Archive for the ‘High Mailing Priority’ Category

Oh it’s just an earnings valley

 

Oh it’s just an earnings valley

Courtesy of Joshua Brown

Via this morning’s Jefferies Global Equity Strategy note:

Although US economic surprises have cooled somewhat, 62% of S&P companies reported Q1 earnings above estimates while 55% reported sales above mean. This is the best ‘earnings beat rate’ since mid-2010. While 1Q16 (-7.6% to date) results will be the first time the index has seen four consecutive quarters of y-y declines since 4Q08 to 3Q09, forward guidance has improved significantly. The dollar is set to become a tailwind for the US from 2Q16.

So maybe more like an earnings valley than an earnings recession.

There might be something to that if dollar weakness is to continue. Here’s their chart showing a long-term trendline breakdown. If the strong dollar, weak commodities situation put us here in the valley, perhaps the reverse pulls us out.

Screen Shot 2016-05-04 at 9.00.05 AM

Source:

Rotation, Uncorrelated Returns and Andy Rooney Quotes
Jefferies – May 4th 2016





Delta Force

 

Delta Force

By John Mauldin, Thoughts from the Frontline 

Last week we looked at the world’s demographic destiny for the coming decades. I imagine most readers perused the information and said, “Yes, we already know the world’s population is getting older. Everybody keeps saying demographics are important, but I’d like to know how slowly changing demographics actually affect the economy here and now.

Today we are going to explore how demographic change impacts growth. (We will use lots of charts and graphs, but the text of the letter is actually shorter than usual. The whole picture is worth 1000 words thing.)

Delta Force

Every politician and economist wants to see the United States – and, I should point out, Europe, Japan, and the rest of the world – return to 3%-plus growth. Given that GDP in the first quarter turned out to be just 0.6% and that growth has sputtered along at less than 1% for the last six months, even the 2% growth that we’ve been averaging for the last five years sounds good now. In my just-concluded series, a letter to the next president on the economic situation he or she will face, I laid out my own plan to reinvigorate growth. But I have to admit that plan does face a strong headwind called fundamental economic reality.

Growth in GDP has only two basic components: growth in productivity and growth in the size of the workforce.

That’s it: there are two and only two  ways you can grow an economy. You can either increase the (working-age) population or increase productivity. There is no magic fairy dust you can sprinkle on an economy to make it grow. To increase GDP you have to actually produce more. That's why it's called gross domestic product.

The Greek letter delta (Δ) is the symbol for change. So the change in GDP is written as

ΔGDP = ΔPopulation + ΔProductivity

That is, the change in GDP is equal to the change in the working-age population plus the change in productivity. Therefore – and I'm oversimplifying quite a lot here – a recession is basically a decrease in production (as, normally, population doesn't…
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Energizer Market… Keeps Going and Going

 

Energizer Market… Keeps Going and Going

Courtesy of Wade of Investing Caffeine

Boom, boom, boom…it keeps going…and going…and going…

You’ve seen the commercials: A device operating on inferior batteries dies just as a drum-beating, battery operated Energizer bunny comes speeding and spiraling across the television screen. Onlookers waiting for the battery operated toy to run out of juice, instead gaze in amazement as they watch the energized bunny keep going and going. The same phenomenon is occurring in the stock market, as many observers eagerly await for stock prices to die. The obituary of the stock market has been written many times over the last eight years (see Series of Unfortunate Events). Mark Twain summed up this sentiment well, when after a premature obituary was written about him, he quipped, “The reports of my death are greatly exaggerated.”

With fears abound, stocks added to their annual gains by finishing their third consecutive positive month with the S&P 500 indexes and Dow Jones Industrial Average advancing +0.5% and +0.3%, respectively. Skeptics and worry-warts have been concerned about stocks plummeting ever since the Financial Crisis of 2008-2009. We experienced a 100 year flood then, and as a consequence, scarred investors now expect the 100 year flood to repeat every 100 days (see also 100 Year Flood). Given the damage created in the wake of the “Great Recession,” many individuals have become afraid of their own shadow. The shadows currently scaring investors include the following:

  • Negative Interest Rates: The unknown consequences of negative interest rate policies by central banks (see chart below).
  • U.S. Monetary Policy: The potential continuation of the Federal Reserve hiking interest rates.
  • Sluggish Economic Growth: With a GDP growth figure up only +0.5% during the first quarter many people are worried about the vulnerability of slipping into recession.
  • Brexit Fears: Risk of Britain exiting the European Union (a.k.a. “Brexit”) will blanket the airwaves as the referendum approaches next month

For these reasons, and others, the U.S. central bank is likely to remain accommodative in its stance (i.e., Fed Chairwoman Janet Yellen is expected to be slow in hitting the economic brakes via interest rate hikes).


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John Oliver: Puerto Rico Deserves Relief

 

John Oliver: Puerto Rico Deserves Relief

Courtesy of Joshua Brown, The Reformed Broker

You may not agree with this stance, but it’s a really good explanation for how Puerto Rico got into the mess it’s in.

There are headlines crossing wire tonight that the government will not be making a bond payment tomorrow. PR is calling out to the US to make a deal for relief – not necessarily a bailout but the buying of time for a restructuring.

John Oliver explained why the current situation can be blamed mostly on the Puerto Rican government and partly on other factors. You may own some Puerto Rican debt in some of your US mutual funds and not even realize it, so this might apply to you.

Watch:





How Scared Should We Be About Future Returns?

 

How Scared Should We Be About Future Returns?

Courtesy of Cullen Roche at Pragmatic Capitalism

McKinsey had a really nice piece this week on the future of financial market returns. The basic conclusion – lower your expectations and hunker down for some lean years in the financial markets.  McKinsey says that equities have benefited from unusually favorable conditions in the last 30 years such as low valuations, falling inflation, falling interest rates, strong demographic growth, high productivity gains and strong corporate profits. Specifically, they say:

“Despite repeated market turbulence, real total returns for equities investors between 1985 and 2014 averaged 7.9 percent in both the United States and Western Europe. These were 140 and 300 basis points (1.4 and 3.0 percentage points), respectively, above the 100-year average. Real bond returns in the same period averaged 5.0 percent in the United States, 330 basis points above the 100-year average, and 5.9 percent in Europe, 420 basis points above the average.”

That’s a nice clean view of the future relative to long-term returns. I think McKinsey is dead right – the last 30 years were unusual and something closer to the 100 year average is probably reasonable. I’ve stated in the past that the math here isn’t terribly controversial (or shouldn’t be). If a 50/50 stock/bond portfolio has generated 30 year average returns of 9.5% then we should expect the future returns to be lower or more volatile. In other words, you can, with near certainty, expect that the high risk adjusted returns of the last 30 years are gone.

Why is this a certainty? Well, it’s a simple function of the current interest rate environment. Because the post-1980 era involved a huge bond bull market the risk adjusted returns of a balanced portfolio were unusually high. For instance, from 1985-2015 a 50/50 stock/bond portfolio posted returns of about 9.5% with a Sharpe ratio of 0.7 and a Sortino ratio of 1.5. That’s because the bond piece, which is inherently more stable, generated average annual returns of 7% with a Sharpe ratio of 0.76 and an eye popping Sortino ratio of 2.12 while the stock piece generated annual returns of 12.5% with a Sharpe ratio of 0.5 and a Sortino of just 0.92.…
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Young Bulls And Old Bears

 

Young Bulls And Old Bears

Courtesy of , The Irrelevant Investor

“Two things have always been true about human beings. One, the world is always getting better. Two, the people living at that time think it’s getting worse” – Penn Jillette

What do Bill Gross, Sam Zell, Jeremy Grantham and Carl Icahn have in common? They’re all old, they’ve all had brilliant careers, and they’re all bearish on the stock market.

Whether it be in music or in stocks, the prior generation never thinks “kids” will ever measure up. Even Benjamin Graham- the man who basically invented value investing- fell victim to the “get off my lawn syndrome.”

From Roger Lowenstein’s Buffett: The Making of an American Capitalist. 

I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham & Dodd” was first published; but the situation has changed.

Young bulls and old bears is as old as the hills. In Ten Years In Wall Street, which was published in 1870, William Worthington Fowler wrote “Wall Street operators commence their career as bulls, and finish it as bears.”

It’s tough to pin down the root cause of this metamorphosis, but get used to it. The old man screaming “the world is going to end” has always been here and he always will be.

Via Pixabay.





Weekend Reading: Yep… Still Looks Like A Trap

Courtesy of Lance Roberts of RealInvestmentAdvice.com

Last week, I noted technical breakout of the market above the downtrend line from last May, such a move required an increase in exposure to equity risk. Two weeks ago, I wrote,

“With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios. This is probably the most difficult ‘buy’ I can ever remember making.”

I also stated that it was probably a trap and that I will be stopped out in fairly short order. But that is the risk of managing money.

Well, since then the markets have gone, as of this writing, roughly nowhere as the market traded between roughly 2075 and 2100 all week. However, the following chart is what has me worried. 

SP500-VIX-042816

The chart of the volatility index measures the “fear of a correction” that currently exists in the market. As a contrarian indicator, the “time to sell” is when there is relatively little “fear” in the market.  As the yellow highlighted bars suggest, that time is likely now.

Is the recent turn higher in the VIX signaling a market correction as it has done in the past? Possibly. If so, the question will be the depth of that correction. Will it be a mild pullback as saw in early 2015, or a more major decline as seen in August of last year? My bet is that it will likely be the latter given the weakening fundamental backdrop.

However, given the ongoing Central Bank interventions, verbal easing by the Federal Reserve and an excessiveness of “bullish hope,” there is still no telling what the markets will do next. This is why in this upcoming weekend’s newsletter (subscribe for free e-delivery) I will be discussing the possibility of “shorting against the box.”

Keith Fitz-Gerald once wisely stated:

“Always sit in an exit row.” 

This weekend’s reading is focused primarily on the events from last week – The Fed and the markets. I suspect things are about to get much more interesting.

CENTRAL BANKING


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Visualizing China’s Rising Dominance In Trade (In 4 Shocking Maps)

Courtesy of ZeroHedge. View original post here.

We often use big, overarching ideas to help us understand the world and the opportunities contained within. These narratives, which can change over time, are used to create context. They give us a frame of reference for comprehending the news and events that affect our outlook on things.

As VisualCapitalist's Jeff Desjardins notes, China’s economic prowess is one of these new paradigms that has emerged, but many people still can’t really wrap their heads around the scale or scope of it.

It’s happened suddenly, and the ramifications are extremely relevant to our investments and understanding. Here’s four maps on China’s trade dominance that will help you think differently about the world:

China is the world’s #1 trade partner

China trading partners outnumbers US by a factor of two

Image courtesy of: Connectography

The United States is the number one trading partner for 56 countries, with important relationships throughout North America, South America, and Western Europe.

Meanwhile, China is the top partner for 124 countries, dominating trade in Asia, Eastern Europe, Africa, and Australia.

China’s Sphere of Influence

This map shows the portion of trade conducted by each country with China in Southeast Asia.

China's trade with ASEAN

Image courtesy of: Stratfor

The influence that China has with nations in Southeast Asia is significant. Most trade is in double-digit percentages, and China views this as its immediate sphere of influence. Throughout history, territories in this region would even pay tribute to China to gain access to trade.

“In East Asia’s tribute system, China was the superior state, and many of its neighboring states were vassal states, and they maintained a relationship of tribute and rewards,” writes Liu Mingfu in The China Dream, a popular book about China’s plans to return to power.

Maintaining influence in Southeast Asia is part of the reason that Beijing is posturing in the South China Sea. In fact, China’s coastguard is growing so fast that in 10 years it will have…
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PhilStockWorld.com Weekly Trading Webinar – 04-27-16

 

PhilStockWorld.com Weekly Trading Webinar – 04-27-16

One of Phil's strategies made $1,500 in 30 minutes during yesterday's Live Trading Webinar!

(Don't miss next week's webinar in real-time. Get LIVE access to Phil's Weekly Webinars by joining us at Phil's Stock World — click here!)


Major Topics:
 
00:01:13 Tempting Tuesday – Cash! Cash, cash, cash and more cash!! Trade Idea
00:08:14 Trade Ideas
00:14:47 AAPL: ’13 ’14 ’15 stock of the year. Product Cycle. Charts. Trade Ideas
00:34:14 AAPL: Spread. Trade Idea
00:38:36 AAPL: Long Term Portfolio
00:42:21 Checking on the Markets: YG, SI, DOW, NASDAQ, TWTR, RUSSEL, NIKKEI, AAPL, BA, CL, WYNN, AMZN, TSLA, NG, VIX, TLT, XLF
00:46:20 Top Trade: TWTR
00:54:14 FOMC Meeting
00:59:21 GSPC comparing to UUP
01:01:48 Trade Ideas
01:14:26 Checking on the Markets after FOMC Meeting: YG, SI, DOW, NASDAQ, TWTR, RUSSEL, NIKKEI, AAPL, BA, CL, WYNN, AMZN, TSLA, NG, VIX, TLT
01:17:58 FOMC
01:23:32 More Trade Ideas….





PRGO, VRX and an Overpriced Papa

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

By Ilene 

Remember this? It was Monday. PRGO is down from around $130 to under $100 since I started following it LAST WEEK. That's down almost 25% in a week, and almost 50% in the last year. So I wrote, 

"Perrigo CEO Joseph Papa leaves Perrigo (PRGO) to lead Valeant (VRX) while PRGO issues a warning about missing earnings expectations. Not surprisingly, PRGO stock plummeted today. 

Robert Ingram, Chairman of the [Valeant] Board, stated, "The Board has conducted a thorough search process and believes that Joe is the ideal leader for Valeant at this time. He has a strong shareholder orientation, a background in science, and an unmatched track record of accomplishments, highlighted by his ability to lead companies through times of transition and drive excellence across commercial, manufacturing and R&D platforms. In addition, fostering an ethical culture and creating opportunities for professional development have always been high priorities for Joe, and we look forward to Joe's arrival at Valeant" (Valeant names Papa CEO after he resigns from Perrigo).

"Reuters reports that Mr. Shareholder Orientation became 'well-known on Wall Street last year when Dublin-based Perrigo rebuffed a $26 billion takeover by Mylan NV, the largest-ever hostile bid decided by a shareholder vote.' Perrigo's market cap has now dropped to around $14.2 billion [now $13.9 billion] — down over 18% today alone -- making Papa look foolish for rejecting that buyout offer."

Papa’s departure comes just months after he successfully beat back a $26 billion hostile takeover bid from Mylan spearheading a campaign that ultimately persuaded shareholders to reject Mylan’s bid.

Since then, though, Perrigo has reported disappointing quarterly results and slashed its outlook (Perrigo shares tumble as CEO leaves for Valeant, guidance cut again).

While many were congratulating VRX for recruiting Papa to be its CEO, Jim Cramer wrote,

Perrigo's (PRGO) heartbreaking. How could Joe Papa, the man who was so intertwined with Perrigo for so long, the man who came on Mad Money and argued there was so much more value to the company than the price Mylan put on it — some 80 points higher than where


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Phil's Favorites

2 Concerns About the US Government's Debt

 

2 Concerns About the US Government’s Debt

Courtesy of Cullen Roche at Pragmatic Capitalism

The comedy website Mises.org had some responses to the recent uproar over the TIME magazine article referring to the US government as insolvent. The two big concerns were in fact funny which is good because comedy websites are supposed to be…funny. Specifically, they said:

  1. The US government can’t afford the interest on the national debt.
  2. Foreign governments might sell US government bonds c...


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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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Zero Hedge

"Summer Of Shocks" Is Upon Us: BofA Warns "Own Volatility", Wait To Buy Stocks Until VIX > 20

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

"Own volatility.." is the subtle message from BofA's Michael Hartnett, who warns "don't add risk before SPX 1950-2000 range and/or VIX>20." Simply put, as he explains below, bullish "positioning shocks" & "policy shocks" are largely behind us; and there is no bullish "profits shock" coming in a world that cannot cope with a higher US dollar & higher rates.

2016 YTD global total returns: commodities 7.6%, bonds 7.5%, equities 1.1%, the US dollar -5.8%.

Our base case remains:

End of excess liquidity + end of excess ...



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Chart School

RecessionAlert Weekly Leading Index: Another Increase

Courtesy of Doug Short's Advisor Perspectives.

The latest index comes in at 2.6, a 1.8 point increase from the previous week's revised 0.7.

RecessionAlert has launched an alternative to ECRI's Weekly Leading Index Growth indicator (WLIg). The Weekly Leading Economic Index (WLEI) uses fifty different time series from these categories: Corporate Bond Composite, Treasury Bond Composite, Stock Market Composite, Labor Market Composite, Credit Market Composite. RecessionAlert emphasizes that WLEI is a growth index and its data is no more than a week old, as is ECRI's WLIg.

Here is an excerpt from the description:

Being a weekly growth index, it provides data with at most a 1-week lag, which is far more t...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

The Unloved Business That's Saved Big Oil From Low Energy Prices (Bloomberg)

Big Oil is suddenly Big Chemical.

Oil rallies as Canada fire and Libya violence threaten supply (Reuters)

A huge wildfire near Canada's oil sands region and escalating tensions in Libya stoked concern among investors over a near-term supply shortage, driving crude prices up for the first time in a week on Thursday.

The 9 bes...



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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.

CLICK ON CHART TO ENLARGE

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



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ValueWalk

Pension Funds - Taking the Long View: The Dangers of Short-Termism

By Jacob Wolinsky. Originally published at ValueWalk.

Pension Funds – Taking the Long View: The Dangers of Short-Termism

Moderator
Scott Minerd, Managing Partner, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners

Speakers
Christopher Ailman, Chief Investment Officer, California State Teachers? Retirement System; Co-Chair, Global Capital Markets Advisory Council, Milken Institute
Scott Evans, Deputy Comptroller, Asset Management, and Chief Investment Officer, New York City Retirement Systems
Vicki Fuller, Chief Investment Officer, New York State Common Retirement Fund
Hiromichi Mizuno, Executive Managing Director and Chief Investment Officer, Government Pension Investment Fund, Japan

Intensifying global competition, flagging corporate earnings and emboldened activist investors ...



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Digital Currencies

Is Craig Wright The Creator Of Bitcoin? Frisby and Matonis On 'Satoshi Nakamoto'

Courtesy of ZeroHedge. View original post here.

Is Craig Wright The Creator Of Bitcoin? Frisby and Matonis On ‘Satoshi Nakamoto’

By Mark O'Byrnewww.GoldCore.com 

Craig Wright, an Australian computer scientist, self-declared cyber security expert and entrepreneur, has claimed to be the creator of Bitcoin, the elusive &l...



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OpTrader

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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Biotech

PRGO, VRX and an Overpriced Papa

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

By Ilene 

Remember this? It was Monday. PRGO is down from around $130 to under $100 since I started following it LAST WEEK. That's down almost 25% in a week, and almost 50% in the last year. So I wrote, 

"Perrigo CEO Joseph Papa leaves Perrigo (PRGO) to lead Valeant (VRX) while PRGO issues a warning about missing earnings expectations. Not surprisingly, PRGO stock plummeted today. 

Robert Ingram, Chairman of the [Valeant] Board, stated, "The Board has conducted a thorough search process and believes that Joe is the ideal leader for Valeant at this time. He has a strong shareholder orientation,...



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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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Promotions

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!

PhilStockWorld.com 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 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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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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