Posts Tagged ‘program trading’

PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

Courtesy of JESSE’S CAFÉ AMÉRICAIN

US equities were gripped by panic selling as the Dow plunged almost 1,000 points driven by a cascade of 100 share high frequency program trading, estimated to have been about 80% of volume. Gold rocketed higher to $1,210.

The stock exchange circuit breakers do not effectively apply after 2:30 PM NY time unless the market declines over 20% and they close the exchange for the day.

A bit of a detail perhaps, but it serves to enhance the convenient artificiality of today’s market break.

This is highly reminiscent of the 1987 crash driven by a flawed market structure based on automated trading and bad theories.

The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices.

This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top.

This is yet another indication that the US regulatory and market oversight organizations, especially the SEC and CFTC, continue to be disconnected from and remarkably ineffective in their responsibilities in guarding the public against gross market abuse, price manipulation, and insiders playing games with cheap money supplied by the NY Fed.

And as you might expect, the anchors on financial television are trying to excuse and blame the sell off on a ‘fat finger’ order that caused Proctor and Gamble to drop 20 points in 45 seconds. Or a typist inputting an order to sell 16 million e-mini SP futures, and typing "B" instead of "M." Oops. Crashed the free world.

"Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn, [bars of silver], or barrels of oil in which to invest.

But a synthetic instrument has no real assets. It is simply a bet on the performance


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Goldman Principal-To-Agency Program Trading Ratio Hits Record 22x

Does a trading monopoly constitute insider trading, or just insider-like trading?  – Ilene

Goldman Principal-To-Agency Program Trading Ratio Hits Record 22x

Courtesy of Tyler Durden

It has been a while since we revisited Goldman’s domination of NYSE program trading courtesy of the SLP [supplemental liquidity providers]. For the past two months we have been waiting for additional information from the NYSE on what other firms are currently SLP vendors to the exchange. By the lack of any data from the NYSE we can only assume that Goldman is still the defacto monopolist in SLP, and in essence the primary privileged DMM on the NYSE. One wonders with liquidity "back to normal" when the NYSE, SEC and Goldman will agree to disassemble the SLP program so that the market can go back to its efficient old-school ways (this is rhetorical).

As the data suggests, Goldman Sachs & Co. now has a staggering 22-to-1 ratio of principal to agency transactions: in the last week Goldman traded 662 million shares in principal capacity (instead of blaming all of this on Goldman’s prop trading cash machine, we would love to be able to break down how much of this is attributable to SLP, but a reborn NYSE which believes in nothing but transparency will simply not provide that data). Taking into account GSEC adds another measly 10 million agency shares doesn’t change the big picture that out of the top 10 NYSE firms, Goldman trades the third lowest amount on an agency basis. Goldman’s casino is now not even pretending to trade on behalf of clients, as all of its money is made on FICC spreads and volumes (aka trading monopoly).

[click on chart to enlarge]

Maybe one of these days Goldman Sachs can do a philanthropic, non-profit seminar on how to ramp futures every single day in the 11pm-3am block. That, or how to use taxpayer money to pay for a trunk line straight into the Marriner Eccles buildling.

 


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Rosie On Who The Market Buyers Are

Rosie On Who The Market Buyers Are

who's buying stocks?Courtesy Tyler Durden at Zero Hedge

From this morning’s Breakfast With Dave:

Is it the private client? Not really — stock funds actually had net outflows of $1.33 billion last week, while bond funds enjoyed an $8.2 billion net inflow.

Is it corporate insiders? Well, heck no — Robert Toll (CEO of Toll Brothers) just disclosed that he sold a total 1.6 million shares of his company’s stock yesterday.

Is it buybacks? Not at all — in fact, S&P 500 companies bought back a mere $24.4 billion on stock repurchases in 2Q, down 72% from a year ago and the lowest in recorded history, according to Howard Silverblatt of Standard & Poor’s.

So who’s doing the buying? Very likely it is still a combination of program trading, short coverings and portfolio managers desperately trying to make up for last year’s epic losses.

The permabid is the new riddle, wrapped in a mystery, inside an HFT market enema.

****

In case you’re wondering, does Robert Toll know something?  Zero Hedge informs us on that too. Apparently, he’s out of the JP Morgan circle and is going to feel really silly if the stock hits $29 next year.

Bob Toll Does Not Front Run JP Morgan

Yesterday Bob Toll sells 1.6 million shares of TOL. Today JP Morgan upgrades the stock, raising its recommendation from Neutral to Overweight, and stock price from $17 to $29.

JP Morgan

What are the possible conclusions:

  1. Bob Toll is a hopeless fool who knows nothing about his company’s business prospects (unlikely)
  2. Bob Toll does not have access to the JPM research reports "huddle" (likely)
  3. A Rorschach test of JP Morgan analyst Michael Rehaut using the picture below reveals an answer of "a diamond in the rough" (near certainty)

 

Top Photo: Buying a book (David Livingstone) by The London Missionary Society, at Wikimedia. 

 


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High Frequency Trading: Wall Street’s New Rent-Seeking Trick

We’ve been following the HFT story since Zero Hedge first shed light on this unfair practice and noted that the market is increasingly dominated by program trading between investment banks. The article below from Money Morning shows that this issue has finally become well-known and market participants are seeking solutions. High Frequency Trading

Consider Phil’s example from Wednesday’s market update: 

"The lack of a retrace was getting downright unhealthy.  As I often complain – rapid rises in the market, especially when accomplished through what we call “stick saves” create virtual air pockets in stock prices and make investing more and more dangerous as we move up.  A simple example I use for members is to imagine the stock market has just 100 total shares.  In March, those 100 shares were worth $1,000 and there was $1,000 sitting on the sidelines in cash.  Shares are bought and sold every day but it doesn’t really matter as they are never all bought or all sold.  The bottom line is that perhaps 25% of the cash actually moved off the sidelines but the market has gained 50% since March.  Where does that leave us?  Well that means we now have 100 shares of stock “worth” $1,500 but now there is only $750 on the sidelines to buy it.

That makes it exponentially harder to move the market higher as the values grow as it takes more and more sideline capital to grow the market each day… In fact, the entire expansion of “value” of the market is an illusion as it WAS possible in March to exchange 100% of the stocks for the cash on the sidelines for $1,000 (assuming everyone on the sidelines would make the trade).  Now that we have USED 25% of the sideline money to inflate the apparent value of the stocks, we have a serious problem because, even if EVERY SINGLE DOLLAR of sideline capital were exchanged for stocks in a panic sale, there is only enough to pay out 50% of the market’s current ‘value.’"

So, are HFT programs being used to increase the price of stocks on a daily basis? How? If, for example, GS keeps the bid artificially high and moving higher in its program trading, stock prices will rise due to GS’s volume dominance. Stock prices keep rising, but not because each
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SP Futures Hourly Chart at 2:30 EDT

SP Futures Hourly Chart at 2:30 EDT

Jesse's Cafe AmericainCourtesy of Jesse’s Café Américain

Some short term indicators are flashing that we are nearing at least a short term top. There is also indication of distribution of stock here by insiders to the public, which is also an indication of a possible top. This judgement is based on many charts and indicators not shown here.

Having said that, our discipline will not prompt us to do any seriously non-hedged shorting until the ‘trendline’ Key Pivot is violated at least on a daily close, and then confirmed by a move lower.

The market is rising on thin volumes, and unless the sellers come back in, it can continue to drift higher on program trading and short squeezes.

We are within two weeks of a potential ‘crash window’ where a final top will be made, and a selloff with a significant leg lower will be seen into the end of year. The window is a bit wide for now, a six week period starting around August 17th. We will hope to tighten that up by the end of July.

This is only a probability, not a hard forecast. But it has us edgy to be on the long side, even in precious metals miners, without hedging a general market decline. The Cashflow in the market is looking a bit stretched. We may have to wait until later in earnings season for this to shake out.

In sum, the markets seem ‘precarious’ and unstable to us, but not enough to jump in front of the market to the bear side yet. 

As an aside, we are seeing quite an increase in ‘screwy fills’ on the bid ask level II where fills on the retail side seem to be made ‘out of bounds’ of the usual bid/ask action.

We do not use market orders normally and would not suggest them here for those that do. The market makers are shaving fills and front running perhaps although that is harder to spot except on the thinly traded stocks where other issues may come into play.

But we are seeing far too many fills BELOW our limit bids on some stocks to believe this market is functioning normally.

[Click on chart to enlarge]


 


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The Latest Wall Street Trading Scam That Costs You Billions

The Latest Wall Street Trading Scam That Costs You Billions

Courtesy of Henry Blodget at Clusterstock

craps player, gambling, clusterstock's photoA paper has been going around that describes a startling new world of high-velocity computerized trading that causes volume and volatility to soar and costs ordinary investors billions of dollars.

The paper, Toxic Equity Trading On Wall Street, appears to have been published late last year by Sal Arnuk and Joseph Saluzzi from a firm called Themis Trading.  (One word of caution: We have not yet verified a single assertion made in the paper, and we had not heard of Themis Trading.  We would be grateful if those of you with insight into this would help us understand the real facts here.)

The paper is embedded below (you can also download it at Themis’s web site).  Here, in brief, is the world it describes:

Many trading orders these days are executed by computers.  Like human traders, the computers break big orders into small chunks (say, 100 or 500 shares) and then match them with orders on electronic stock exchanges.  The reason the orders are broken into chunks is so they won’t move the market too much.  Stock trading is relatively illiquid, and big orders can drive the price of a stock sharply up or down.  Since the dawn of Wall Street time, clever traders have tried to hide the amount of stock they ultimately want to buy or sell to avoid having their own orders move the market sharply against them.

In recent years, such "algorithmic" electronic trading execution has grown in popularity, and a number of electronic trading strategies have sprung up to exploit it. 

In one of these strategies, called "liquidity rebate trading," a program analyzes the incoming order flow on an electronic exchange to try to spot a big institutional order that is just hitting the market (apparently this is relatively easy to do).  The program then front-runs the order by modestly outbidding the institution for the stock and then turning around and selling it to the institution at a higher price than the institution would have otherwise paid.

Front-running is an age-old cheating technique: A trading firm gets a big order from a client and, before it executes it, buys some of the same stock for itself.  Front-running is, in fact, what many Wall Street insiders thought Bernie Madoff was doing before they discovered he…
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Buddy, Can You Spare $5 Trillion?

Is Japan turning into Zimbabwe?  And if you see green shoots after this one, let me know what you’re drinking! 

Buddy, Can You Spare $5 Trillion?

$5 trillion shortfall, need a drinkCourtesy of John Mauldin

This Is Outrageous
The Land of the Setting Sun
Buddy, Can You Spare $5 Trillion?

There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.

This Is Outrageous

But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn’t get…
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Goldman: Pwned?

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Goldman SachsGoldman: Pwned?

Courtesy of Karl Denninger at The Market Ticker


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Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs

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Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?

Courtesy of Tyler Durden at Zero Hedge

Major developing story: Matt Goldstein over at Reuters may have just broken a story that could spell doom if not [for] the entire Goldman Sachs program trading group, then at least those who deal with "low latency (microseconds) event-driven market data processing, strategy, and order submissions." Visions of swirling, gray storm clouds over Goldman’s SLP and hi-fi traders begin to form.

Back-up: This week’s NYSE Program Trading report was very odd: not only because program trading hit 48.6% of all NYSE trading, a record high at least since the NYSE has kept tabs on this data, and a datapoint which in itself was startling enough to cause some serious red flags as I jaunt from village to village in what little is left of Europe’s bison country, but what was shocking was the disappearance of the #1 mainstay of complete trading domination (i.e., Goldman Sachs) from not just the aforementioned #1 spot, but the entire complete list. In other words: Goldman went from 1st to N/A in one week.

Even more odd, this "disappearance" comes hot on the heels of what Zero Hedge reported could be potentially a major change to the way the NYSE provides its weekly program trading report. Of course, Ray over at the NYSE immediately replied to Zero Hedge that all was going to be same as always … Odd, maybe he meant that all is back to normal except the reporting of Goldman’s trades. Either way, it might very well be time for proactive readers to again contact the two employees publicly disclosed by the NYSE as lead-contacts on the issue.  Readers will recall that it was these same two who were previously steadfastly assuring anyone who would listen that there would be no change at all in data reporting.

Robert Airo, Senior Vice President, NYSE Euronext at (212) 656-5663 or
Aleksandra Radakovic, Vice President, NYSE Regulation at (212) 656-4144

Alas, the just released weekly data proves that either theirs was a material misrepresentation of facts, or Goldman simply suddenly decided to stop transacting with the


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THE GOLDMAN SACHS CONSPIRACY?

THE GOLDMAN SACHS CONSPIRACY?

Courtesy of The Pragmatic Capitalist

The drum beat against Goldman Sachs is growing louder.  As the global economy collapsed last year and U.S. citizens sank under crushing house prices and job losses Goldman appeared to be flourishing (also see here).   Despite doing more than just about any other firm to help create the housing bubble Goldman is now one of the greatest beneficiaries.  But what was once nothing more than a conspiracy theory has now turned into a full blown public debate about manipulation and Goldman’s use of taxpayer bailout dollars.

It’s widely believed that the firm would not have survived the financial crisis without bailout cash and a few interesting moves in the AIG portfolio, but now as the market gyrates in odd fashion on a daily basis the U.S. taxpayer appears to be the one losing.   Goldman’s close ties to the U.S. government have also raised some eyebrows lately.  The routinely high program trading correlated with market ramps are odd as well:

gs, goldman sachs trading records

Meanwhile, job losses continue to mount, wages remain flat and the stock market is 40% off its all-time highs.  But Goldman Sachs is rumored to be having their best year ever.  And they’re rewarding their employees for it.  I’m not generally one for conspiracy theories, but something isn’t right when millions of Americans seem to be in so much pain while the firm that helped create much of this crisis is flourishing.

As always, Martin Armstrong has an opinion and some entertaining reading here on the Goldman Sachs conspiracy…If you missed Matt Taibbi’s piece in Rolling Stone you can find it here.

 

 

 


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Zero Hedge

Visualizing The Possible City Of London 'Brexodus'

Courtesy of ZeroHedge. View original post here.

The EU in Brussels has now given official powers to its top Brexit negotiator, but former French diplomat Michel Barnier is not expected to begin talks until after the UK general election in June. As Statista's Dyfed Loesche notes, Banks and financial institutions are already preparing for the world after Brexit and planning to pull some of their staff from the finance hub in the City of London...

...



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Phil's Favorites

Market Moving News

 

Financial Markets and Economy

A definitive breakdown of the gloomy state on Wall Street (Business Insider)

While Wall Street bank revenues appeared to bounce back in the first quarter of 2017, with banks posting strong results in fixed income trading in particular, industry-wide revenues were still down on the same period from 2012 to 2015. 

Vietnam's Prime Minister Says He's Confident of 6.7% Growth Goal (Bloomberg)

Vietnamese Prime Minister Nguyen Xuan Phuc said he is confident economic growth this year will meet a goal of 6.7 percent without adding ...



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ValueWalk

Jesse Livermore - 21 Investing Rules That Have Stood The Test Of Time For 77 Years

By The Acquirer's Multiple. Originally published at ValueWalk.

Before the modern day tweeter @Jesse_Livermore, there was a famous investing legend also called Jesse Livermore. The original Livermore was born in 1877 and died in 1940. Livermore was famous for making and losing several multimillion-dollar fortunes and short selling during the stock market crashes in 1907 and 1929. Livermore was an investing genius who unfortunately could not stick to his own rules – Which is why one of his rules – “The human side of every person is the greatest enemy of the average investor or speculator”, is so relevant to every investor.

]]> Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in ...



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Chart School

Friday Kept Week's Performance Intact - Semiconductors Strong

Courtesy of Declan.

Memorial weekend brought with it holiday style trading on Friday. It was positive finish for bulls who were able to maintain and in some cases, build on, gains from earlier in the week

Best of the action came in the Semiconductor Index which finished with a new closing high. The rally from April brought with it an acceleration in pace, comparable to the latter part of 2016.  Relative performance against the Nasdaq 100 hasn't breached resistance, but it's very close. Semiconductors spent a long time in the doldrums after the 2000 peak, but they are finding their groove now.

...

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Digital Currencies

Visualizing The Expanding Universe Of Cryptocurrencies

Courtesy of Zero Hedge

Bitcoin is the original cryptocurrency, and its meteoric rise has made it a mainstay of conversation for investors, media, and technologists alike.

In fact, as Visual Capitalist's Jeff Desjardins details, the innovation of the blockchain is changing entire markets, while causing ripples with central banks and the financial industry. At time of publication, the bitcoin price now hovers near US$2,200, a massive increase from this time last year.

But the true impact of Bitcoin is actually far more reaching than this – it’s a...



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Market News

Market Moving News

 

Financial Markets and Economy

Hedge Fund Billionaire Paul Singer: If Trump Agenda Fails, a Recession Could Follow (Fortune)

Market watchers who thought the stock market would drop if Donald Trump were elected were burned following his win: markets rose to new highs instead.

U.S. inflation path since 2012 is worrisome, policymaker says (Reuters)

The current level of U.S. prices is noticeably lower than what it would be if the Federal Reserve had delivered on its 2-percent inflation target, St. Louis Federal Reserve President James Bullard said, calling the trend "worrisome."

...



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Members' Corner

Robert Sapolsky: The biology of our best and worst selves

Interesting discussion of what affects our behavior. 

Description: "How can humans be so compassionate and altruistic — and also so brutal and violent? To understand why we do what we do, neuroscientist Robert Sapolsky looks at extreme context, examining actions on timescales from seconds to millions of years before they occurred. In this fascinating talk, he shares his cutting edge research into the biology that drives our worst and best behaviors."

Robert Sapolsky: The biology of our best and worst selves

Filmed April 2017 at TED 2017

 

p.s. Roger (on Facebook) saw this talk and recommends the book ...



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OpTrader

Swing trading portfolio - week of May 22nd, 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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Biotech

Beyond just promise, CRISPR is delivering in the lab today

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

Beyond just promise, CRISPR is delivering in the lab today

Courtesy of Ian HaydonUniversity of Washington

Precision editing DNA allows for some amazing applications. Ian Haydon, CC BY-ND

There’s a revolution happening in biology, and its name is CRISPR.

CRISPR (pronounced “crisper”) is a powerful technique for editing DNA. It has received an enormous amount of attention in the scientific and popular press, largely based on the promise of what this powerful gene e...



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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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Mapping The Market

Bombing - Right or Wrong?

Courtesy of Jean-Luc

I am telling you Angel – makes no sense… BTW:

Republicans Love Bombing, But Only When a Republican Does It

By Kevin Drum, Mother Jones

A few days ago I noted that Republican views of the economy changed dramatically when Donald Trump was elected, but Democratic views stayed pretty stable. Apparently Republicans view the economy through a partisan lens but Democrats don't.

Are there other examples of this? Yes indeed. Jeff Stein points to polling data about air strikes against Syria:

Democr...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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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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