Archive for 2008

Position Yourself (No Matter What Happens)

George Washington delivered the first State of the Union address on January 8, 1790 and later this month George Bush will use the occasion to tell us how he views the US economy, the number 1 political issue among presidential hopefuls. We expect a bullish outlook to be conveyed, confirmed by government statistics. However, our confidence in some of these statistics is dwindling (that’s a nice way of putting it!).  Phil has often discussed in the past that when unemployment figures remain the same or rise slightly, it is not necessarily reflective of a healthy economy when the reason the numbers change only fractionally is due to workers transitioning from higher-paid to lower-paid work. Additionally, when industrial production, employment and real personal income turn negative, it’s best to “Think For Yourself” as our pal Tom2oc likes to say, rather than trust blindly the messages and spin conveyed in the media.

In recent weeks the stock market has suffered a relatively big downturn. Many indexes and stocks are precariously perched on key support levels and Friday’s close did not inspire confidence that they will hold. So, we decided to return back to the 2000-2002 bear market to view the context of the decline over the past few weeks. In the chart, you can see that the decline in recent weeks is somewhat insignificant relative to the huge declines earlier in the decade. 

Will such massive declines occur again if the recession Goldman Sachs and others have portended does occur? We doubt it very much. The declines in the early part of the decade followed extremes of bullish sentiment. However, we do believe that when traders look back on 2008, the one word that will sum up the year is ‘volatile’. This next week might be a prime example. CPI, PPI, earnings reports, options expiration (hey when the Fed first made a substantive rate cut, wasn’t it during options expiration?….didn’t Bernanke refer to such a ‘substantive’ cut in his last speech and isn’t much of the mainstream media questioning why he didn’t make the cut during his speech?…We will be especially alert this week, particularly Thursday for any news coming from the Fed). So, with the possibility of further substantial declines or massive rallies, how do you play the next week, the next month and the next year?

We believe the answer is in the ‘straddle/strangle’ option strategy. In weeks and sometimes only days, market-leading stocks have

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Wild Weekly Wrap-Up

"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen." - Earl Wilson

"I try to learn from the past, but I plan for the future by focusing exclusively on the present. That's where the fun is." – Donald Trump

"Look back over the past, with its changing empires that rose and fell, and you can foresee the future too." – Marcus Aurelius

"Since emotions are few and reasons many, the behavior of a crowd can be more easily predicted than the behavior of one person can." – Isaac Asimov

I grew up on Asimov and I've always been a big fan of the future.

My consulting company is called Delphi Consulting because, if you can't help your clients plot a path for the future, no amount of advice about the present is going to save them!  Forgetting Wilson's tongue-in-cheek observation of economists (and by economists I'm sure he would now include pretty much every bozo on CNBC), we have above observations on the future by a captain of industry, a general and a futurist.

Donald Trump is a builder and a doer, he MAKES the future and he sees the future doesn't happen without someone stepping up and doing something NOW.  In the current Apprentice, he fires the playboy playmate because she "saved" her ability to pull a favor from Hef for "a better time."  Trump says "Forget about saving it for later, there is no later, this is the time – you're fired."  Traders need to live in the past, the present and the future to be successful, we need to learn from our mistakes while trying to spot the trends that will help us avoid making new ones.

Back on October 20th, at the beginning of this correction, I wrote an article called "How to Spot a Market Correction a Mile Away."  This was just after my call to go to mainly cash as the markets topped out in early October and, despite the "recovery" post Thanksgiving, we went back to almost all cash ahead of the holidays and I removed 75% of the cash from our virtual portfolios, which are
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Liftoff in airline option volume – is “urge to merge” underway?


DAL – This afternoon the Wall Street Journal reported that Delta Airlines’ board of directors will be asked tomorrow to grant CEO Richard Andersen permission to proceed with M&A talks with both Northwest Airlines and United Airlines’ parent company UAL. Delta shares immediately shot 16.6% higher to $15.79 on the news, while implied volatility also jagged higher – having plateaued at an elevated 95% prior to Journal report as the market waited for the first inkling of real-deal talks, this measure of the market’s anticipation of future share price movement is now 103%, compared to a 79% historic reading. Delta’s 56,000-plus active option contracts make it one of the day’s stellar movers on our platform, with more than 6 times as many calls are in play as puts. January calls were heavily active this afternoon at the 12.50, 15 and 17.50 strikes, with many traders taking some profit off the table one week before expiration. Pressure in the February calls favored the buy side at strikes of 15 and 17.50. Earlier today, we also noted a move to sell March calls at the 15 strike sold off on volume of 10,600 lots, as some traders may be taking profit off the table after open interest at that strike swelled to five times its prior size, to 21,000-plus contracts this week alone. Despite a market that has been ambivalent about the outlook for airlines, a look at Delta’s open interest offers some perspective as to the degree to which traders might have been tipping Delta as “first-in, first-to-win” in the M&A stakes. Bullish call positions outnumber bearish puts 8 times over.

UAUA – Shares in United Airlines’ parent UAL Corp. rocketed 20% higher to $31.43 this afternoon, while option prices in the airline quickly recalibrated to reflect a 92% anticipated degree of share price movement in coming weeks, versus 72% historic volatility in its share price. Front-month trading favored long volatility positions in the 30/35 strangle combination. This $4 long position would be sought by a trader looking for United shares to wobble below $26 or above $39 in the space of the next week. Much of today’s volume appears lodged in put spreads in the March contract – up to now the suspected zeroing-in point for speculative M&A option trades in major airlines. These puts traded between…
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Stop the Week, We Want to Get Off!

TGIF just does not cut it today.

On top of yesterday's news from AXP, we find out that BAC is "only" paying $4Bn for CFC, which works out to 1/3 of "book" value, which indicates that the remaining hundreds of Billions of dollars worth of loan "assets" on the books of various financials may be grossly overstated.  How grossly overstated?  Well MER, for example, just put the cherry on top of the morning's panic by  taking (drumroll please…) another $15Bn write-down on bad mortgage debts in this Q's report.

This is not bad, it's good!  It's "only" $3Bn more than expectations and CFC is "only" being valued at 1/3 book when a pessimistic risk assessment would indicate their book value could be negative.  BAC had a right of first refusal from the last $2Bn they pumped into CFC, which froze out other bidders so it is entirely possible they are getting themselves a good deal.  Let's remember that BAC has grown from $10 (split adjusted) in 1991 to $50 (until the recent drop) in 2006 by making smart acquisitions and they spent the last 6 months going through CFC's books and found SOMETHING of value – that's much better than most people thought.

I know what you're thinking:  "Phil, you're bearish when the market is bullish and bullish when the market is bearish – WTF?"  Think of my like a psychiatrist dealing with a manic-depressive market.  I have to talk it down from it's irrational highs and pull it up from it's irrational lows.  I'm neutral at this level, a consolidation between 12,500 and 13,500 is just what I've been predicting since the summer so you can expect me to "flip flop" whenever the market looks to head too high or too low.

Lost in all of "today's" bad news (and the quotes are around "today's" because this is the same old news) is Bernanke's very bold statement yesterday that "Based on that evaluation, and consistent with our dual mandate, we stand ready to take SUBSTANTIVE ADDITIONAL ACTION as needed to support growth and to provide adequate insurance against downside risks."  The word substantive means "of considerable amount or quantity."   I am amazed that the same media that parses Fed statements looking for the most subtle changes (like "Oh my goodness, last time they said "moderate expectations" and
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Thursday Wrap-Up

It no longer matters what happened today as AXP lowered guidance and wrote off $440M for Q4, sending their stock down 10% after hours.

I think AXP is a screaming buy down here but the indexes all turned down and the whole market made a violent turn so we remain in the wait and see mode we were in this morning.  As predicted, it was a totally wild day but ending on a sour note like this has put me off the bullish track again (and it wasn’t all that bullish to start with).

We started the day with COF announcing a $650M write down and lower guidance as it turns out the answer to "What’s in your wallet?" is "A foreclosure notice."   We spent the morning waiting for Uncle Ben but they pre-released his speech at 12:20, which spiked the markets but they quickly fell back until 10 minutes before Ben was scheduled to say what we had just read, which caused another rally, followed by his actual speech, during which the market sold off, followed by a Q&A session, after which the markets dove until a rumor came out that BAC would buy CFC, which somehow sent that stock up from $5.50 to $9 as if BAC was somehow likely to have made an offer to buy the lender for double yesterday’s bottom.

Madness I tell you, madness!  We shorted CFC, of course and had a totally great time shorting many stocks during the day.  We had a discussion about market timing re. our Google spread (long the March $650s, short the Jan $650s) and I thought I’d reprint it here as it’s a great example of how we look to get in and out of a short contract on a volatile day.  Please note, we day-trade for fun, it is NOT our core strategy and should not be entered into lightly:


Market timing -At the open Goog dove and you know it’s a stock I will buy and buy and buy so I really don’t care if I get burned once or twice on a dip. If you look at the 5-day chart, it held $640 well except for yesterday and yesterday it zoomed back over like it had made some terrible mistake and got embarrassed by it.

So in the morning, when the call I sold for $14 yesterday dropped
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General Motors…survived a workers’ strike, but how about a buyers’ strike?

Today’s tickers: GM, YHOO, SYY, VIX, CFC, WM, XLF, CSCO, HMY, RL

GM – This morning’s news out of General Motors of a record 2.2 million in European auto sales last year fell on deaf ears with investors, sending prices down 2.3% to $22.78, a fresh 52-week low. Afternoon market action brought news that implied volatility in General Motors has topped 70%, 1.7 times the 40.7% historic reading, hitting its highest level since mid-November and well past the elevations seen in the runup to the September auto workers strike. The news coincided with option volume of 123,000 lots, trading twice as often to puts, and with buyers at the January 20 put strike attesting to the likelihood of GM breaking below half its 52-week high in the next week. Long volatility positions appeared at the 22.50 line in the February contract, undeterred by the $4.07 price of this position which profits from a recovery bounce above $26.57 or continued doldrums below $18.43.

YHOO – A look at the 58% implied volatility reading in Yahoo! shows traders expecting 1.7 times as much volatile share price action from the “second-place” search engine than it has shown historically. And the 1.2% decline in its share price to $22.32 – yet another 52-week low, broadly underperforming the Nasdaq and its arch-rival Google – shows investors simple disinclined to get onboard, despite the bells and whistles it’s unveiling at the ongoing Consumer Electronics Show in Las Vegas. Today’s 133,500 active option contracts ranked Yahoo! among the most heavily trafficked tickers on our platform, with buyers flocking to the January 22.50 puts. This strike is the third largest in the Yahoo! family by sheer open interest – and with the rest of January’s option density favoring calls at strikes of 30 and above, it looks like the only one likely to land in the money by next Friday’s expiration. The price of this January 22.50 put rose 58% today to $1.09.

SYY – Yesterday’s slash in earnings guidance by supermarket chain Supervalu seemed to infect most of the retail grocery space, putting today’s 2.6% decline in wholesale food maker Sysco in broader context. With shares at $28.78, a new 52-week low, its options traded at 9 times the normal volume, with nearly 8 times as many puts trading as calls. Of this, we observed bear put spread trading in the January contract at strikes…
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Thrill a Minute Thursday

Get ready for another exciting day.

We’re not off to a very good start even though there was a drop in jobless claims this morning.  Retail numbers were, as predicted, pretty bad and here’s an excellent chart from the WSJ that gives us an overview of the results.  We still have many to hear from but CC down 11.4% in same-store sales is nasty to say the least

TM didn’t have any sales problems as global sales went up 6% in 2007, which offset a very weak number in Japan (outside of Japan, sales were up 10%) and the Nikkei took that news poorly and dropped another 211 points, back below 14,500 by 112 points and looking fairly unhealthy.  The Hang Seng fell 384 points in what still looks like an orderly correction as long as they can keep consolidating above 26,000 but 1,230 is just a bad afternoon away in the Chinese markets so let’s keep a close eye on them.

[Tata]Toyota will have comptetion from Tata this year as that company unveils a $2,500 car that gets 50 miles per gallon and oil bulls are focused on more cars being sold but in a recessionary environment they should focus on these cars (and Nissan, Ford, Volkswagen and Renault will all be offering similar cars) REPLACING old gas guzzlers as it’s cheaper to buy this car and cut $100/month fuel consumption in half than to keep driving existing vehicles.  This is just another stage of permanent demand destruction as OPEC and speculators reap what they have sown in 6 years of gluttony.

The ECB and BOE kept their rates steady, which should help the dollar out a bit and pull back oil and gold for the moment (unless our Fed drops another half point, as expected) and European stocks are falling by about half a point on our awful retail data after getting off to a good start.

Our markets are pulling back a bit in pre-market trading and oil is falling hard.  This is a good time to pick up more SU Feb $105 puts for about $3, as they just announced higher production numbers and will pop at the open, as well as current XOM $90 puts at $1 as we work into a strangle with the $90 calls when they hit $1.  C & MER are out begging for foreign
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Wild Wednesday Wrap-Up

"Market, you shall rally from hence forth… *abra cadabra or however you spell it" – Demetrius Michael, 2:24 pm with the Dow at 12,523

That's right, over at PSW, we don't just predict market reversals – we cause them!

Mega-Kudos to DM for hitting it right on the nose today in a very impressive display of stock market magic.  By the time I confirmed it (using slightly more conventional methods) 5 mins later, we were already up 15 points on the way to a 233-point recovery.  All in all, it was a really fun day to play the markets

It was a wild day over at the member section.  In my morning post, I counseled the wisdom of not playing as we were still concerned that this bottoming move was forced ahead of action by the Plunge Protection team.  My attitude of crisis inaction was outlined more fully during the August crash, when my advice to members was "Don't Just Do Something, Stand There.

Not trading is the hardest lesson of all and my opening statement to members for the day was: "Anything green today is good. Flatlining can give us consolidation but every day will be hairy so make sure you love your positions and get cash from the ones you don’t love to roll the ones you love down in strike AND out in time. Giving ourselves another month or two for a recovery is the smart way to go.  If you LOVE a position but you don’t love it enough to roll it to a better strike and give it another couple of months, they you just aren’t ready for a committed relationship to it.  AAPL, I love. AXP I love, GS I love, BA I love – for richer for poorer, for better or worse, in downtrends and uptrends until capital gains kick in and we part… If you can’t take those vows, think really hard about your relationship."

Our first trade or the day was, in fact, the GOOG $660s at $6.20 – a trade that made the whole week worthwhile!  Sticking with and rolling down AAPL, AXP, GS & BA while they tumbled gave us some fantastic prices on our
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Wednesday War Games

It hasn't learned, is there any way to make it play itself?

That's the line from War Games where the computer is about to launch a nuclear war because it thinks it can win by striking first.  They put the computer into a loop playing tick, tack, toe so it can learn that, no matter what it does, there are some games that simply cannot be won.  I was fortunate enough to see this movie when I was young and we really did think Reagan might start a war any second so this is one of those vivid memories that probably helped form my trading consciousness.

Ultimately, the supercomputer realizes the futility of taking action and says: "Strange game, the only winning move is not to play."  This is a very difficult concept for the average trader to get their head around.  We like to trade, if we are not trading then we are not traders – what would we be if we just went to cash.  The answer to that is – Investors!

An investment is the purchase of a financial product or other item of value with an EXPECTATION of favorable future returns.  Expectation does not mean 50:50, item of value does not mean a short-term out of the money contract that will be worthless at the end of the month.  If we are not at least 80% certain that we will get a favorable future return of 20% then we are better off not playing right?  OF COURSE RIGHT!

Goldman Sachs says there's going to be a recession in Q1 and Q2 and you can't argue with Goldman because the fact that they are saying it causes it.  You're not going to be wrong when you directly control over $3T in assets and indirectly influence the movement of Trillions more, especially when your ex-CEO is the US Treasury Secretary and another ex-CEO is the Governor of New Jersey while another (Andrew Alper) is a former GS partner who is Presiden of the NYC Economic Development Corporation.  So please folks, if GS says there's a recession, not only are we in one but they are already profiting from it!



Forbes jumped on the recession bandwagon and it hit the USA Today
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Financials set cavalcade of fresh 52-week lows as volatility rises…

Today’s tickers: C, XLF, JPM, WFC, CVS, ISIS, BUD, CFC, SBUX, DFS

C – Implied volatility in Citigroup rose 12.3% to 49.8% this afternoon as its shares closed 4% lower at $27.12, another 52-week low for the company. The spike in implied volatility followed reports of an S&P downgrade of 8 Citi alternative investment funds, in a week that has already brought bearish conjecture on possible job cuts and the size of that all-elusive “kitchen sink writedown.” This morning, analysts at Merrill Lynch reckoned Citi losses at double the current estimate from $0.73 to $1.43 per share – all told, some $16 billion. With more than 720,000 options in play this afternoon according to our scanners, volatility traders came out to play in the January contract, with what appeared to be strangle buying between the 27.50 and 30 strikes, a position which costs $1.38 today, covering the buyer in the event of a move below $26.12 and above $31.38. The same strategy appeared in force in the February contract, where the long volatility position costs $2.53. It appears that some traders may be wagering on a subsidence of volatility by January 2009, however, with straddle activity at the 27.50 mark trading to the middle of the market on volume of some 20,000 lots at each strike. A seller of this position would pocket the $8.35 premium on this time-value-rich position in the belief that Citi is sure to turn out the lint in its pockets in 2008, one way or another, starting ’09 at the current 52-week low. A buyer would do so expecting that the volatile rockets’ red glare will continue to pour on Citi’s share price – to the upside or the downside – even into ’09.

XLF – A fresh 52-week-low was hatched this afternoon in the XLF, the Financial Select Sector ETF, which closed 3% off yesterday’s close at $26.58. With more than 600,000 options in play trading to puts by a factor of 1.5, put volume in the ETF hit its highest level in more than a month. While it appears that the immediate bias among traders is to seek long volatility positions in Citigroup and some of the fund’s other components, we observed some evidence of strangle selling and call spread activity in the XLF itself. The January 27/28 strangle may have been sold on volume of more than 40,000 lots – a…
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#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...

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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...

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Phil's Favorites

Divisive economics


Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...

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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...

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Digital Currencies

Transparency and privacy: Empowering people through blockchain


Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...

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Insider Scoop Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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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...

Learn more About Phil >>

As Seen On:

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 >>