Archive for 2006

Sector Watch – Mid September Oil

Here’s a nice Freakonomics article on the “efficient market hypothesis” as it applies to the markets. I underlies the point I’ve been making on oil pricing – that (mis)information has been used to drive up the price of oil and caused an overreaction, much like the 10% drop in the S&P after 9/11 was an overreaction. While it has been tempting too view the post-9/11 spike in oil prices as the beginning of a long-term trend (red line on graph), it looks a lot more likely that we are in the IEA’s reference (most likely) frame, in the first stage of a correction that may take us down near $50 a barrel before resuming a more reasonable uptrend. It is very possible that even this scenario is overly pessimistic as the there is substantial evidence that production capacity is increasing, rather than decreasing. Even the bearish IEA (the people who “forgot” to include 80M barrels of inventory in Q2 of this year, causing the speculator market to go crazy) projects that at just $28 per barrel, the incentive is enough to ramp global production up to 38Bn barrels a year by 2015. This would be a substantial increase over the 30Bn barrels a year we currently consume, and at just $28 a barrel! How much will they be willing to produce for $40? On the same chart, you can see the answer is 60Bn barrels a year by 2025. Now much is made of the IEAs assumption that we will hit peak oil production sometime around 2035 but the same prediction was famously made in 1956 about 1970 (one of the root causes of the 1970s speculation bubble and oil crisis). The fundamental flaw in many of these assumptions is that they do not take into account the untapped potential resources available at higher prices. Also, what if oil isn’t as rare as you think it is? Forget the fact that there are 2Tb of oil locked up in US shale and another 1.5T in Canadian oil sands but what if oil doesn’t even come from dinosaurs, as we have been taught, but from a renewable geological process? I’m no geologist but it does occur to me that if we just found 15Bn barrels of oil 9,000 feet beneath the sea in the gulf, where did that biomass come from?…
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Weekly Wrap-Up

Wow, what a week, what a finish! 91 positions were still in play this week with 47 gaining over 50%, 9 gaining more than 500% and just 7 losers (mostly 20% stop outs but 2 total losses). Up on big volume, GOOG and CME flying on the last day, MOT still going strong, Apple still over $74, MSFT up 2% today… The Nasdaq gave us the leadership we always wanted with a 4% gain on the week while the Russell 2000 posted a 3.5% gain. This goes in line with my master plan of draining money out of commodity players and redistributing the wealth to the starving masses (or at least to Steve Jobs, Larry and Sergey, who looked a little hungry at the last conference). Here’s the chart. The Dow and S&P tacked on about 2% with almost no downward action other than “Don’t Panic” Thursday. They NYSE had the weakest week but, as I’ve said, it is miles ahead of the others over the long haul so anything other than down is very good for the NYSE! Larry Kudlow is making an excellent point that we need to watch the Core Chained CPI, which is virtually flat to last year and I wholeheartedly agree. It is very similar to the way I look at the regular CPI, throwing out extraneous information and adjusting some of the weighting. Oil finished the week with a sickening thud, down right at the 5% rule for the week at $63.33 after being down 5% in the short week before, which was 5% lower than the week before that which was flat to the week before that, which was 5% down from the week before that which was 5% down from the all-time high that was set 30 days earlier. I don’t make these things up, I just report them and head off to Stockholm to collect my medal and plaque… So we got a pause at 10%, followed by a 10-day consolidation followed by a 5% drop and a 3 day consolidation, followed by a 10% drop. In comments we mentioned the Fibonacci goal of $54ish (I would throw out the $79 high and use $77 so the downside goal would be $52). That is, conveniently, 3 5% moves away from where we are now… Overall, in the past 45 days (you need to play with
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The PEG/EXC deal fell apart! I put a bid in on the PEG Oct $60 puts for $1.60 – double the close yesterday! I put a bid in on the MS Oct $70 puts for $2.25 as they lost one of the biggest merger deals of the past 2 years (and it was baked into the numbers!). I won’t chase but I will be very pleased to get these puts.

Freaky Friday

Options Expiration Day! Have a nice Weekend – end of column.

Déjà vu? Yes, I said this last month (and probably the month before) and there’s a reason that I woke up and could only think of that to say – It’s logical, we had a great month, relax, have a long lunch, read a book, call your mom… trading today, on the other hand, not such a good idea… Seriously, last month I said: “Nothing that happens today is real. We have chased the white rabbit through the looking glass after eating a mushroom and pretty much anything goes today.” In fact, everything I said last expiration day is still true today, it is great perspective to read last month’s column, especially for new readers so please read this: Go on, I’ll wait…. I think the most interesting thing is the levels we were looking for:

  • Dow 11,300, now 11,549
  • S&P 1,290, now 1,320
  • NYSE 8,350, now 8,350. This is OK because the S&P, as you remember from a chart I cant’ find, is 40% ahead of the other indicies since 9/11.
  • Nasdaq, 2,150, now 2,228

Boy, I guess we had a pretty good month! People (who just started reading) have been calling me a “perma-bull” but what’s wrong with being bullish when the market is going up? So we’re not too worried about levels today, like I said, just sit back and enjoy the show. I’ve been saying all week that the CPI will be “better than expected” and hopefully we’ll hit a sweet spot that’s good for the economy (not too slow) and keeps the fed away (not too high) – we’ll see in an hour…. One show we are sure to enjoy is the great oil pullback of 2006 (now in your local theaters)! As predicted by someone more awake than I am, in yesterday’s comments who said: “How freaked out would you be with $100Bn in oil stocks seeing a $62.xx on the sreen with the quarter ending in 16 days?” and (at 3:10): “If I were a fund manager, I would be very concerned about overnight trading in Europe and Asia gapping oil below $62.50 (they will find out about US inventories tomorrow). “ Well, good morning and Brent (Euopean) oil is down to $62.50 in overnight trading (who was that masked man?).

Expect US manipulators to fall over
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Grand Theft Oil

How much is too much? Someone is stealing from you! Every week you are overpaying for gasoline and I can prove it in a way that is so simple, even Congress can understand. When oil was $30 a barrel (way back in 2003, when dinosaurs still roamed the earth) gas was $1.52 (avg) and XOM made $21Bn in profits on $246Bn in sales – not too shabby! So since they were doing OK financially, we can assume they knew what they were doing price-wise and, as an “integrated oil company” they were able to process that oil and deliver it right to your gas tank all under one great corporate umbrella. The same corporate umbrella, by the way, that the Supreme Court of 1911 dissolved into 34 companies in order to protect the American people from this sort of price gouging. Now I’m not going to pretend to know all of Exxon’s costs but obviously they were able to refine and deliver oil for a nice profit by charging you just $1.52 a gallon. We do know that a barrel of oil in 2003 cost an average of $28 and there are 42 gallons in a barrel so that’s .66 per gallon that we will say is something they can’t control (forgetting the fact that they own or lease the land, the equipment, the people and the production facilities that get oil out of the ground for an average of $8 per barrel). Now, here’s where I’ll start going slow so our legislators can follow – If oil, the main ingredient in gasoline, cost .66 and gasoline can be profitably delivered for $1.52 then that means all of Exxon’s costs were less than .86. In fact, that .86 they charged included an operating income (pre tax) of $32Bn or 13%. That profit, by the way, is after paying salaries. Take Lee Raymond, the ex-CEO for example, he was paid an average of $50M a year for running Exxon but, when it came time to retire, all the company could do for him was give him a check for $140M, not even a gold watch! Now when oil goes up to $64 a barrel, like it is today and Exxon, CVX, COP, BP testify and swear (oh sorry, they refused to be sworn in) to you that gas prices are not their fault, ask this very…
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Thursday Wrap-Up

Not a bad day! We held all our levels with no trouble at all, except for the transports who barely bounced off the 50 dma of 2,462, finishing just 5 points above it. Here is a logic defying chart that indicates that the transports tend to trade more in-line with oil than against it – the fact is that they both trade more based on economic expectations than anything else.$wtic,$tranq The Dow took a great bounce off 11,500, the S&P held firm but the Nasdaq led us even higher, even though by just one point. The SOX also moved up a touch but made a nice test of 460 so all looks well there. ADBE had crushing numbers with 24% revenue growth. I always look to them as a barometer for how the web is doing and it looks like things are busy out there! I’m very upset I missed these earnings as there was every reason to play this one but this means game on for YHOO, GOOG, and MSFT as the shadow, on-line economy is growing much faster than the one they know how to measure. On the whole, not playing was the correct move for the day as wild swings in the market made hash of many picks. We had good opportunities to cash out the majority of our positions and in comments we had some fun with some new quick trade positions. Thanks to Daniel for pointing out this well-written oil article! It was hard not to have fun with oil plunging to $63.22 putting pretty much all of our puts in very good standing! In some kind of cosmic game of hot potato, serial acquirer APC is selling 8% of it’s gas production to CNQ for $4.1Bn – possibly because management got tired of being cavity searched on trips across the boarder. This is a big mistake for CNQ but no bigger than APC’s recent buying spree so we’ll see what sucker bails out Canadian Natural when they have to dump assets to pay for this purchase. Natural gas fell below $5 today and these consolidation plays are starting to look a lot like the monopolizing that is going on in the gold industry. Gold took another hit as well, down to $589, and both moves came against a drifting dollar: There is certainly nothing to complain about…
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Thankless Thursday

Retail sales numbers indicated that consumers have indeed pulled back on spending, although there was still a .2% increase after July’s blistering 1.4% rise but I’ve given up on trying to explain statistics to economists so I’m just doing to sell with everyone else! Also the numbers include a huge drop in gas station sales on cheaper gas so I will be rebuying our retail picks on any silly dips. A lot of the sell-off was attributed to slow auto sales, no surprise there, and, on the whole, the entire report was a 100% beat of analysts prediction of a .1% decline. So I was right but THEY are determined to spin this as a bad thing anyway. Do we go up or do we pull back? Frankly, with just 2 days to options expiration, you can’t read anything into any movement we get. We are also coming into the end of the quarter so I am going to be a lot more cautious with the oil plays as Funds just can’t afford to let the oil sector fall any further. Be on the lookout for shenanigans, like yesterday’s Pfizer sell-off – which is a classic example of the “Max Pain” theory that stocks head to the point at which the most options expire worthless. $27.50 neatly wipes out 79,000 calls that were in the money while there will be over 150,000 puts wiped out with less than 600 puts in the money. Kind of makes you wonder how we ever pick a winner… PD’s max pain is $90 and the stock is at $86.48 and the $85 call is $2.05, a .57 premium to own this volatile stock for 2 days. The long range chart says it’s heading down, the short range chart says it’s going down and Max Pain says it’s going up $4. I think that, coupled with a little firming in the price of copper, makes it a good trade. SNDK is another adherent to Max pain as I was reminded yesterday that I stopped trading it because it was often manipulated into expiration. With the stock at $57.97 and the $57.50 puts at .50 and over $20 in movement since the last expiration, it will be interesting to see how it fares around the Max Pain target of $52.50. I don’t like the SNDK trade as much because of strong semi demand but…
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Wednesday Wrap-Up

Another very strong day in the markets. This is getting a little tedious isn’t it? We had an exciting pullback in the morning but it was over by 11 and the rest of the day pretty much came up roses. All our indices flew up through our resistance points and we will have a whole new set of targets tomorrow (I kind of miss sideways trading). The SOX were a little weak but can be forgiven for pulling back 3.5 after a 27 point run this week! They are jockeying for the lead with the Transports who stopped right up at the 5% rule but still managed to poke through 2,500 – Just to prove that they could! Note: I have started using hyperlinks because I like the charts (thanks Chris) but the URL’s are so long they mess up the blog – I hope this is good for everyone… Oil rallied on very bad math. Analysts were expecting a slight overall build with a draw in oil and an offsetting build in gas but instead got a 2.9M draw in crude, flat gas levels and a whopping 4.7M build in distillates. If you add it all up it still means they had 1.6M barrels of “stuff” more than they needed! Still oil managed to add 21 cents to finish at $63.97, nothing to really write home about but you would think Iran nuked Israel the way the oil stocks jumped on the news today. I’m not saying the oil markets are manipulated… only because I already said it! Poor gold is still trying to break through the 200 dma but having no luck, even with a weaker dollar. It was another great day for almost everything we picked but a monkey with a dartboard could have picked winners today so I’m not all that proud. We made so much money on our Google play that people don’t believe it’s real, luckily it was posted on Yahoo on Monday, albeit a lot later than when I wrote it. This is why I love Cramer: He says: “If your stock has anything in common with Krispy Kreme, sell it. For example, your stock may have financial statements… Krispy Kreme doesn’t!” That is just plain smart and funny! In comments I liked the trans move so much that we went for the DIA $115s for .70, hoping…
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Wednesday Morning

Today we will see how real that rally was. All the indices made huge, positive moves yesterday and we will be looking for some follow through as we challenge another set of psychological barriers.

  • We’ll be looking for the Dow to break out over 11,500 and to hold 11,440 (last Wednesday’s high).
  • The Nasdaq similarly needs to hold 2,180 to stay positive but 2,200 will be a sign of real strength.
  • The S&P can safely drop to 1,305 and will be the one to watch as it moves between 1,310 and 1,315.
  • The NYSE needs to stay positive as it is lagging the other indices short-term.

Over the past 5 years, the NYSE has outpaced the Dow and the S&P by 20% and the Nasdaq by 10%. We need continued leadership to confirm S&P direction.^NYA;range=5y;compare=^DJ Asia was up across the board with India posting a 2% gain on the production numbers we discussed earlier in the week. Of note in Japan is Sumco, who gained 5% as profits grew 500% on strong demand for silicon wafers. Sumco is the World’s second largest maker of semiconductor wafers and this confirms news we heard from #3, Wacker Cemie, back in early August #1 is, of course, Shin-etsu, who gave a good outlook in July that was largely ignored by the markets but I think a trifecta is too much evidence for the bears to counter. Europe is up marginally, fearful of a US pullback but oil and gold continue to trend down in the zone. Truck maker Man is possibly buying Scania, which should boost VOLV, which may ignite CAT. Although CAT doesn’t do trucks, it’s the same kind of rubber-band effect we see between MOT and NOK. VOLV has pulled over 100% ahead of CAT over the past 12 months, although they serve very similar global markets on the very same planet:;range=5y;compare=volv;charttype=line;crosshair=on;logscale=on;source= Speaking of the globe – is it just me or is money getting cheaper? Here’s a 30 year chart of the 30 year note, you tell me why HB’s are rallying:^TYX;range=my;charttype=line;crosshair=on;logscale=on;source= Maybe the global markets have gotten so efficient that money can be profitably marketed for just 4% interest. If we think of money as a product and think of Central Banks, the IMF and, of course computers as devices we use to increase manufacturing and distribution efficiency, it’s…
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Take-Off Tuesday

Well, if that was a test the market certainly passed it! We did blow a trade on JNJ, losing 30% but our other 14 picks were all winners with an average return of 60% for the day – so of course we’re happy! Pretty much everything went well today. Oil went way down and, while the energy sector was weak, it didn’t tank the market. Commodities across the board made an orderly move down and our indices all broke up nicely. The Dow flew up to 11,500 and closed just beneath it at 11,498. The S&P blasted through 1,310 on a big afternoon move and settled at 1,313. The NYSE was over 8,300 in the first 5 minutes of trading, rested a bit and shot up another 50 points to close at 8,348. Even the Nasdaq looked great today, posting a 42 point gain to finish at 4,215. The SOX and the Transports raced for leadership with the SOX flying up 4% to finish at 465 and the TRANQ also made a 4% gain to 2,464 where it will test the 50 dma of 2,475 tomorrow: Oil had a very unusual late day sell-off, with people selling into the normal afternoon buys on huge volume. Crude finished at $63.76, well below anyone’s prediction for the week, including this oil bear. Gold drifted down to $594 on another day of unremarkable dollar movement as a robust treasury auction was tempered by an IMF warning on possible global instability: On the whole, it was another great day of trading so I hope everyone had as much fun as we did with our picks! ====================================== BBY performed as expected this morning with the Oct $47.50s coming down to $1.65 before finishing well in the money at $5.50 (up 230%), not bad for a day’s work! COH gave us a nice flat open before taking off around 10:30 and the Oct $32.50s are in the money at $1.95 (up 145%). COST also gave us a nice low open and the Oct $50s stopped out at $1.60 (up 115%) on a pullback, leaving us with the Jan $52.50 at $1.90 (up 25%). DIS had a nice day, also with a low open and the Oct $30s are now in the money at $1 (up 40%). Now that it finally broke $30 I expect a lot…
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Zero Hedge

Auto Shares Surge As Fiat, Renault Confirm Merger Talks

Courtesy of ZeroHedge. View original post here.

With President Trump in Japan for a state visit and most of Europe headed to the polls to vote in the quinquennial EU Parliamentary elections, there was enough news to keep market watchers occupied during what was supposed to be a quiet holiday weekend in the US. 

But on top of these political headlines, on Saturday afternoon, the news broke that Italian-American carmaker Fiat Chrysler had approached France's Renault with a merger proposal that would leave the shareholders of each carmaker with half of the combined company, in a tie-up that would create the world's third-largest au...

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Phil's Favorites

Trump and the problem with pardons


Trump and the problem with pardons

Courtesy of Andrew Bell, Indiana University

As a veteran, I was astonished by the recent news that President Trump may be considering pardons for U.S. military members accused or convicted of war crimes. But as a scholar who studies the U.S. military and combat ethics, I understand even more clearly the harmful long-term impact such pardons can have on the military.

My researc...

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Insider Scoop

Jefferies Sees 60-Percent Upside In Aphria Shares, Says Buy The Dip

Courtesy of Benzinga.

After a red-hot start to 2019, Canadian cannabis producer Aphria Inc (NYSE: APHA) has run out of steam, tumbling more than 31 percent in the past three months.

Despite the recent weakness, one Wall Street analyst said Friday that the stock has 30-percent upside potential. 

The Analyst

Jefferies analyst ... more from Insider

Kimble Charting Solutions

DAX (Germany) About To Send A Bearish Message To The S&P 500?

Courtesy of Chris Kimble.

Is the DAX index from Germany about to send a bearish message to stocks in Europe and the States? Sure could!

This chart looks at the DAX over the past 9-years. It’s spent the majority of the past 8-years inside of rising channel (1), creating a series of higher lows and higher highs.

It looks to have created a “Double Top” as it was kissing the underside of the rising channel last year at (2).

After creating the potential double top, the DAX index has continued to create a series of lower highs, while experiencing a bearish divergence with the S...

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Chart School

Brexit Joke - Cant be serious all the time

Courtesy of Read the Ticker.

Alistair Williams comedian nails it, thank god for good humour! Prime Minister May the negotiator. Not!

Alistair Williams Comedian youtube

This is a classic! ha!

Fundamentals are important, and so is market timing, here at we believe a combination of Gann Angles, ...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control


Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...

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DNA as you've never seen it before, thanks to a new nanotechnology imaging method

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


DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University


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More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism


The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...

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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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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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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.

Market Shadows >>