we will be taking advantage of today's pop to add to our hedges (while it's cheap) and that's for Members Only but, for you, the cheapskate reader, we can give you a new hedging idea using the Dow Ultra-Short (DXD), which is a 2x inverse ETF:

  • Buy 100 DXD Oct $11 calls for 0.45 ($4,500)
  • Sell 100 DXD Oct $13 calls for 0.12 ($1,200) 
  • Sell 5 AAPL 2019 $120 puts for $4 ($2,000) 

DXD is at $11.24 so in the money and $13 is $1.66 away or 15% so a 7.5% drop in the Dow will pay you back $2 x 10,000 options (100 per contract) or $20,000 and the net cost of the spread is $1,300.  That's a profit of $18,700 (1,438%) if the Dow drops 7.5%, and stays down, into the October expirations.  You are obligating yourself to buy 500 shares of AAPL at $120 ($60,000) so make sure you REALLY want to own AAPL if it drops 20% but, chances are your will be safe with that bet if the Dow stays up and, if the Dow falls and puts AAPL in the money, then you have an extra $20,000 to buy the shares with!  

Meanwhile, we could not be more pleased with the AAPL options we do have.  AAPL is the largest holding in our Options Opportunity Portfolio and we had already gained $15,800 on our net $5,600 credit position so up $21,400 but that's nothing as our profit potential for AAPL is $185,600 so we're merely "on track" to our goal of $170.  No wonder the Options Opportunity Portfolio is up 200% in two years!  

We will have to roll out the short callers but,
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Toppy Tuesday – Back to our Shorting Line on the S&P 500

2,480! 

That's where we called the short on S&P (/ES) Futures last week and we fell back to 2,460 ($1,000 per contract gained!) and now we're back at 2,480 so what do you think we're doing?  I already put a note out to our Members this morning in our Live Chat Room, saying:

Markets blasting up yet again for no particular reason.  Now I like /YM short at 21,950 with tight stops but then again at 22,000, /NQ 5,900 is good as well and you know 2,480 was my target short on /ES and that's lined up with 1,430 on /TF – definitely a short the laggard day.  

We're also shorting Oil (/CL) at $50 but long on Natural Gas (/NGZ7) at $3.07 and long on the Dollar (/DX) at $92.75 – all fun trades for a Tuesday morning.  We're waiting on Construction Sepdning and ISM at 10 am but we already had terrible Personal Income numbers (0% gain vs 0.3% expected by leading economorons) while spending went up 0.1% (more and more in debt) and PCE Prices were also flat – because consumers simply don't have any more money to spend.  We'll also get auto sales throughout the day and those are not likely to be very good.

Apple (AAPL) has earnings this evening and I don't see how they'll justify $150 since most people are probably waiting for the new iPhone at the moment.  Expectations may have gotten a bit ahead of themselves and Apple, unlike Tesla, isn't into self-promotion and tends to give conservative guidance estimates as well.  Apple, of course, is a huge mover of the Nasdaq, S&P and the Dow so big fireworks there if they disappoint.  

Tesla (TSLA) goes tomorrow night and this ought to be fun as they burned through $2,342,000,000 in the last two quarters alone and they finished Q1 with "just" $4.1Bn in cash – not enough to get through the year at their current pace and I'm betting they will have burned close to $2Bn last Q alone meaning they have just 3 months left to live without raising more capital.  No wonder Elon Musk put out a series of painfully introspective tweets, which have since been removed from
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Monday Market Maintenance – Dressing the Windows for One More Day

Image result for market contrarianRecord highs! 

That's what the Banksters want to print in their monthly reports to get their customers to pull their CASH!!! off the sidelines and put them into something that generates fees for the bank.  They don't give a crap whether you win or lose – as long as they get their fees.  

Morgan Stanley says "this time will be different" and that we shouldn't worry about Central Bank de-leveraging or China's Credit Collapse because (and these are their points, not me just making it sound absurd), although "global growth will moderate somewhat, and will remain above trend."  That would be great but the "trend" has been around 2% and global stocks are not priced for "above 2% growth" they are priced for 4% growth or 6% growth and we are miles away from that!

Goldman's Chief Equity Strategist, David Kostin says the company's HNW clients are "confused" by the lack of inflation (as that's what we expect in a great economy) and he ponts back to the disparity of measurement that we touched on last week.  

Like me, Kostin is recommending inflation hedges, urging his clients to ignore what the Fed is saying and pay attention to the evidence that's right in front of their eyes.  Zero Hedge does a very good job pointing out what's wrong with inflation measures as they note that: "A leading driver of disinflation has been the Video, Audio, and Computer category where prices dropped by 5% in 2015, by 10% in 2016, are declining at an average pace of 7% YTD."  This is one of the stupidest things the Government does when measuring inflation.  Basically, if you bought an IPhone last year for $1,000 and it had 64Gb or Ram and this year you spend $1,200 but it has 128Gb of ram, the Government says you are getting more for your money so that phone is counted as 40% CHEAPER than the one you bought last year.  

Of course it's a bit more complicated than that but processor speed per Dollar goes up too so yes, electronics are almost always a drag on inflation, as are appliances.  So take this chart with a Lot's wife-sized
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$2,000 Friday – Big Win on Nasdaq Shorts offset Oil Losses

It was a mixed bag.  

In yesterday's PSW Report, we called for shorting the Dow (/YM) below the the 21,650 line and we never really got there but the Russell Futures (/TF) crossed below our 1,445 target and plunged another 20 points to 1,425, yeilding a nice $1,000 per contract win on the day.  That was enough to offset our loss (so far) of $600 per contract on oil shorts at $48.50 (for those who did not use the tight stops suggested, of course).  

Oil is $49.10 this morning and we still think the short story will play out during August but it's likely to be a rough ride along the way.  The Nasdaq was good for a 100-point drop, yeilding gains of $2,000 per contract from our Wednesday morning call and the S&P (/ES) was rejected at our 2,480 line, dropping to 2,460 and that was also good for gains of $1,000 per contract in just two days.

In Wednesday morning's PSW Report, we also discussed our Wheaton Precious Metals (WPM) spread, which was net $3,825 at the time and is now net $4,180 so up $355 (9.2%) in two days – I told you it was good for a new trade.  Chipotle (CMG) was also a great spread, going from net $16,900 to $23,050 for a very quick $6,150 (36%) gain but sadly, for Seeking Alpha readers, the report we submitted on Wednesday was rejected by the editors because they didn't feel the trades were "new enough" – since they were both derived from older trade ideas.  Pinheads!  

If you want to read our Morning Report BEFORE the market opens every day – you can sign up HERE – I've lost my patience with Seeking Alpha and will no longer submit content there – other than the occasional blog post and, for now, my Options Opportunity obilgations.

Speaking of politics:  32 Million thank yous to Republican Senators Lisa Mukowski, Susan Collins and yes, even John McCain for saving health care for 32M Americans (for now).  They voted against the Obamacare repeal last night and there were gasps on the Senate floor when John McCain, who Trump just called a real hero for voting to allow debate…
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Thrilling Thursday – The View from the Top

Image result for stock market roller coasterHere we are again.

Once again the Fed failed to raise rates and the Dollar dropped, sending the indexes and commodities higher.  Boeing (BA) was the entire story for the Dow (DIA), as their $20 gain was good for 170 of the 97 points the Dow gained.  That's right, without BA, the rest of the Dow components lost 73 points and the S&P ended up red (slightly) despite Boeing's boost.  

We had a live Webinar yesterday and we talked about the internal market weakeness and decided to stick with our index shorts from Tuesday morning's Report, notably the Dow below the 21,650 line and the Russell below 1,445 – with tight stops over the line.  

We're also still shorting Oil (/CL) Futures below the $48.50 line as that too, seems overdone after it's 15% run since Mid-June rom $42 to $48.50.  Considering how much effort has been made to talk oil up – $48.50 is pretty pathetic, a strong indicator of general weakness.  Also, we're getting into that time of year when there's already a tremendous overhang of fake, Fake, FAKE open contracts at the NYMEX from traders who have no intention of taking delivery.  December already holds open orders for 342M barrels – that's 20 times the amount that will actually be delivered!  

Click for
Chart
Current Session Prior Day Opt's
Open High Low Last Time Set Chg


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Wishful Wednesday – Fed Edition

Image result for draghi whatever it takesHappy anniversary!  

It's been 5 years today since ECB President and Goldman Sachs (GS) stooge, Mario Draghi said: "The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."  At the time, the EuroStoxx index was at 2,000 and now we're at 3,500, a 75% gain in 5 years and Germany's DAX is up over 100%, from 6,000 to 12,281 as of yesterday's close.  That's an average gain of 20% a year for 5 consecutive years – happy anniversary indeed!

The Euro has fallen 20% over that time period, making the gains somewhat less impressive but not too much and "only" down 20% is very surprising as the Yen is down 30% over the same period and the ECB's money supply is up 30% as well.  Actually, the EU money supply is up closer to 100% since 2008, Draghi's "whatever" was just icing on that already well-iced cake.  

None of that comes close to the flood of Dollars that have been printed since 2009 with $3Tn new Dollars in circulation which QUADRUPLED the supply of US Dollars in the World.  Keep in mind those are hard Dollars which the banks then turn around and lend out 10 times each, which is $30Tn more Dollars or 1.5 times our entire GDP so, when you hear our GDP is growing at 2%, you should say "WTF?" as our money supply has been growing at an average of 30% per year for a decade…  

Image result for money supply dollars 2016

That money, in turn, gets pumped into the stock market, which also levers up the cash by about 10:1 on inflows and PRESTO! – it's a "recovery".  Steely Dan said "You Can't Buy a Thrill" but you can certainly buy an economy if you are a motivated Central Bank and no one was more motivated than the former Managing Director of Goldman Sachs, Mario Draghi, whose "former" firm is up 120% since he did "whatever it takes" for them.  

It's kind of cute the way people think there will be no consequences to 300% increases in the money supply.  The way gold, silver and uother commodities are trading – you…
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Tempting Tuesday – S&P 2,500 in Sight

Beat crazy!  

With the very notable exception of Google (GOOGL), who had higher than expected Traffic Acquisition Costs, most of today's reporting companies are nicely green and oil (USO) is back to our shorting line at $47.20 (/CL Futures) after yeasterdsay's failure to turn back down from $46.50, which is a loss of $700 per contract if you did not heed our warning, in yesterday morning's PSW Report, to use tight stops.

Nonethelss, you can be redeemed by doubling down at $47.20, which would raise your short average to $46.85 and then get out of at least half even there and back to tight stops above $47.25, which we shouldn't even see if oil remains weak.  That lines up with $49.50 on Brent Oil (/BZ) – which also should be a point of non-futile resistance.  

Seagate (STX) just missed and is down 20% and that does not bode well for Amazon (AMZN), who we've been shorting to no avail, as the only place they make any money is cloud storage.  That's right, turns out it's not profitable to pack and ship you a $3.99 case of Pepsi overnight – who'd have thought?  I was at the post office yesterday, contemplating what a stupid business Amazon really is.  Yes, it's nice that they can ship me all that stuff but, even at the post office, shipping costs are expensive and AMZN doesn't MAKE the stuff they ship, they only get a commission on it.  Even if they send you a book, where they take 30% of the sale price – by the time they pack, wrap and ship it to you – it's break-even at best.

Related imageThat's why Amazon doesn't have any real competition – there's no money in their business, why would anyone compete?  Don't get me wrong, you can sell the crap out of a service that doesn't make any money because the people will love it but how long before they wise up?  For instance, I was at the super market and I saw Starbucks (SBUX) Cold Brew Cofee with cream, cocoa and honey – 3 things I like in coffee so, even though it was $4, I had to buy one and it was…
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Phil's Favorites

Rogue State

 

Rogue State

How the guardians of nationhood conspire in its destruction.

By George Monbiot, published in the Guardian 18th November 2017 (Brexiters, beware: if the ties that bind us unravel, tyranny may soon follow)

What is this country we are asked to love? This might once have been an easy question to answer. National identity was built around a range of institutions, considered to represent the national interest. Rebellion against them was characterised as treason. But one by one, these institutions have been subverted from within. Look to the top to see treacher...



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Insider Scoop

35 Biggest Movers From Yesterday

Courtesy of Benzinga.

Gainers
  • OptimumBank Holdings, Inc. (NASDAQ: OPHC) shares climbed 57.2 percent to close at $7.75 on Monday after dipping 40.24 percent on Friday.
  • Carver Bancorp Inc (NASDAQ: CARV) shares gained 28.1 percent to close at $4.24 on Monday after dropping 34.19 percent on Friday.
  • Remark Holdings, Inc. (NASDAQ: MARK) shares jumped 27.83 percent to close at $7.67.
  • Riot Blockchain Inc (NASDAQ: RIOT) shares...


http://www.insidercow.com/ more from Insider

Digital Currencies

As Bitcoin Tops $8,200, Only 39% Of Survey Respondents Say It's A Bubble

Courtesy of ZeroHedge. View original post here.

Having first surged above $8000 overnight amid Zimbabwe's chaos, it appears uncertainty in the core of Europe has driven further demand for cryptocurrencu protection, sending Bitcoin to a new record high of $8247 - up 50% from the 'Bitcoin Cash' crash weekend lows.

...



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Chart School

Weekly Market Recap Nov 19, 2017

Courtesy of Blain.

Monday, Tuesday, and Friday saw the now usual “no volatility” days – while bears finally saw some action on Wednesday, bulls came right back Thursday with even bigger gains.  So while we have been cautious on the market for 3 weeks now all that has meant is consolidation in the market (granted the Russell 2000 has taken some hits).  For the week the S&P 500 fell 0.3% while the NASDAQ gained 0.5%. Economic news was light (we cover retail sales below), and earnings are coming to their tail end so we are in a bit of a news vacuum as negotiations about the tax reform bills will take the reigns.

Retail sales slowed in October, rising...



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Biotech

The two obstacles that are holding back Alzheimer's research

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

 

The two obstacles that are holding back Alzheimer's research

Courtesy of Todd GoldeUniversity of Florida

Family members often become primary caregivers for loved ones with Alzheimer’s disease. tonkid/Shutterstock.com

Thirty years ago, scientists began to unlock the mysteries regarding the cause of Alzheimer’...



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ValueWalk

Robert Mugabe Under House Arrest, Military Takes Control Of Zimbabwe

By Andjela Radmilac. Originally published at ValueWalk.

Zimbabwe’s head of state, 93-year-old Robert Mugabe, has been placed under house arrest after what seems to be a military coup took place in the nation’s capital.

By U.S. Navy photo by Mass Communication Specialist 2nd Class Jesse B. Awalt/Released [Public domain], via Wikimedia CommonsRobert Mugabe is safe

Following numerous reports on social media late Thursday night about the increased military presence in Harare, the capital of Zimbabwe, the country’s military took...



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Members' Corner

An Interview with David Brin

Our guest David Brin is an astrophysicist, technology consultant, and best-selling author who speaks, writes, and advises on a range of topics including national defense, creativity, and space exploration. He is also a well-known and influential futurist (one of four “World's Best Futurists,” according to The Urban Developer), and it is his ideas on the future, specifically the future of civilization, that I hope to learn about here.   

Ilene: David, you base many of your predictions of the future on a theory of historica...



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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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OpTrader

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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Promotions

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.

CLICK ON CHART TO ENLARGE

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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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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