Archive for September, 2007

3 Steps to Successful Investing

OptionSage submits:

In the words of Warren Buffett’s mentor Benjamin Graham:

“Investing does not require genius.  What it needs is, first, reasonably good intelligence; second, sound principles of operation, third, and most important, firmness of character”

Since the first item on Graham’s list – “intelligence” – simply means the ability to read, add and subtract, we can skip quickly to “sound principles of operation”.  This is where most investors come to a grinding halt and with good reason.  Survey the financial landscape and you will be bombarded with a plethora of investment vehicles including stocks, bonds, options, futures, forex, treasuries, municipals and so forth.  Not only is it a challenge to figure out where to begin but, within each choice, the challenge is to figure out what system to apply!  So how do you choose?

Follow those that have successfully traversed the rugged terrain already!  Even the man considered to be the greatest investor of all time, Warren Buffett, had a mentor!  At PSW, we love to educate as well as enrich.  In numerous comments and articles, Phil expounds “sound principles of operation”, meaning a system of trading that has consistently worked for him.  The reason the system has been successful is it evolves with the market!  Although this is a simple concept most fail to trade this way.  Most investors simply sell losing positions and suffer from emotional trading.  In contrast, the approach Phil and I take is to modify our positions as necessary to account for changing trends or unexpected surprises.  We had a great conversation recently about how so many will simply “give up” on a position when in reality there is just no need.  With a little patience, positions can often be turned around and virtual portfolios made profitable.

While the goal of the short-term virtual portfolio is often to make attractive gains over the short-term, Phil’s contingency should a position move against him is to offset an unexpected trend with appropriate options in order to salvage a trade.  Irrespective of what happens then, he knows that his year will be a good one if he knows…
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Monthly Mop-Up

And you may ask yourself – What is that beautiful house?
And you may ask yourself – Where does that highway go?
And you may ask yourself – Am I right? …am I wrong?
And you may tell yourself – My god!…what have I done?
– Talking Heads

Letting the days go by / let the water hold me down
Letting the days go by / water flowing underground
Into the blue again / in the silent water
Under the rocks and stones / there is water underground.

Once in a lifetime/water flowing underground.

Same as it ever was…same as it ever was…same as it ever was…

Is the market truly operating under a new paradigm or is today’s situation simply "the same as it ever was"?

I love doing the wrap-ups as they are a great exercise in perspective and when I went back to the August wrap-up I was struck by the similarities.  We had just come off our August 16th lows and the Dow had risen from a low of 12,500 (spike down) all the way back to 13,400 in just 6 sessions, a Hang Seng-like effort.  At the time I didn’t want to get too excited as we had just barely made it back to the month’s open, which were also pretty much the July lows.

Here we are 30 day’s later and we’re just about back at the July highs, where I first posted this cartoon:

While we KNEW there was no good reason for the July run to 14,000 at least we can point to our latest 7-day, 600-point rally and say: "Oh, well that was because the Fed lowered rates."  Of course the fact that they lowered rates to avert a potential melt-down in the finance sector as Trillions of dollars of poorly constructed loans began to backfire is generally what history would consider closing the barn door after the horses get out but, since we’re all living in the moment, we’ll continue to pretend that it was some brilliant

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New Subscription Fees and How Not to Pay Them

This is the weekend we raise rates.

The new rate structure (as of Monday) will be:

  • $149/month
  • $399/quarter
  • $1,299/year

Members can lock in the old rates today, which will last until they expire, so if you wish to switch to an annual subscription a just $799, you can do that at: .  If you need any help, just drop Jared a line at but my understanding is that if you cancel your current subscription, then add an annual one, that should lock you in at the current rates and your annual subscription won’t start until your current quarterly or monthly one expires.

On a go forward basis, nobody who is currently a member will ever pay those rates anyway.  I am a big believer in rewarding loyalty and I've come up with a system I think is very fair for all.

Original 2006 members will get a 20% discount on the new subscription prices and 2007 members will get a 10% discount.  As of Jan 1st, all members bump up 10% in discount category and will continue to do so annually through 35%.  This is a good way to reward people who've been with us from the beginning as anyone who is a current member and renews through '08 at $799 would get at least a 30% discount in 2009, which would make the current annual fee  (it will be more by then) just $910.

In addition to this I've come up with a structure to address the needs of those who would like to pay even less, since most of us have either time OR money, but rarely both, there are now 3 ways to get your subscription for free in exchange for some of your valuable time:

#1 - Refer people to the premium site.  Every active member you bring in that is referred by you will get you a 10% discount on your next renewal.  That means that anyone who is currently a member and refers just 8 people over the course of the next year will have a free membership in '09.  These discounts remain in force as long as the members you refer remain active.

#2 – Refer people to the paid newsletter.  As of Jan 1st, the majority of our content will no longer be available on…
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Friday Virtual Portfolio Moves

Posted September 28, 2007 at 9:34 am | Permalink (Edit)

Sold those extra FSLR Dec $110s for $17 – happy to get paid!

Posted September 28, 2007 at 9:42 am | Permalink (Edit)

Oil sector showing continued strength, probably not a good short for the day but I’ll be shorting some into the close.

FXI posting ATH, about time with China at 27K

Let’s watch that S&P 1,530 for the big breakdown as well as the Nas, which looks strong this morning but SOX are still right at 500 and will lead the Nas lower and 2,700 is critical. The dollar is getting crushed in Europe so our market gets cheaper and cheaper.

VLO taking off and the $70s make a nice mo play, when those stop out it will be time to consider oil puts so I like the $70s at $1.27 with a .25 trailing stop as a mo play. XXX

Posted September 28, 2007 at 9:58 am | Permalink (Edit)

FWLT went nuts, sold the $135 puts for $6.30 to cover my $125 puts, will roll my puts up to $130s for + $1 to cut my risk to $3.50 ($4.80 net basis less $6.30 collected on a $5 spread) if it falls back from $132.

Posted September 28, 2007 at 10:03 am | Permalink (Edit)

Giving up on VLO, got weak and I don’t like the market right now. Lots of silly stocks getting sillier it looks like..

Posted September 28, 2007 at 10:24 am | Permalink (Edit)

TSO very ugly!

FXI – rolled my Jan $180s to 2x Nov $178 puts at $10.67, offset with sale of 1/2 $174 puts at $5 XXX

TSO – holy cow that whole trade is down .30! Really you shouldn’t play these things if you are going to stress out like this. We wanted TSO to go down, and it went down – just a little faster than we thought it would… If you want to duck out now you can roll the Nov $50s to 2x the Jan $45s at $3.70 for + $2 and roll your caller…
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Friday Morning Markets

[Grain]I thought I got all my complaining off my chest in last night's article but now I wake up to more nonsense!

Sorry, I'm trying to stay positive but…  Well, come on:

"The days of cheap grain are gone," says Dan Basse, president of AgResource Co., a Chicago commodity forecasting concern.  This year the prices of Illinois corn and soybeans are up 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more. And a growing number of economists and agribusiness executives think the run-ups could last as long as a decade, raising the cost of all kinds of food.

American families, which spend 9.9% of their disposable income on food, are facing the fastest-rising food prices in 17 years. The consumer's cost for everything from yogurt and popcorn to breakfast cereal and fast-food french fries is climbing. In U.S. cities last month, the average retail price of a pound loaf of whole-wheat bread was up 24% from a year ago, according to the Bureau of Labor Statistics. Whole milk hit $3.807 a gallon, up 26%

"We're in uncharted territory," says Christopher Fraleigh, chief executive of the food and beverage division of Sara Lee Corp., which earlier this month raised its bread prices 5%.  To cope, General Mills is shrinking the size of its breakfast-cereal packages, effectively raising the price per ounce. At a Dominick's supermarket in suburban Chicago, a 15.6-ounce box of Wheaties recently cost $5.16, more per ounce than the round steak London broil at the meat counter. Grain typically has accounted for a small part of the cost of packaged products like bread and ready-to-eat cereals.

That's the creeping "shadow inflation" we get at the early stages of an inflationary cycle.  The cereal box is smaller, the restaurant cuts back on bread, the Whopper shrinks, the car has less features, the movie has less special effects…  This is how an economy can collapse all around you and you don't actually realize it until it's too late to do anything about it. 


For instance, making fuel out of food is MONUMENTALLY STUPID and is causing more inflation…
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Thursday Thump – For the Dollar!

Did you hear that sound today?

It was the sound of our currency collapsing.

The dollar sank to an ALL-TIME LOW of 78.19 against it's indexed basket of currencies and, if the Yuan were included, we'd be down around 75 as we've lost 10% against that currency alone in just 2 years. 

Today we got TERRIBLE news, it seems home sales are now off 8.3% – SINCE LAST MONTH!  That is almost double the expected 4.6% decline but, even worse, the median price of homes fell from $243,900 last year to $225,700, a 7.5% decline.  The rate of new home sales dropped 21% since last year.

Despite all the bad news, the market went up, a move we caught right at the beginning of the afternoon rally when I noted: "Strong demand for treasuries – 4.25% for $13Bn, huge buying interest probably based on fears the Fed will continue to lower rates but the demand is a surprising and good sign that foreigners (including China) are willing to support the Fed move. That should goose the markets a bit, now we’ll see if refiners can recover.. "  What is going on is that the dollar is now so low that people are starting to play it like it's some stock that's going to bounce.  This is based on a global premise that fundamentals are meaningless in trading.  Investors are rushing back into the carry trade, borrowing Yen at low interest rates and then using them to purchase dollar-denominated assets hoping to make money off both the interest they collect as well as a return of the dollar to "normal" levels.

Brazil's Real is at the highest level it's been against the dollar in 7 years, the Columbian Peso is at an all-time high and that means, in addition to the record high corn, wheat an soybean prices we are paying, we can look forward to price hikes in textiles, bananas, sugar, coffee and cocoa (and cocaine).  It is very important to note that Columbia and other South American countries have been operating under capital controls that were implemented last year to curb the appreciation of the Peso to the dollar but IT DIDN'T WORK!  Our currency cannot be saved by the intervention of foreign governments.

"Currency controls are a risky, stopgap measure, but some gaps desperately
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Thursday Virtual Portfolio Moves

Posted September 27, 2007 at 9:19 am | Permalink (Edit)

Please note I’ve added several additional $10KP and $25KP plays from yesterday’s Dow post in case you’re following those virtual portfolios and that the Happy 100 HXL play is moving to the Jan $22.50s for +.25 XXX

Posted September 27, 2007 at 9:42 am | Permalink (Edit)

DIA $140 puts are a great deal at $2.20! XXX as a cover play to start scaling in no matter how the day ends.

Posted September 27, 2007 at 9:54 am | Permalink (Edit)

Rolling is simply trading positions. If you have an option-friendly broker, there should be a function in your account where you set up a simultaneous buy/sell for a specified spread. If not, you can call your broker and say “I’ld like to roll the HLX Dec $22.50s to the Jan $22.50s for .25, good until cancelled” and once they make a match, they charge you a quarter (and, hopefully a reasonable commission) and you have a new position without all that messy buying and selling.

Yes nu2- you roll for .25 debit, you don’t care what the price of either is when they match it.

Posted September 27, 2007 at 10:00 am | Permalink (Edit)

RIMM holding $100! That’s about where they were a year ago, before the 3:1 split! Must sell the $100s here for $7.25! XXX

Posted September 27, 2007 at 10:04 am | Permalink (Edit)

PFE – yep. I think they will have trouble at 25 in the very least.

Whole market about to have touble with new home sales down 8.3% AND median price down to $225K from $239K – that’s in a month!!!!!!!!!!!!!!!

Be careful not to start thinking here though as logic may go that this is a good thing because surely the Fed will have to lower rates further.

ICE $150 puts at $5.80 as a mo play with a $5.50 stop. XXXX

Posted September 27, 2007 at 10:15 am | Permalink (Edit)

HXL – It doesn’t matter if you never…
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Thursday Morning

Yesterday was another pretty good day!

We didh't quite make my Nasdaq (missed by 1) or S&P (missed by 5) levels but we're just 122 points from 14,000, where we will either break on through to the other side or crash and burn – this is so exciting!

Deus Ex Buffett was used to lift the financials, which had been struggling (other than GS, of course) all day.  There is nothing sexier in the markets than when Mr. Buffet smiles upon a sector and, whether the rumor is true or not (I think not) it sure does get people to take a serious look at the many undevalued financials.

We've been in the BSC calls since they hit my $100 target that I set way back on August 6th when I said: "GS – I think BSC is a better value right now. Hopefully they sell off to some extreme as I feel strongly that $100-$110 is a fair bottom for them. I’d be looking to begin setting up a nice ‘09 or maybe ‘10 play, perhaps the $110s with a 3/4 sell of current $10 out of the moneys."

Our BSC Jan '10 $120s are in very good shape and we'll be repositioning them if the stock keeps heading higher but Buffett or no Buffet, I expect them to meet some strong overhead resistance at $140 before moving on to test new highs, still miles away at $172.  In the end, we went with GS too and the Jan  $220s are in great shape, already up 30% with the $220s sold against them at $3.60.  We're far enough ahead to let GS test $220 before we roll our caller but, if the Buffett rumor is true, we need to pull them on momentum and resell whatever level we run out of gas at.

Japan jumped 396 points as financial mania swept Asia and the Hang Seng added (yawn) another 634 points, breaking the 27,000 mark just 2 days after breaking the 26,000 mark after gapping right through 25,000 on the 19th (over a week ago!).  That puts the Hang Seng up 35% for the year and almost exactly 10,000 points higher than last September, when we thought the 1-year run from 14,000 to 17,000 was bound to end "soon."

If you
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Wednesday Virtual Portfolio Moves

Posted September 26, 2007 at 9:39 am | Permalink (Edit)

GM sold the $35 calls for $3.30, we’ll see how it goes.

I’m sorry I sold those XOMs but I have tons of XLE $74 calls so I’ll manage. Tempting to sell the 9/30 $75s for .77, I think at $1.25 I’ll sell them to cover, depends on inventory of course. They were $1.50 on Friday but they expire in 3 days now…

Posted September 26, 2007 at 9:46 am | Permalink (Edit)

RMBS leaped up, putting a stop on the naked ones at $2.70. XXX

CDS – I ring the register early and often on Chinese gains.

OOPS!!! I forgot HXL Dec $22.50s for the Happy 100!!! 20 for $2.60 XXX

Posted September 26, 2007 at 10:23 am | Permalink (Edit)

FNF – no I do not stop out on a 90-day out call 24 hours after I enter it! K1 – please drop some links on scaling into positions when you get a chance…

CHK – You’re covered and you have 3 montht, relax.
AMGN – I bought my guy out and luckilly didn’t replace him yet but the $57.50 is my target.

Posted September 26, 2007 at 10:44 am | Permalink (Edit)

CY/Any naked calls – if we hold 13,800/2,700/1,530 then there’s no reason to sell anything against our runaway postions in a hurry.

Damn those XLE Sept $75 calls are still in fanasy land at .40! SLB flying down.

Market looking shaky all of a sudden and the energy sector did not take that big of a hit…

Posted September 26, 2007 at 10:49 am | Permalink (Edit)

You are very welcome Bob!

Oh if you missed the radio, there was a surprising build in oil but it was caused by low refinery utilization so not that meaningful but it still takes the wind out of the sails of the energy sector. Don’t know if I can blame that sector for the S&P fall off but the OIH group is taking a hit and XOM is in a power dive. We took the COP $85 puts…
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Wild Wednesday Morning

Whee!  Here we go again!

All aboard the market train as the GM strike ends, oil prices rebound (XOM, another Dow component) so we're in for a retest of 14,000.  I'm going to dispense with the news today as it doesn't seem to affect the market anyway and let's take a look at our 30 Dow components – perhaps we can find some bargains as the tide of index buyers lift all ships (plus they are nice and liquid so we can get our when it all hits the fan!).

Just for fun I'm going to make a Dow page, as it should be a fun group to watch if the global market catches fire.  We can allocate $3K per position in a $100K virtual portfolio and see how it goes.  These are plays for a Dow rally, with the assumption we are going to break and hold 14,000, otherwise we take the money and run:

AA – I don't understand why the dumped China's Chalco for $2Bn, perhaps they were guessing the top of the market…  Earnings were 7/9 and the company jumped from $42 to $48.   My pal Icahn owns 3.5M shares and the stock has taken a beating in Q3 and their forward p/e of under 11 is a good 30% below historical averages.  Did not buying AL put them at a huge disadvantage?  I say they're still worth $40+ but let's give them time and go long with the Jan '09 $35s for $7.40, selling the current $37.50s for $1.30.

AIG – Hmm, no hurricanes and they are still going down?  I suppose the concern was that they tie up a lot of their reserves in mortgage-backed securities but as long as everyone seems to have forgotten about that, we should too.  I like the May $70s here at $4.10, if they can't break $73 by the month's end we can consider selling calls against.

AXP – People keep confusing these guys with a credit card company but the majority of AXP's revenues is purely transaction based.  I simply don't remember these guys having a bad Q3 (last year was a 3% beat) and I think estimates are low here.  The Apr $60s are $4.70 but we'll be out by January and we can sell the current $60s if they hit $2+ (now $1.20) as $62…
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Zero Hedge

Traders Buy Stocks, Dump Bonds & Bullion As War Rhetoric Rises

Courtesy of ZeroHedge View original post here.

Makes perfect sense.

After the largest global oil disruption in history, Saudis agree with US that "Iran did it", the US president says the military is "locked and loaded" and what do markets do - bid stocks, buy USDollar, and dump safe-havens like bonds and gold...

The dollar is soaring...

Source: Bloomberg

And ...

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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...

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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 


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Phil's Favorites

Black Hole Investing


Black Hole Investing

Courtesy of John Mauldin, Thoughts from the Frontline 

Scientists say the rules change in a cosmic “black hole” at what astrophysicists call the event horizon. How do they know that? Not by observation, since what happens in there is, by definition, un-seeable. They infer it from the surroundings, which say that the mathematics of the universe as we understand them change at the event horizon.

Or maybe not. One theory says we are all inside a black hole right now. That could possibly explain a few things about central bank policy. ...

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Insider Scoop

The Street Reacts To Kroger's Q2 With Mixed Takeaways

Courtesy of Benzinga

Kroger Co (NYSE: KR) reported second-quarter results that came in better than expected. The earnings beat may have been overshadowed by management's decision to remove its prior guidance of $400 million in incremental EBIT by fiscal 2021.

Q2 A Mix Of Positives And Negativ... more from Insider

Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...

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Lee's Free Thinking

Nonfarm Payrolls Not Seasonally Adjusted Tell the Real Story - Unspinning Wall Street™

Courtesy of Lee Adler

Not seasonally adjusted nonfarm payrolls, that is, the actual numbers, give us a truer picture of the jobs market than the seasonally adjusted garbage that Wall Street spews.

Friday’s seasonally adjusted nonfarm payrolls jobs headline numbers disappointed investors with slower than expected growth. But was it really that bad?

Here’s How The Street Spun It – Wall Street Journal Modest August Job Growth Shows Economy Expanding, but Slowly

Employers added 130,000 nonfarm jobs, jobless rate held steady at 3.7%

U.S. employment grew only modestly in August, suggesting that a global economic slowdown isn’t driving the U.S. into recession but has dente...

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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...

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The Big Pharma Takeover of Medical Cannabis

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


The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:


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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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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...

Learn more About Phil >>

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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 >>