Phil's Newsletter

Non-Farm Friday – The Sum of All Fears

Could this be the last straw?

We're getting the Non-Farm Payroll Report at 8:30 and it's usually a market-mover but more so this week as it will confirm or deny a worsening economy.  At the moment, I've refrained from getting more bearish as I think the 20% correction is enough and that, though people are freaked out about Trade issues and Government Shutdowns – these are self-inflicted wounds that can be quickly reversed – so it doesn't play into our long-term investing outlook, which anticipated this 20% correction all summer long.  The only surprise was how long it took us to be right.  

Our long-term bullish premise is predicated on more jobs and higher wages driving forward a virtuous economic cycle that will bring about some inflation, but the good kind that is the result of rising wages, which makes fixed consumer debts like home and auto loans easier to pay down over time.  Remember the good old days when you were disappointed that you only got a 5% raise?  You have to be pretty old at this point to remember inflation being your friend – when we could buy a car or a home we couldn't really afford because we fully expected our salaries to double over the next 5 or so years in almost any job.  

The first Bush Banking Crisis of 1986 was, in large part caused by a slowdown in wage growth (thanks to Reaganomics, now known as Trump's Tax Plan) and the models used by the banks for lending and the assumptions our workers made for buying a home were not adjusted fast enough to allow for flat wages and flat home prices and people found they were in far over their heads on 8-14% morgages without enough equity to refinance – even as rates ticked lower.  That led to the failure of about 1/3 of all Savings and Loan Associations, which led to the rise of the mega-banks which took their place – only to have their own crisis as Bush II repeated the sins of his father. 

Image result for economic multiplierThough Trump is repeating those same economic mistakes, at least he hasn't done anything to stop the increases in minimum wages that…
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Thursday Freak Out – Apple (AAPL) Profit Warning Wrecks the Recovery

Only $84Bn?

That's right folks, Apple (AAPL) issued a rare warning last night as CEO, Tim Cook said trade wars (including a Chinese boycott of Apple) have hurt even the World's Greatest Company and they would "only" sell $84Bn in their Q1 (normal people's Q4) which is $9Bn (10%) less than the high end of guidance.  AAPL also guided gross margin lower, to 38% so we can now whip out our iPad Calculator and say $84Bn x 0.38 = $31.92Bn in gross profit which is – GASP!!! – almost $2Bn less than they earned last year in Q1.  OMG – SELLSELLSELL!!!!

That was sarcasm, of course – we're buying.  $84Bn is $4Bn less sales (5%) than last year and $2Bn less profit is 6% lower and of course we don't like to see our companies taking steps backwards but this is another one of those self-inflicted wounds Trump is causing to our economy and Apple is the biggest company in our economy – so of course they are going to feel some pain. 

We already took a long position on the Nasdaq Futures (/NQ) at 6,200 in our Live Member Chat Room as I put out a note at 4:55 am.  Clearly the sell-off is an over-reaction that has no basis in reality, but that won't stop AAPL from going lower as idiot analysts jump on the bandwagon and downgrade it – we will just have to be patient.  The Nasdaq drifted along around 6,200 until just about 7am, when it blasted higher, to 6,250 for a quick $1,000 per contract gain – a nice way to start our day!  

I'm not going to make a case for AAPL as it's boring, I was bored back in May when AAPL droped from $181 to $158 on "disappointing" earnings – which did a good job of flushing out the retail suckers before they blasted to $232 on the July earnings report.  You really can fool some of the people all of the time and all of the people some of the time – especially when they are Apple traders!  Of course when hedge funds need a boost, they like to load up on big stocks like AAPL but how do they get them to be cheaper?  We…
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What Now Wednesday – Bad China Data Gets 2019 off to a Bad Start

2,480.

That's the weak bounce line we've been talking about on the S&P all quarter and that's the line we're playing with this morning as the markets digest China's Caixin Manufacturing Index, which fell to a declining 49.7 in December, the first time China has shown contraction since May of 2017.  

Still, the theme follows through from last quarter that we are all suffering from self-inflicted wounds as the ongoing trade war has sent New Export Orders plunging to their lowest levels since Q4 of 2011, when we didn't have a trade war and things turned around sharply from there so it's hard to say what happens next – but it is certain this negativity can all be unwound very quickly, IF our President pursues a rational course of action (see, now you are worried again!).  

That is a theme I notice when pundits are discussing US policy these days – noithing is off the table – we are an insane super-power that could nuke North Korea or strike a trade deal with North Korea or annex North Korea or Sanction North Korea or push North and South Korea together – it's all on the table because no one knows what the F our foreign policy is – even from minute to minute.  

Image result for trump insane cartoonThat kind of madness internally means the markets can be moved on any sort of insane rumor because ANYTHING is possible.  "Trump Declares War on Apple" is not a headline you would ignore because it MIGHT be true and, unfortunately, modern trading algorithms are trained to respond to headline news – on the assumption that thing that make the headlines of mainstream media are likely to be true.  This is no longer the case as the MSM also doesn't know if something is too insane for Donald Trump or not.

Back in China, President Xi seems to be taking a harder line against Trump this week as well as talking about taking back Taiwan by force – something that would have been unthinkable but, now that Trump has given Russia a hall pass for Crimea, there's no reason for China to think he'll suddenly
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Monday Market Movement – Trade Progress Keeps Things Positive

2,500!

The S&P 500 took back a critical level this morning in the Futures as we're back over the 2,500 line and holding that would be a good sign to close out 2018 - despite the epic disaster that we've already endured in Q4 as we fell from 2,950 to 2,360 so 600 (ish) points down invites 120-point bounces (20% of the drop) and 2,489 was the weak bounce line we expected last week but we're not going to be very impressed until we're back over the strong bounce line at 2,600, along with the other strong bounce lines on the other indexes:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
  • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
  • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
  • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
  • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

Despite the surge in the Futures, we haven't gained a single green box since Friday morning's Report and today is going to be a light trading day and tomorow the markets are closed so we can't take anything…
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TGIF! Have the Markets Found a Bottom or are we Waiting for the Big One?

Nice bounce.

It should, I suppose, be pointed out that, in our Wednesday Morning Report, we predicted the Dow would bounce to 1,080 points to 22,680 but that would be a Weak Bounce and that we were not going to be impressed until we saw the Strong Bounce Line holding at 23,760.  Though it was an all-time record move, the Dow finished up EXACTLY 1,080 points that day.  Most pundits, if they made a call like that, would be interviewed for the rest of their lives about it and put on the President's Advisory Committee but my response to questions about it is "TA is for morons" so it doesn't make for a good interview.  

The 5% Rule™ is not TA, it is simply math that is based on our understanding of how computer algorithms tend to trade and, since 90% of all trading is done by algorithms – it's pretty darned accurate!  In addition to our 5% Rule™, we have our Tugboat Theory™, which we went over in this morning's Live Member Chat Room.  While we did flip much more bullish in our Options Opportunity Portfolio on Wednesday, we're still waiting to confirm the strong bounce lines before getting more aggressive in our Long-Term Portfolio.  The lines we are looking for remain:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
  • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
  • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
  • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
  • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

We've made some progress but, as you can see from all the red, nothing very exciting so far and, if those green boxes don't hold up – it will be time to add more hedges.

Have a great weekend, 

- Phil

 





Follow-Through Thursday – After a Record Day, A Pause or More of the Same?

Wheeeee – what fun!  

That was the first time EVER that the Dow gained 1,000 points in a day so – you were there.  So far, in the Futures, we're only giving back 300 but that's because the BuyBots are sleeping and it sure didn't look like they were done into the close so we'll see what happens once the volume comes back with just three shopping days remaining in 2018 – and good riddance to it after that crappy quarter.

Not even another 10% gain can save this from being a TERRIBLE quarter for stocks but it can save the indexes from breaking down so we'll take what we can get and, in REALLY GOOD news, assuming The Donald can keep away from twitter for a few days, this is the 13th most oversold level the markets have ever been at with just 1.2% of the stocks over the 50-day moving averages and there has not been a year this century in which we haven't had a very nice gain following such an event.

That bodes well for 2019 and we were scrambling to adjust our portfolios yesterday in our Live Member Chat Room as we expected the bounce (see yesterday's Morning Report) but we hadn't wanted to commit on Monday as it was too scary with the markets closed on Tuesday.  Our results were not scary though as our Options Opportunity Portfolio, which opened the day down 6% finished the day up 32% for a 38% swing on the day and we're now positioned fairly bullish going forward and, as noted in our Dec 11th review, that $132,000 portfolio is on track to make another $126,256 (95%) over the next two years – on just the trades that are in there already!  

When the market sold off, rather than panicking, we looked at our perfectly good positions that we down 38% from our last review (12/11) and decided to improve them – mostly by buying back the short callers and rolling our long calls lower where it was appropriate.  We also doubled down on Frontier Communications at $2 as that seemed a bit silly and, by the end of…
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Which Way Wednesday – Can Confidence Return to the Markets?

Now that is one UGLY quarter!  

As you can see from the small image of the Big Chart (click to enlarge) the marekts have been in free-fall for the month of December with the indexes giving up about 20% of their gains (not 20% from the top) in just over 20 days with almost no up days the whole month.

This Government shut-down is different and the conservative, Financial News Media as well as many of the Top 1%-owned Media Outlets tend to ignore the fact that the previous shut-downs (1995 Newt Gingrich, 2013 Obmacare and 2018 Dreamer) were acts by the opposing party house against the President so there was confidence that our LEADER would work to resolve the temper-tantrum the House leaders were having.  

This time is different as it's our "leader" having a temper-tantrum and his party controls both the House and the Senate so how are people going to be confident that this will be resolved when you have an incoming Democratic House in just two more weeks?  400,000 Government employees are already out of work and millions of contractors aren't going to get paid and projects won't get done and things won't get ordered…  The US Government is the largest part of the US economy, spending over $4Tn a year, call it $350Bn/month and that's money the economy can't actually live without – 20% of our entire GDP is Government Spending.

Each month the Government is closed knocks 2% off our GDP and the slowing economy will contract wages and Corporate Profits and, guess what?  That will make the deficit explode as it lowers the rate of tax collections.  That's why the market had such a harsh reaction to this shut-down but it's still been an over-reaction nonetheless and we are certainly now looking for at least a weak-bounce correction, which would be a 4% gain on the indexes from these levels.  Let's call it from the 20% correction lines:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 


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Not so Merry Monday – Emperor Trump Fiddles while America Burns

Image result for trump nero cartoonNo Defense Secretary, no problem!

It's good to know that Trump doesn't need "Mad Dog" Mattis to run his Department of Defense, he's just one more guy between Trump and THE button, just another guy who sometimes had the balls to say "no" – not that Trump listened anyway as we are suddenly pulling out of Afghanistan and Syria which, coincidentally, are both places Russia is very happy to see us pull out of.   Maybe the President isn't lying when he says there is "No Collusion" and it's just a coincidence that his foriegn policy happens to be Putin's foreign policy – maybe.

Russia is increasing their troop levels in Tajikistan, along the Afghan border and our withdrawal leaves Putin in charge of "Peace Talks" and you can imagine how those are going to go – especially if you paid any attention to Putin's ongoing "Peace Process" in Crimea.  In fact, Trump ordered our withdrawal from Afghanistan only hours after Vladimir Putin said in a live broadcast that the US keeps promising to leave the country but never does!  It doesn't get more direct than that – does it?

And of course we know Syria is all about Russia and, as Forbes said this morning:  "Ignoring History, Trump Hands Russia Yet Another Win in Syria" along with good analysis in the "failing" New York Times: "Syria Pullout by US Tilts Mideast Toward Iran and Russia, Isolating Israel."  THIS is not something we should ignore – most of these marke wounds are self-inflicted with rising rates (we can stop), runaway debt (we can reduce) and Government Shudowns (Trump can stop being a child throwing a temper tantrum) so I'm not really inclined to get shorter on the market down here (our expected 20% correction levels) UNLESS Trump is even crazier than he's already shown himself to be – then we have to fear for our entire nation – not just the Nasdaq.

Image result for trump jokerThere's a line from a Batman movie where Alfred tells Batman a story of an African warlord who his British Troop unit had tried to bribe off to stop his violent rampages but the diamonds they gave him were…
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Shutdown Friday – Government Closes for Christmas

Image result for trump grinchMerry F'ing Christmas!  

Not only is Donald Trump stealing the paychecks up to 800,000 Federal Workers just in time for Christmas (which saves him budget money so he can give his oligarch buddies even bigger tax breaks) but one of his despicable todies, GOP Representative Mark Meadows of North Carolina, says "It is just part of the risk of working in public service."

I ask you America, is this really you?  Do these people represent your ideals and your values?  Do you approve of their actions?  If not, it is your DUTY to remember this and VOTE them out of office whenever you can.  These are TERRIBLE people, they are making America TERRIBLE, not "great."  Even Mad Dog Mattis, our Secretary of Defense, decided Trump is too crazy to work for and has handed in his resignation.  This leaves our President surrounded by nothing but yes-men, who tell him things like this are OK.  It's up to YOU to tell him it's not OK.

Meadows still gets paid, 6,200 Federal Employees who work in his district will not.  Even his fellow Republican Rep, Ryan Costello blasted Meadows for being a total ass.  Unfortunately, Costello is a good man and has chosen not to seek re-election as he's an actual person trying to do what's best for the country and not some partisan hack who sucks up to the richest monster he can latch onto.  

Trump and the rest of his House lackeys, in their last act as the majority, put togehter a budget last night that is likely unacceptable even to the Republican-controlled Senate that includes $5Bn worth of funding for his wall and God knows what other crap they snuck into a 600-page document that needs to be approved by midnight tonight or the Government is likely to be at least partially shut down for 2 weeks.  Trump is attempting to blame the Democrats, even though the Republicans don't need any of their votes if they were all on board with this idiocy:

The Democrats, whose votes we need in the Senate, will probably vote against Border Security and the Wall even


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Thursday Thoughts – Powell Gives the Markets a lot to Digest

Image result for fed rate hikes 2018Wheeeee – such fun!  

As we expected, the Fed raised rates because they had to (because they didn't listen to me and raise rates at the November meeting, when it would have had less impact) and the market freaked out and plowed lower but we decided to remain bullish because all that really happened is SOME people decided to sell and, since we have a very low-volume market – some people is all it takes to jam the market much lower.  Once the rate-sensitive funds are done selling – the bargain-shoppers can step back in.  

And what bargains there are!  While I noted yesterday that the indexes are probably fairly valued as they are still propped up by the ridculous headline valuations of AMZN, TSLA, NFLX, any marijuana company…  there are now hundreds of companies trading at ridiculous discounts to their fair valuation including Apple (AAPL) who made $60 BILLION in the last 4 quarters and has $240Bn in CASH!!! (including long-term investments) yet you can buy the whole company for $760Bn at $160 so $760Bn – CASH!!! is $520Bn/$60Bn = a price/earnings ratio of 8.666.  That's pretty low!  

Of course there has been a lot of rumors that IPhones aren't selling well etc and maybe they are down a bit but I was just at a dinner yesterday with a lot of people and someone gave the waiter a phone to take a group picture with and the waiter didn't know how to use it because it wasn't an IPhone and about 8 people shouted at the same time to the guy who's phone it was "Get an IPhone, for God's sake!" and then we started talking about how Andriods suck and how annoying it is to try to send things to people with Androids, etc….  

Image result for iphone teens chart18 out of 22 people at dinner had IPhones and that's in a wealthy part of Florida but my ordinary town in NJ (middle to upper-middle class) is probably 80% IPhones as well.  Now, I'm sure it's different somewhere in America because, nationally, IOS (Apple's operating system) is only on 50% of the phones in the country but, as of April, 82% of the teens
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Zero Hedge

UMich Confidence Collapses As "Hope" Crashes Most Since 2012

Courtesy of ZeroHedge. View original post here.

Echoing Bloomberg's sentiment indicator, University of Michigan's survey shows Americans' confidence collapsed heading into January with 'expectations' plunging to Oct 2016 lows.

The University of Michigan’s preliminary January sentiment index fell to 90.7 from the prior month, missing all estimates in a Bloomberg survey of economists. The measures of current conditionsand expectations both declined to the lowest since President Donald Trump's election in 2016.

...



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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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Phil's Favorites

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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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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ValueWalk

The SEC's Unconstitutional Conditions Doctrine?

By Jacob Wolinsky. Originally published at ValueWalk.

Princeton, NJ – A new commentary by Crow & Cushing, the SEC’s Unconstitutional Condition, examines a lawsuit challenging the constitutionality of the SEC’s practice of prohibiting defendants who settle civil charges with the SEC from making any public statement, even an indirect one, which takes issue with the validity of the SEC’s charges.

By U.S. Government [Public domain], via Wikimedia CommonsAccording to one study, the SEC settles ...



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Insider Scoop

Cars.com 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 ...

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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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Biotech

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 www.shutterstock.com

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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OpTrader

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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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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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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