Phil's Newsletter

Faltering Friday – Coming to the End of a Weak Week

We're in danger of having a down week.

We opened on Monday at 3,321 on the S&P 500 and we closed last night at 3,325 so it won't take much for us to dip under and close the week in the red.  As you can see from the chart, if not for that silly gap up into Wednesday's open (which we shorted!), it's doubtful we'd be even close to green now.  

Speaking of shorting, our current position is 2 short Nasdaq (/NQ) contracts at an average entry of 9,271.50 and I'd be more likely to add to them if they go higher than stop out ahead of the weekend with China now "locking down" 40M of their citizens (only 2.5%) with travel restrictions on 10 cities as cases have now spread to 32 of China's 34 provinces.  The markets got a boost yesterday when the WHO decided NOT to declare a Global Emergency (yet) but that's only because the virus has, so far, been fairly contained to China – for now, I'd rather be safe than sorry with our hedges (see yesterday morning's PSW Report).  

relates to China Locks Down 40 Million People as Anger Grows Over VirusAs noted by Bloomberg:  The turmoil comes as the virus stymies efforts to track infected patients. While the death toll continues to rise — and now includes someone as young as 36 — some infected patients aren’t showing a fever, a symptom governments around the world have been using to screen for the pathogen.  Even Disneyland in Shanghai is closing down so it might be time to short Booking (BKNG) again – though we already missed a 5% drop.

I'm not a doom and gloom kind of person but, to put it in perspective, in a usual year, about 30M people around the World get the flu and 60,000 people die (0.2%), mostly people who are old and sick in the first place (not that that makes it better but it's understandable).  So far, out of 830 confirmed cases, 26 people are already dead (3%) but, more alarmingly, over 100 people are in critical care units in hospitals – and some of them are young people.

It's the way the Governments are scrambling…
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Faltering Thursday – Our Index Hedges Finally Pay Off!

Well, it had to happen some time.

After serveral attempts to make some money shorting the Index Futures we hit the jackpot in yesterday Morning's PSW Report, when I said to our Members:

It doesn't matter what happens during the day, in the overnights, we rally to new highs.  Oddly enough, we've been making our money on the short side (see last week's Webinar) by playing the indexes short when they peak and selling on the dips so this morning we're doing it again at 9,240 on the Nasdaq (/NQ) Futures, 3,335 on the S&P Futures (/ES) and 29,280 on the Dow (/YM) Futures.

Meanwhile, we're stubbornly long on Natural Gas (/NG), which is now at $1.90 but our average entry is $1.962 and we already have 4 long.  

As you can see from the image above, we hit our goal this morning (as discussed in yesterday's Live Trading Webinar) so we're taking the money and running but we'll re-establish on a pullback.  It's a nice $2,320 gain on the day, so we don't turn that away and we'll also cash out our Index Futures, now at 9,190 on /NQ for a $1,000 per contract gain, 3,313 on /ES for a $1,100 per contract gain and 29,050 on /YM for a $1,150 per contract gain.  Now, wasn't yesterday's PSW Report worth your $3?  If so, don't forget to SUBSCRIBE HERE!  

We played yesterday bearish because there was now NEW news that justified the move up and, this morning, there's no NEW news justifying the move down so we'll cash out and wait for something interesting to happen.  The most interesting thing happening at the moment is the Chinese coronavirus that has sent the Chinese markets down 5% already this week and our 5% Rule™ says a weak bounce is 1% and a…
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Which Way Wednesday – Rallying Back to the Highs (Again)

This is just amazing.

It doesn't matter what happens during the day, in the overnights, we rally to new highs.  Oddly enough, we've been making our money on the short side (see last week's Webinar) by playing the indexes short when they peak and selling on the dips so this morning we're doing it again at 9,240 on the Nasdaq (/NQ) Futures, 3,335 on the S&P Futures (/ES) and 29,280 on the Dow (/YM) Futures.

Meanwhile, we're stubbornly long on Natural Gas (/NG), which is now at $1.90 but our average entry is $1.962 and we already have 4 long so we either get back to 2 even or we wait for $1.80 to add 2 more longs and bring the average below $1.90 (with a $6,000 loss on 6 contracts).   It's a long-term conviction play and could get very painful as we're bucking the overall trend.

I reviewed our logic on the Natural Gas plays in yesterday's Live Member Chat Room and we're doing another Live Trading Webinar this afternoon at 1pm, EST, so I'm sure we can discuss it some more.  The strong(ish) Dollar hasn't been helping the commodities very much.  Oil is still down in the dumps at around $57.50, which is a nice place to go long (/CL) with tight stops below that line, which should match up with $64 on Brent (/BZ) – so if Brent fails to hold, don't play /CL long!

Not that the news seems to matter these days but President Trump is back to threatening tariffs on Europe in an attempt to force them to make a Trade Deal with him because he needs the distraction to take away from his impeachment trial.  One thing that's distracting everybody at the moment is the Chinese virus scare, with 50% more cases today than there were yesterday (now 470) so no, it's not at all under control.   The US case that panicked our markets yesterday was from a guy who was in China recently and it does seem to be contained (so far). 

In drugstores and at airports, and on the online…
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Trumped Up Tuesday – Let the Impeachment Begin!

Image result for trump impeachment cartoonImpeachment begins in earnest this week.

It may end just as quickly as the GOP-controlled Senate is looking to acquit Trump as soon as possible, preferably without hearing from any witnesses or reviewing any evidence.  This farce will be overseen by Chief Justice John Roberts – which is very sad for our rule of law, of course, as it legitimizes this behavior and sets a precedent for future dictators to rule our country by.  Nonetheless, at least it will be interesting.  

Trump, like Carlos Goshn, has already fled the country and is in Davos for the World Economic Forum, where he just gave the first keynote address in the 50-year history of Davos that did not mention the World at all – except to say how much better Ameirca is than the rest of it.  As noted by the NY Times:

In his 30-minute address in front of a global audience, Mr. Trump did not mention the impeachment trial back home. But he delivered what amounted to a version of his campaign speech minus the red meat to his base, speaking little of international alliances other than touting America’s supremacy in the world.

The president also took a swipe at people demanding action on climate change, the lead agenda item at this year’s conference. Mr. Trump announced that the United States would join the 1 trillion trees initiative launched at the World Economic Forum. But he also declared that “we must reject the perennial prophets of doom.”

The message at Davos was very clear to all but Mr. Trump.  So clear in fact that it was written on the roof of the building:

“Act on Climate” could be read in the snow near Davos as Mr. Trump arrived on Tuesday.

Global warming and climate change top the agenda items for the conference. A star speaker on Tuesday, alongside Mr. Trump, is the 16-year-old climate activist Greta Thunberg, who has said she wouldn’t “waste her time” speaking to Mr. Trump about climate change.  Trump has withdrawn America from the
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Happy Martin Luther King Day!

The Rev. Dr. Martin Luther King Jr. at the Lincoln Memorial during the March on Washington on Aug. 28, 1963.It's Martin Luther King day so the markets are closed.

It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision.  Here's a great video of the actual event.

It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

  • Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
  • Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
  • It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
  • The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
  • Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.   
  • Never forget that everything Hitler did in Germany was legal.
  • We will remember not the words of our enemies, but the silence of our friends.
  • The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
  • A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
  • A nation that


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400 Point Friday – Another Week, Another Record High

Will this rally ever stop – or even pause?

We've already added 400 points this week and, as you can see from the chart, almost the entire move came at the open yesterday and Wednesday and this morning the Dow (/YM) Futures are up another 66.6 points (0.25%), capping off a 1.5% move higher for the week (if we hold it).  It's a bold move into earnings season, as it will be very hard to justify these price increases for the average component but we'll just have to wait and see as this rally shows no signs of slowing – despite all logic

I know no one wants to hear about boring old macros but, while we were sleeping, China announced that their economy was growing at a 30-year low 6.1% as Trade, Investment, Consumer Spending and Business Confidence all come under pressure.  The country also faces longer-term stresses like an aging population, which was highlighted by Friday data showing births had fallen to their lowest level since 1961.  Nomura economists calculate the trade war, coupled with slower global growth, shaved one percentage point off China’s 2019 GDP figure. 

Nontrade factors, too, weighed on sentiment, including mass protests that roiled next-door Hong Kong for more than half a year, clouding the business outlook and drawing global attention to the risk of social unrest in the authoritarian nation. Shenzhen’s celebrated technology sector, including hometown companies like telecommunications equipment maker Huawei Technologies Co. and drone maker SZ DJI Technology Co., is facing new scrutiny from the U.S. and elsewhere.

Despite the slowing growth, trade issues and 6 months of protests in Hong Kong, the Shanghai Composite Index rose 22% last year because – why not? – everyone else is ignoring the macros, why shouldn't Chinese Traders too?

Increasingly, Chinese industrial prices have also headed downhill in a sign of weak demand, and producer prices overall last year fell 0.3%. Car sales slumped 8.2% in 2019, while consumers – whose incomes expanded slower than the economy at 5.8% – were squeezed by pricey pork and an upward creep in crude oil.  In cities like Shenzhen and Shanghai, office vacancy rates are solidly in the double-digit percentage points as companies quietly downsize. Property is a
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Fallback Thursday – Tesla (TSLA) Down 10% Already – Where Will Reality Strike Next?

Wheee, what a ride!  

Tesla stock hit peak stupidity Tuesday at $550 per share in mid-day action but it finished the day at $530 and, this morning, we're down to $500 after I ranted about it in our Weekly Webinar (we are short TSLA).  No, I don't think I caused it – I think Tesla, having kissed a $100Bn market cap, had a run-in with reality two weeks ahead of an earnings report that will theoretically show them making $150M for the Quarter (though I think they miss), which is still a run rate of $600M for 2020 or 1/166.6 of $100Bn.  

Even if you assume amazing growth on the top and bottom line, it will be 2025 before you could concievably be close to justifying $100Bn – even if every Musk fanboy's wildest fantasies come true.  I REALITY though, there ARE real, live other car companies and real, live other battery companies and real, live other solar panel makers who run real, live businesses with real, live profits and NONE of them come close to the kind of valuations given to TSLA who, so far, have proven to LOSE money in all 3 of those ventures. 

See – I'm still ranting.  These guys just annoy me!  

Related imageI mean, seriously, TSLA is delivering about 100,000 cars in Q4 and about 350,000 cars for the year while Nissan delivers 350,000 cares PER QUARTER – and they are in 5th place in US Sales (where Tesla only sold 36,000 cars as the rest are global sales).  This is part of the problem traders have as they don't differentiate numbers when they hear about Tesla's "amazing" market share.  It's not amazing at all – it's only slightly better than Volvo in the US and, internationally, Volvo kicks their ass!

Yet TSLA is now valued twice as high as all of them, except Toyota (TM) at $200Bn, perhaps because they sell more than 50 TIMES more cars than TSLA in the US and 100 TIMES more cars than TSLA world-wide or maybe it's because TM MAKES $20Bn a year while TSLA loses $1Bn.  JUST the Prius sold 500,00 units in 2019 – mostly to Uber drivers...

Nonetheless, TSLA is just our poster…
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Working it Out Wednesday – Is the Trade Deal the Beginning or End of the Rally?

Image result for trump trade deal cartoonToday is the day!  

Trump will sign a deal today (11:30) with China that puts off the new tariffs he threatened them with until "after the election" and China agrees to buy $200Bn in US Goods and Services over 2 years, which is double their normal pace so, in theory, it could add 0.5% ($100Bn) to our GDP, assuming we actually produce more Goods and Services and don't just end up selling China things we would have sold to someone else.  Boeing (BA) has several hundred grounded 737s China can have – that's a good start!

It's onlly a start though as the deal does not address Cybersecurity or China’s tight controls over how companies handle data and Cloud Computing.  China rejected American demands to include promises to refrain from hacking American firms in the text, insisting it was not a trade issue.  The Chinese have also rebuffed requests for broader changes to the structure of their economy. That includes a pattern of subsidizing and supporting key industries, like solar and steel, that American firms say have allowed China to dump cheap products it makes into the United States.

In the interim, the remaining tariffs will continue to inflict financial pain on American businesses that rely on Chinese imports and the consumers who buy their products.  Is that going to be good enough to continue to boost the market or will the reality of the trade deal's mediocrity begin to weigh on forward-looking sentiment.  Pay close attention to Corporate Guidance, now that they are taking the signed deal into account.  

Earnings have been going well so far but Goldman Sachs (GS) missed this morning by almost 20% – that was a surprise.  BAC, BLK, PNC, USB and UNH all beat along with WAFD last night and only WFC screwed up yesterday so it's so good, so far in the Financial Sector but, of course, shouldn't it be with the market up about 30% in 2019 and up another 2% in the first two weeks of 2020?

The Producer Price Index came in weak this morning at 0.1%, half of what was expected and that indicates that, despite "strong" retail sales, the Consumers are unwilling…
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Pre-Trade Tuesday – Markets Appear Untroubled But Weakening

No one seems worried.

The Volatility Index (VIX) is back around 13 after a brief spike to 17 when we bombed Iran and Iran bombed our bases in Iraq but that was so last week and now no one is worried about anything as we look forward to tomorrow's signing of the Phase 1 China Trade Pact, which accomplishes nothing in particular after two years of waiting.

The deal leaves out the fundamental changes to Chinese economic policy sought by many U.S. leaders and prioritized by President Trump, who has promised further negotiations. Chinese officials, though, feel they have little to gain from a second deal forcing Beijing to ease state control of the economy, and Trump has already said that a phase-two agreement probably wouldn’t conclude until after the November election.

Image result for china trade deal cartoonU.S. Trade Representative Robert Lighthizer defended the deal Monday, saying on Fox Propaganda Network that it would include “a variety of real structural changes.” He then named only one, commitments to refrain from competitive currency devaluation, which Treasury Secretary Steven Mnuchin announced earlier in the day, already  dropping Treasury’s designation of China as a currency manipulator based soley on their thin promise to behave in the Future.

By giving away leverage with a temporary deal…these structural issues will only become more challenging to address in future negotiations,” Senator Schumer wrote. “China pledging to make short-term purchases of American goods will not address the fundamental problems that undermine long-term U.S. economic opportunity, prosperity, and security.”

Image result for i'll remove the cause but not the symptom animated gifTariffs remain in place that will still cover the same $360 billion in Chinese goods that the Administration taxed before the signing. Nearly two-thirds of everything Americans buy from China are still tariffed, compared with less than 1% before Trump began his anti-China campaign, according to calculations by economist Chad Bown of the Peterson Institute for International Economics.  The deal eases — but does not eliminate the trade-related uncertainty that Federal Chair Powell has blamed for weak business investment and a manufacturing slump.

The "Phase One" Trade Deal was announced back on December 12th and, since then the Dow has gained 1,000 points, or about 3.5%, putting a huge cherry on top of what had already been a 21% rally…
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Just Another Manic Monday

Image result for earnings season animated gifWhat a boring weekend!

For a change, there wasn't any news – things just sort of drifted along but, poof!, half of January is already behind us and already we're moving into the heart of Earnings Season with 10% of the S&P 500 reporting this week followed by over 20% next week and we'll be half done by the end of the month and then it's February already – boy time flies

This week we concentrate on earnigs from the Financial Sector and I find Schwab (SCHW) very interesting at $48 as that's $61Bn after they swalled Ameritrade but they are only making $3.6Bn this year, just $300M more than last year with Q4 likely to be down from last year – not too supportive of a record-high valuation.  

It will be a good test to see how rational traders are getting (if at all) in this ultra high-value market environment.  Bank America (BAC) and Wells Fargo (WFC) are also expected to be making less money than they did last year and they too are at year highs – might be an interesting time for a little correction?

WFC, of course, is coming off fake account scandal but it hasn't really cost them a lot of cutstomers after 3 years as Revenues were $88Bn in 2016 and $85Bn in 2019 and profits are down 10% but, of course, the stock is up 10% from the 2016 highs ($50) and 20% off the lows ($45) because – well because it's part of the overall Valuation Rally – where everything is more expensive than it used to be.  

Still, a good case can be made for shorting them here and WFC reports tomorrow morning and it seems very unlikely they are going to hit $55 so the way I would play it is:

  • Buy 10 WFC March $52.50 puts for $2.10 ($2,100)
  • Sell 10 WFC March $50 puts for $1.05 ($1,050) 
  • Sell 5 WFC March $52.50 calls for $1.30 ($650) 

That's net $400 on the $2,500 so there's $2,100 (525%) of upside potential in 67 days if WFC is below $50. If earnings are good and they stay above $52.50, we will owe…
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Phil's Favorites

The digital economy is becoming ordinary. Best we understand it

 

The digital economy is becoming ordinary. Best we understand it

The digital economy includes small holder farmers being able to access finance on a mobile device without having to go to a bank. Shutterstock

Courtesy of Brian Armstrong, University of the Witwatersrand

The digital economy has been getting a lot of attention, with increasingly strong headlines offering apocalyptic as well as breathtakingly exciting scenarios. Some warn of job losses due to automation, some wonder at the things digital technology can do. And then there’s real scepticism about whether this will translate into delivering to people who need it most.

With all of this discuss...



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Kimble Charting Solutions

Bad News For Crude Oil Should Come From This Pattern, Says Joe Friday

Courtesy of Chris Kimble

It’s a good idea for investors to be aware of key indicators and inter-market relationships.

Perhaps it’s watching the US Dollar as an indicator for precious metals or emerging markets. Or watching interest rates for the economy. Experience, history, and relationships matter. And it’s good to simply add these to our tool-kit.

Today, we look at another relationship that has signaled numerous stock market tops and bottoms over the years, and especially the past several months, Crude Oil.

When crude oil tops or bottoms, it seems that ...



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Zero Hedge

WTF Chart Of The Day: Bonds Ain't Buying It

Courtesy of ZeroHedge View original post here.

Presented with little comment aside to ask (rhetorically), why - amid the unknown parameters of what appears to be escalating into a global pandemic, and ongoing weakness in economic data despite the 'trade deal' - are stocks soarng to record highs as bond yields collapse to 3-month lows?

Source: Bloomberg

Fun-durr-mentals don't matter...

S...



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Insider Scoop

5 Software-Application Stocks Moving In Thursday's After-Market Session

Courtesy of Benzinga

Gainers

Atlassian Corporation, Inc. (NASDAQ:TEAM) stock surged 9.7% to $145.50 during Thursday's after-market session. According to the most recent rating by Morgan Stanley, on January 13, the current rating is at Overweight.

Diebold Nixdorf, Inc. (NYSE:DBD) shares increased by 8.1% to $11.48. The most recent rating by DA Davidson, on December 13, is at Buy, with a price target of $17.00.

Telaria, Inc. (NYSE:TLRA) stock rose 4...



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The Technical Traders

January 2018 Stock Market Repeat - Yikes!

Courtesy of Technical Traders

Our research team caught a very interesting price pattern that correlates with the Put/Call ratio.  We are alerting our friends and followers with this research post of this exciting, yet unconfirmed, set up today.

In late 2017, the US stock market rallied from July through December with moderately low volatility throughout this span of time.  Near the end of 2017, the US stock market price activity stalled, then began a renewed price rally in early 2018 (see the first BLUE & YELLOW BOX on the chart below). Then, in January 2018, a very broad market reversion event took place which ultimately resulted in a very broad market correction in October through December 2018 of just over 20%.

...

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Biotech

Snakes could be the original source of the new coronavirus outbreak in China

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

 

Snakes could be the original source of the new coronavirus outbreak in China

Chinese cobra (Naja atra) with hood spread. Briston/Wikimedia, CC BY-SA

Haitao Guo, University of Pittsburgh; Guangxiang “George” Luo, Univers...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Monday, 16 September 2019, 05:22:48 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: This chart says SP500 should go back to 2016 levels (overshoot will occur of course)



Date Found: Tuesday, 17 September 2019, 01:53:30 AM

Click for popup. Clear your browser cache if image is not showing.


Comment: This would be HUGE...got gold!


...

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Members' Corner

The War on All Fact People

 

David Brin shares an excerpt from his new book on the relentless war against democracy and how we can fight back. You can also read the first, second and final chapters of Polemical Judo at David's blog Contrary Brin.

The War on All Fact People 

Excerpted from David Brin's new book, the beginning of chapter 5, Polemical Judo: Memes...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Digital Currencies

Cryptos Have Surged Since Soleimani Death, Bitcoin Tops $8,000

Courtesy of ZeroHedge View original post here.

Bitcoin is up over 15% since the assassination of Iran General Soleimani...

Source: Bloomberg

...topping $8,000 for the first time since before Thanksgiving...

Source: Bloomberg

Testing its key 100-day moving-average for the first time since October...

...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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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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.

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