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Archive for the ‘Chart School’ Category

S&P 500 Snapshot: Selloff Day Two

Courtesy of Doug Short.

Before the market opened, the ADP Employment Report for April disappointed expectations. The S&P 500 opened higher and rose to its 0.43% intraday high about four minutes later. It then zigzagged a bit before settling into a steady continuation of yesterday’s downtrend to its -1.03% intraday low. The index rallied during the final hour to a more modest loss of 0.45%. Of particular interest was Federal Reserve Chair Janet Yellen’s comment that “equity valuations at this point generally are quite high.” She made this remark at a DC conference sponsored by Institute for New Economic Thinking (more here).

Is the equity market overvalued? See our latest overview of the topic:

The yield on the 10-year Note closed at 2.25%, up 6 bps from yesterday’s close, its highest close since December 24th of last year.

Here is a 15-minute chart of the past five sessions.

On a daily chart of the index, we see that it’s now below its 50-day moving average. Volume on day two of the latest selloff came was about 6% above its 50-day moving average.

A Perspective on Drawdowns

Here’s a snapshot of selloffs since the 2009 trough.

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Click for a larger image

For a longer-term perspective, here is a charts base on daily closes since the all-time high prior to the Great Recession.

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Click for a larger image





ADP Employment Report for April Disappoints Expectations

Courtesy of Doug Short.

The economic mover and shaker this week is the Friday employment report from the Bureau of Labor Statistics. This monthly report contains a wealth of data for economists, probably the most publicized in the near term being the month-over-month change in Total Nonfarm Employment (the PAYEMS series in the FRED repository).

Today we have the April estimate of 169K new nonfarm private employment jobs from ADP. That is the lowest number since the 157K in January of last year, 15 months ago. In addition, the previous month’s estimate was revised downward from 189K to 175K.

The 169K estimate came in well below the Investing.com forecast of 200K for the ADP number.

The Investing.com forecast for the forthcoming BLS report is 224K nonfarm new jobs (the actual PAYEMS number).

Here is an excerpt from today’s ADP report:

Goods-producing employment declined by 1,000 jobs in April, down from 3,000 jobs gained in March. The construction industry added 23,000 jobs, up from 21,000 last month. Meanwhile, manufacturing lost 10,000 jobs in April, after losing 3,000 in March.

Service-providing employment rose by 170,000 jobs in April, down slightly from 172,000 in March. The ADP National Employment Report indicates that professional/business services contributed 34,000 jobs in April, up from March’s 28,000. Expansion in trade/transportation/utilities grew by 44,000, up from March’s 41,000. The 7,000 new jobs added in financial activities is a drop from last month’s 12,000.

“April job gains came in under 200,000 for the second straight month,” said Carlos Rodriguez, president and chief executive officer of ADP. “Companies with 500 or more employees had the slowest growth.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Fallout from the collapse of oil prices and the surging value of the dollar are weighing on job creation. Employment in the energy sector and manufacturing is declining. However, this should prove temporary and job growth will reaccelerate this summer.”

Here is a visualization of the two series over the previous twelve months.

The key difference between the two series is that the BLS series is for Nonfarm Payrolls while ADP tracks private employment.





STTG Market Recap May 5, 2015

Courtesy of Blain.

While the indexes had a nice 2 day rally Fri/Mon, it was difficult to really trust it because some secondary indicators (such as the NYSE McClellan Oscillator we cite often) have been trending in the wrong way.  Today was a good example of why you want those secondary indicators to be in our favor before going all in, on a short term basis, in a market.  The rug was pulled out from under bulls and those 2 days of gains were quickly wiped out – the S&P 500 fell 1.18% and the NASDAQ 1.55%.  There was more drama in Europe as stocks and bonds sold off in Athens on news the International Monetary Fund may cut a funding lifeline to Greece unless its European partners accept more debt writedowns, the Financial Times reported. Germany’s finance minister later rebuffed the report .  If you have followed Europe (or the world for that matter) since 2009 – you know how this works… a lot of huffing and puffing and then central banks or governments kicking the can down the road.

In economic news:

A report today showed the U.S. trade deficit widened in March to the highest level in more than six years, fueled by a record surge in imports as commercial activity resumed at West Coast ports following a resolution to labor disputes. The jump probably means the U.S. economy contracted in the first quarter when the Commerce Department issues revisions later this month.

Both indexes are struggling some here.

spx

nasdaq

After a bounce the first time the Russell 2000 sunk to support, the index is right back there – often the second time you revisit support in short order is not as positive.

rut

The NYSE McClellan remains in red and is nearing oversold.

NYMO

Oil continues to act well; this breakout out of a bull flag continues.

wtic

We’ll look at some individual stocks tonight with charts from Marketsmith:

It was suggested a few days ago that Salesforce.com (CRM) was in play to be taken over.  Today that suitor was announced as potentially Microsoft (MSFT).

crm

msft

Herbalife (HLF) is surging 15% in after hours to $46 after reporting earnings.

Herbalife reported first quarter earnings per share of $1.29 per share, beating expectations for EPS to come in at $1.01.  Revenue in the quarter totaled


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Riding Support in S&P, But Nasdaq Breaks

Courtesy of Declan.

Sellers took control of markets with the Nasdaq following prior weakness in the Russell 2000 with a breakdown. This just left the S&P trading at support with very little room for maneuver if bulls don’t make an appearance tomorrow. Volume climbed in confirmed distribution and there was a ‘sell’ trigger in the MACD.


The Nasdaq was less fortunate with a clean slice through trendline support. There was also a ‘sell’ trigger in On-Balance-Volume. There is still a chance for bulls to trap shorts tomorrow, but there is work to do for this happen.


The Russell 2000 had already lost channel support, and it took a swing at a further leg lower on today’s loss. Next support is found at 1,206 and 200-day MA.


Tomorrow could see an acceleration of losses as bears look to crack the S&P. If shorts/sellers fail to do so, then look to the Nasdaq to build a bullish revival.

You’ve now read my opinion, next read Douglas’ and Jani’s.





Market Valuation, Inflation and Treasury Yields: More Clues from the Past

Courtesy of Doug Short.

Note from dshort: The charts in this commentary have been updated to include the latest monthly data.


Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a “normal” market environment — one with conventional business cycles, Federal Reserve policy, interest rates and inflation — current valuation levels would be a serious concern.

But these are different times. The economic cycle shaped by the Financial Crisis that began emerging in 2007 shortly after the Bear Stearns hedge funds collapsed. The Fed began its historic crusade in cutting the overnight rate from an average of 5.25% prior to the hedge fund collapse to ZIRP (Zero Interest Rate Policy) as of December 16, 2008. The bankruptcy of Lehman Brothers on September 15, 2008 was the most dramatic precipitator of the Fed’s unprecedented policies.

In the wake of the Financial Crisis, inflation has been low and the 10-year Treasury yield is hovering about 70 basis points above its historic closing low of 1.43% set on July 25, 2012 (the monthly average that month also an all-time low of 1.53%). So, with this refresher on the Financial Crisis in mind, let’s take another look at the popular P/E10 valuation metric.

Here is a scatter graph with the market valuation on the vertical axis (log scale) and interest rates on the horizontal axis. It includes some key highlights: 1) the extreme overvaluation of the Tech Bubble, 2) the valuations since the start of last recession, 3) the average P/E10 and 4) where we are today.

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The inflation “sweet spot”, the range that has supported the highest valuations, is approximately between 1.4% and 3%. See, for example the highlighted extreme valuations associated with the Tech Bubble arbitrarily as a P/E10 of 30 and higher. The chronology of the orange “bubble” on the chart is a clockwise loop of 56 months starting at the 6 o’clock position. The P/E10 was 31.3 and the annual inflation rate for that month, June 1997, was 2.30%. The average inflation rate for the loop was 2.41%. The P/E10 peak of 44.2 in December 1999 was accompanied by a 2.68% annual…
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ISM Non-Manufacturing: Continued Growth in April

Courtesy of Doug Short.

Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 57.8 percent, up 1.3 percent from last month’s 56.5 percent. Today’s number came in above the Investing.com forecast of 56.2 percent.

Here is the report summary:

“The NMI® registered 57.8 percent in April, 1.3 percentage points higher than the March reading of 56.5 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased substantially to 61.6 percent, which is 4.1 percentage points higher than the March reading of 57.5 percent, reflecting growth for the 69th consecutive month at a faster rate. The New Orders Index registered 59.2 percent, 1.4 percentage points higher than the reading of 57.8 percent registered in March. The Employment Index increased 0.1 percentage point to 56.7 percent from the March reading of 56.6 percent and indicates growth for the 14th consecutive month. The Prices Index decreased 2.3 percentage points from the March reading of 52.4 percent to 50.1 percent, indicating prices increased in April for the second consecutive month, but at a slower rate. According to the NMI®, 14 non-manufacturing industries reported growth in April. The majority of respondents indicate that there has been an uptick in business activity due to the improved economic climate and prevailing stability in business conditions.”

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM’s Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 61.6 percent is up from 57.5 the previous month.

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For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualizing the short-term trends.

Theoretically, this indicator should become more useful as the timeframe of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a…
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The Market Remains in Overvaluation Territory

Courtesy of Doug Short.

Here is a summary of the four market valuation indicators we update on a monthly basis.

  • The Crestmont Research P/E Ratio (more)
  • The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
  • The Q Ratio, which is the total price of the market divided by its replacement cost (more)
  • The relationship of the S&P Composite price to a regression trendline (more)

To facilitate comparisons, we’ve adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflation-adjusted S&P Composite to its exponential regression. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which we’re using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 61% to 98%, depending on the indicator, little unchanged from the previous month’s 61% to 98%.

We’ve plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the line charts — which are simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

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Click for a larger image

The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the “average”). The geometric mean increases our attention to outliers. In my view, the first chart does a satisfactory job of illustrating these four approaches to market valuation, but we’ve included the geometric variant as an interesting alternative…
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S&P 500 Snapshot: The Tenth -1%-Plus Selloff of 2015

Courtesy of Doug Short.

Today the S&P 500 logged its 10th one-percent-or-greater decline of 2015. This one followed a mixed bag of economic reports. The March Trade Balance (Exports minus Imports) was the largest deficit since 2008. This will no doubt send the Second Estimate of Q1 GDP lower. On the other hand, the ISM Non-Manufacturing report surprised to the upside. With the April Employment report waiting in the wings, the equity markets sold off sharply. The S&P 500 hit its 0.04% intraday high moments after the opening bell and sold off to its -1.23% intraday low early in the final hour. It closed with a fractionally trimmed loss of -1.18%.

The yield on the 10-year Note closed at 2.19%, up 3 bps from yesterday’s close.

Here is a 15-minute chart of the past five sessions.

On a daily chart of the index, we see that it’s right on its 50-day moving average. Today’s selloff came on routine volume.

A Perspective on Drawdowns

Here’s a snapshot of selloffs since the 2009 trough.

Click to View
Click for a larger image

For a longer-term perspective, here is a charts base on daily closes since the all-time high prior to the Great Recession.

Click to View
Click for a larger image





STTG Market Recap May 4, 2015

Courtesy of Blain.

Indexes gapped up mildly in the U.S., tried to rally a bit and failed, and then did little from there.  The S&P 500 gained 0.29% and the NASDAQ 0.23%.  A lot of eyes will be set on Friday’s employment data; economists forecast a 225,000 increase in April non-farm payrolls, and a one-tenth decline in the unemployment rate to 5.4 percent..   Factory orders for March showed a gain of 2.1 percent, the biggest increase in eight months and above expectations of a 1.9 percent increase.  There were also dovish Fed comments that helped the action:

Chicago Fed’s Charles Evans said that hiking interest rates does not seem appropriate until next year due to the weak first quarter.

Data point:  Of the S&P 500 members that have already released results this season, 73 percent beat profit projections and 49 percent topped sales estimates. Analysts have tempered their predictions for a corporate profit slump, now projecting a first-quarter drop of 0.4 percent, compared with April 17 calls for a 4.3 percent decline.

There has been a decent 2 day bounce on the S&P 500 but really this index has not made much progress in a few months.

spx

nasdaq

The Russell 2000 bounce perfectly off obvious support.

rut

Still negative on the NYSE McClellan Oscillator which is a negative.

NYMO

Financials are one area starting to stick out to the upside – see banking giant JPMorgan (JPM) as an example.

jpm

Comcast (CMCSA) earned 81 cents per share for the first quarter, seven cents above estimates, with revenue also above forecasts. Comcast also added $2.5 billion to its existing stock buyback program.

cmcsa

Shake Shack (SHAK) has been very impressive since its IPO!

shak

Etsy (ETSY)…not so much.

etsy

This move in Chinese stocks that we’ve highlighted the past month continues – see Youku (YOKU) and Sina (SINA).

yoku

sina





Promising Start Gives Way To Late Selling

Courtesy of Declan.

It was a bit of a non-event for indices as early gains were unable to hold by the close of business. As a result, some of the challenges on highs faded and all indices remained inside prior consolidations. Volume was also down on Friday’s, which kept things muted.  For example, the S&P touched on 2120 resistance, but finished below this level.


The Nasdaq is stuck in the middle of its bearish rising wedge


While the Russell 2000 was unable even to mount a challenge of overhead resistance at 50-day or 200-day MAs.


The Semiconductor Index remained pegged by its 50-day MA.


Today was more noise in an already noisy market. We need a decisive break of either support or resistance to get the juices flowing.

You’ve now read my opinion, next read Douglas’ and Jani’s.





 
 
 

Zero Hedge

Repatriation Of Gold From Fed Suggests Historic Vote Of No Confidence

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Seth Mason via Solidus.Center blog,

Since 2012, there’s been an unprecedented call from foreign nations to repatriate their gold from Federal Reserve vaults in the U.S. This is an incredible development given many countries’ 71-year reliance on the Fed as a custodian for their bullion. Over the last few years, countries including, but not limited to, Germany, the Netherlands, France, Belgium, Austria, Poland, Ecuador, Finland, Switzerland, Venezuela, and Romania have either formally requested repatriation of their gold or are in discussions with...



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Phil's Favorites

The Greatest Trick the Devil Ever Pulled

The Greatest Trick the Devil Ever Pulled

Courtesy of Joshua M Brown

…was convincing investors that volatility and risk were the same thing.

This idea that risk cannot truly be measured by looking at volatility (as measured by standard deviation) is well-trod territory in the financial blogosphere so I won’t go into it at length again.

But I do feel as though more than half of all the terrible products, funds and newsletters available to investors make their living by confusing (conflating?) risk and volatility. It’s how Wall Street makes a lot of its money on the wealth management side (upside without fluctuation!) and its why the hedge fund industry is a $3 trillion behemoth (we&rsquo...



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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

Is the Fed losing control of interest rates?

Courtesy of Chris Kimble.

Is the Fed losing control over interest rates? I’ve heard a rumor that the Fed is in control of interest rates.

If this is true, is Janet raising rates and not telling anyone? The table below looks at the performance of the yields on the 10 & 30-year notes and TLT over the past 90-days. As you can see yields are up nearly 20% in 90 days!

CLICK ON CHART TO ENLARGE

If Janet and the Fed aren’t raising rates right now, is it possible that “Billions of Free Thinking People” are causing rates to move higher?

The chart below takes a look a...



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Insider Scoop

Goldman Sachs Initiates Titan International With Neutral

Courtesy of Benzinga.

Related TWI Earnings Scheduled For February 26, 2015 Top Performing Industries For February 3, 2015 Can the Rally in Titan International (TWI) Shares Continue? - Tale of the Tape (Zacks)

Analysts at Goldman Sachs initiated coverage on Titan International Inc (NYSE: TWI) with a Neutral rating.

The target price for Titan International is set to $...



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Chart School

S&P 500 Snapshot: Selloff Day Two

Courtesy of Doug Short.

Before the market opened, the ADP Employment Report for April disappointed expectations. The S&P 500 opened higher and rose to its 0.43% intraday high about four minutes later. It then zigzagged a bit before settling into a steady continuation of yesterday's downtrend to its -1.03% intraday low. The index rallied during the final hour to a more modest loss of 0.45%. Of particular interest was Federal Reserve Chair Janet Yellen's comment that "equity valuations at this point generally are quite high." She made this remark at a DC conference sponsored by Institute for New Economic Thinking (more here).

Is the equity market overvalued? See our latest overview ...



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Sabrient

Sector Detector: Bulls hold the line as market coils in anticipation of a bigger move

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

Courtesy of Sabrient Systems and Gradient Analytics

After posting record highs the previous week, stocks closed last week slightly down overall. But the major indexes held their psychological levels, including Dow at 18,000, S&P 500 at 2100, NASDAQ at 5,000, and Russell 2000 at 1200. Although the bulls continue to find reliable support levels nearby, strong overhead technical resistance and neutral-to-defensive rankings in our SectorCast fundamentals-based quant model continue to suggest that a major upside breakout is not quite imminent, although a selloff doesn’t seem to be in the cards, either. Overall, stocks appear to be coiling ever tighter while awaiting...



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OpTrader

Swing trading portfolio - week of May 3rd, 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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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. 

Since...



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Digital Currencies

Why Bitcoin's male domination will be its downfall

Here's an interesting argument by Felix Salmon, although I think he is taking two correct observations and mistakenly attributing a cause-and-effect relationship to them: Bitcoin is going nowhere because women are not involved.

More likely, in my opinion, women are not involved in bitcoin because bitcoin is going nowhere (and they know it). Or maybe, simply, bitcoin is going nowhere and women are not involved. 

Why Bitcoin's male domination will be its downfall 

By Felix Salmon

Nathaniel Popper’s new book, Digital Gold, is as close as you can get to being the definitive account of the history of Bitcoin. As its subtitle proclaims, the book tells the story of the “misfits” (the first generation of hacker-l...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Market Shadows

Kimble Charts: South Korea's EWY

Kimble Charts: South Korea's EWY

By Ilene 

Chris Kimble likes the iShares MSCI South Korea Capped (EWY), but only if it breaks out of a pennant pattern. This South Korean equities ETF has underperformed the S&P 500 by 60% since 2011.

You're probably familiar with its largest holding, Samsung Electronics Co Ltd, and at least several other represented companies such as Hyundai Motor Co and Kia Motors Corp.

...



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Pharmboy

2015 - Biotech Fever

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

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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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 jennifersurovy@yahoo.com 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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

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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