Phil's Newsletter

Which Way Wednesday – Russell 1,600 Edition

Is this rally real?

As you can see from our Big Chart – we're just above the 200-day moving averages, which was our goal for this rally – on all but the Russell 2000, which is at 1,574 in the /RTY Futures and we need them to confirm by getting over the line at 1,587 but we'll want to see 1,600 before we feel comfortable and we are expecting the Russelll to lead us – up or down, for the rest of the week as more and more small caps report their earnings.

We had an in-depth look at /RTY in yesterday's Live Member Chat Room where we concluded:

So, that being the case, we would expect the 5% Rule to be obeyed between 1,440 and 1,800 which is 360 points so 72-point bounce lines to 1,512 (weak), 1,584 (strong), 1,656, 1,728 (weak retrace – where we failed before) and 1,800.  So expect good resistance at 1,584 and no more than a strong retrace of that run from 1,440 (if we're bullish)  which is 144 so 29(ish) down to 1,555 (weak retrace) and 1,526 and we'll see how that goes:

In other words, our 5% Rule™ predicted a run to 1,584 and now the 200 dma is 1,587 so we're pretty confident taking a short up here with very tight stops over the line that risk a loss of $5 per point, per contract so let's say we call 1,580 the shorting line and 1,590 the stop (though I would add another short at 1,586 to average 1,583) so the risk would be losing 8 points over 1,590 ($40 per contract) and our pullback goal is 1,555, which is 25 points (from our initial entry) for a $125 per contract gain and possibly 1,526, for a total of $270 per contract at that level.

The reward potential, in this case, outweigh the risk so we make the play.  Sometimes we are right  and sometimes we are wrong but, since we can make 3-6 times more when we're right than we lose when we are wrong – we don't have to be right more than half
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Tuesday Already? Short Week but Plenty of Problems

We've got 99 problems and Trump is only 69 of them (nice!).

I hate to start a short week off this way but, "lest we forget" – here's SOME of the top issues (just the ones still making news this weekend):

That is just this morning's round-up and I'm not trying to bring you down but, as noted by Jeff Gundlach, when asked how he consistently has one of the top-performing funds in the World, "I look at the News Wires more than anyting else,…  I think what's important is to look at the news flow and watch for those times when the news doesn't change, but the interpretation does – or the news does change, and the interpretation doesn't.”


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TGIF – On Again, Off Again Trade Deal Weighs on the Market

There is no trade deal

That's why the Asian markets fell 1.5% this morning although, this morning, a lot of people are acting like we're making progress so the Futures are creeping up again – and that's fine with us as we'd LOVE to have an opportunity to short them for the 3rd day in a row.  We made $600 per contract from Wednesday Morning's Trade Idea and $1,200 per contract on Thursday Morning's Trade Idea (it only costs $3/day for you to get these ideas) and this morning we're HOPING to re-test 25,600 on the Dow (/YM) Futures but I think we're more likely to fail or, at best, drift into the holiday weekend.

If you cut through all the "he said, Xi said" noise of the trade rumors, the FACT of the matter is Lighthizer and Mnuchin just spent a week in China and accomplished nothing and now they are talking about extenting the March 1st deadline by at least 60 days, which is a major embarrasment for Trump, who set the arbitrary deadline and forced the problem in the first place.  We haven't even BEGUN to have trade talks with Europe or Japan and Trump has threatened more tariffs on each of them – even though we're not even sending a negotiating team.

This is very much in-line with my premise, which we discussed last week – that Trump DOESN'T want a trade deal – he just wants the tariff money and as long as his base remains too dumb to understand that THEY are the ones paying these tariffs – not China, not Mexico, not Europe or Japan – then Trump can use the tariffs to help "balance" his budget.  I put "balance" in quotes because, when you are running a $1.2Tn annual deficit (yes, it's up 20% since last time I looked) – giving up a projected $200Bn in tariffs would raise your deficit another 20% and you would, officially, be the WORST PRESIDENT EVER!

As noted by Bloomberg: "Trump appears to have over-estimated his own power in these talks. There is a reason the original package of U.S. demands to China was dubbed the “surrender-or-die” list by experts. Trump’s trade hawks believe nothing short of a Chinese
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$600 Thursday – Our Dow Futures Shorts Pay Off Perfectly

That was easy!  

In yesterday morning's PSW Report I said:

25,600 would be a great place to short the Dow Futures (/YM) if it fails, with tight stops above but ONLY ENTER AS IT CROSSES BELOW!  At $5 per point, per contract, if you give it 20 points to the stop (25,620, you risk $100 but the Dow is up 600 points off Monday's lows and up 3,600 points since Christmas so it's very likely we get a 20% retrace of 600 in the short run and that's 120 points for $600 per contract reward and, if we get lucky, we retrace the larger rally by 720 points for a $3,600 gain – so I think it's worth a toss – especially in light of these frightening charts

Well, that's exactly what happened first thing in the morning for a nice, quick gain and we're right back there this morning for another chance to go short – but keep those stops in place!  If they are going to keep giving us the set-up, we're not too proud to keep making money off it, right?  Remember:  I can only tell you what's likely to happen and how to profit from it – the rest is up to you!

If you would like to subscribe to the PSW Report so you can have money-making ideas like this delivered to you every day, before the market opens – just CLICK HERE.

Yesterday we placed tight stops at the 25,480 line but today is the 2nd attempt at a fail and we think the indexes will succeed… at failing…  There's no way Retail Sales held up during a month-long Government Shutdown and we get that report this morning while leading Economorons haven't changed their estimates since the last time we got a report – way back in November (delayed due to the Government Shutdown).  

8:30 Update:  Oops, DISASTER!  Retail Sales are down 1.2% for the month and, if it wasn't for a nice gain in Auto Sales, it would have been DOOM.  Check out that trend – not pretty…   Not only
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Will We Hold It Wednesday – 200 DMA Edition

Which way?  Who knows?

It's all up to Trump, who may tweet anything at any time about China, the Shutdown, OPEC, Comey…  There's no way to tell what the President will do because what he does seems totally random and 80% of what he says is a lie and the other 20% are pronouns – so you can't go by what he says or what he does and you can only react to what he tweets – that's crazy!  

The markets rocketed higher yesteday as we finally broke through our 200-day moving averages, which are currently Dow 25,015 (now 25,502), S&P 2,743 (now 2,752), Nasdaq 100 7,047 (now 7,050), NYSE 12,500 (now 12,500) and Russell 1,587 (now 1,543) so we need confirmation from the Nasdaq and the NYSE today and, of course, the Russell has some work to do to catch up.

Yesterday we had Congress telling us they had a funding deal and Trump saying he might approve it – even though it only gives him enough money to build a picket fence – as long as he paints it himself.  We also had all the people on the US side saying China Trade Talks were going great but then Trump said he's not planning on meeting with Xi in March – so how great can it really be if the March deadline is on the 10th?  Trump also said he might extend the deadline – again, who knows?  

Today we have 3 Fed speakers:  Bostic, Mester and Harker speaking at 7:15 (Europe), 8:50 and noon respectively and they are all going to echo Powell's comments on how the economy is great but nowhere near great enough to raise rates or they may crash the markets another 20% because, you know, great markets are fragile – like great egg shells…

25,600 would be a great place to short the Dow Futures (/YM) if it fails, with tight stops above but ONLY ENTER AS IT CROSSES BELOW!  At $5 per point, per contract, if you give it 20 points to the stop (25,620, you risk $100 but the Dow is up 600 points off Monday's lows and up 3,600 points since Christmas so it's very likely we get a 20% retrace of 500 in the short run and that's 120 points for $600 per contract reward and, if
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Terrific Tuesday – Shutdown II Averted (through September)

Image result for trump baby wall55 Miles, $1.4Bn.

If that's what it costs to keep the Toddler-in-Chief from throwing another tantrum, Nancy Pelosi says she's willing to pay it as a bi-partisan group of Senators and Congresspeople have finally hashed out the details of a funding bill that will keep our Government open for 6 CONSECUTIVE MONTHS!  Imagine being able to go all the way until September before our next shutdown crisis – what an accomplishment!  

Well, the markets seem to think so as the Dow popped 200 points in pre-market trading, mostly last night, when news of the deal spread.  Unfortunately, Trump will likely "prove" that the 55 miles of new wall is effective – simply because there are still 1,500 miles with no wall people can go through, so they simply won't try where the wall is.  Will Trump ever get a greenlight to fund the rest of the 1,500 miles at $25.5M per mile ($38Bn)?  That does seem like madness but we've now taken the first tiny step towards it.

Despite all the progress we're making in keeping out the tired, the poor and the huddled masses yearning to breathe free, Small Business Optimism contines to decline, especially in Future Expectations, which are down 10% since the last reading.  That seems to be the general trend at the moment – people are content with the current conditions but they are worried that the country is going to Hell in a handbasket…

Europe is literally going to Hell in a handbasket and, when they get there, they'll meet China, who have already slowed down significantly in Q4 and Q1 is shaping up to be worse and it isn't all about trade, though that's a factor.  GM sold 25% less cars in Q4 in China than a year ago but they are not alone as the entire auto industry, including Chinese Auto Makers, sold 20% less cars in Q4 as the Government pulled back on incentives.  

Nonetheless, Chinese customers still bought $52Bn worth of iPhones in Q4, about 15% of Apple's total sales.  China is also very important to SBUX, UTX (60% of their Otis Elevator sales) and TIF, who saw a 9% increase in sales in China…
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Monday Market Momentum – Uptrend Continues with Trade Talk Hopes

Image result for lighthizer china cartoonSteve Mnuchin to the rescue?

Yes, I know it sounds ridiculous but that's why the market is up half a point this morning as our Treasury Secretary lands in Beijing this morning and maybe I'd be more optimistic if he wansn't accompanied by Trade Representative Robert Lighthizer, who lost the battle to keep China out of the WTO in 1997 and is now being given his chance at revenge by suggesting the US pursue WTO action against China and threatens to leave the WTO if China is not sanctioned – ie. bullying.

Politico describes Lightizer as "a decades-long skeptic of Beijing."  He has accused China of unfair trade practices and believes that China needs to make "substantive and structural changes to its trade policies, as opposed to only minor changes it has offered in the past".  He wrote: "The icon of modern conservatism, Ronald Reagan, imposed quotas on imported steel, protected Harley-Davidson from Japanese competition, restrained import of semiconductors and automobiles, and took myriad similar steps to keep American industry strong.  How does allowing China to constantly rig trade in its favor advance the core conservative goal of making markets more efficient?  Markets do not run better when manufacturing shifts to China largely because of the actions of its government."

Image result for china trade cartoonNow, there's nothing wrong with sending a tough negotiator to China but Lighthizer is more of an anti-China negotiator but even that may have a place if you have a highly skilled person keeping him in line but there's no indication that's the case with Mnuchin and, even if it were, it is complete folly for the markets to believe that this duo is going to be able to quickly resolve the many issues that the US and China are very far apart on in trade.

And when I say the US, unfortunately, I mean President Trump because the US and China were very much together for the past decade as both countries prospered and the trade deficit was widely considered to be "just a number" and China may have "stolen" factory jobs but no more so than Detroit stole them from New York in the early 20th Century.  Jobs move…
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Faltering Friday – Trouble at S&P 2,700 (again)

We're back at our favorite inflection point:

The 2,700 line on the S&P (/ES) has been the midpoint for all of 2018 and we don't have much reason to think that will change in 2019 as, in the bigger picture, we're only in the middle of what is likely to be couple of years of consolidation – even if you do believe the S&P deserves to move up to 3,000 just 10 years after crashing from 1,500 to 666.  Of course, 666 was silly – the result of a panic that took stocks far lower than they should have been (see "The Worst-Case Scenario: Getting Real With Global GDP!" which I wrote on June 6th, 2010).  

On our Big Chart, 2,420 is the 10% line and this chart adds to the argument that it should be moved up 10% to the Must Hold Line, meaning the point below which we feel the market has turned bearish.  Trump's tax breaks have pumped Corporate Profits up enough to call 2,420 the new bottom and that would make 2,700 the new 10% line(ish), where we would expect the index to consolidate before attempting a move to the 20% line, at 2,970.  

The market is down a bit this morning but nothing tragic and, if we can close above our 200-day moving averages on the Dow (25,100) and the S&P (2,697) – this will have been a constructive week, technically.  The 200 dma for the Nasdaq 100 is 7,041 and we're miles below that but miles above the 50 dma at 6,627 so nothing to see there and the NYSE is also drifting between 11,876 (50) and 12,502 (200) along with the Russell, where 1,438 (50) and 1,537 (200) are the lines to watch.  

There's nothing wrong with a little heathly consolidation in the markets – other than the fact that it's kind of boring…

Have a great weekend,

- Phil

 





Faltering Thursday – S&P 500 Fails to Clear Lowered Earnings Expectations

Low expectations.  

It's what we have for both the President and the Stock Market so anything they do that isn't a complete screw-up gets celebrated but that's no way to run an country – or an economy.  Powell spoke yesterday but provided no catalyst, choosing to speak about the LIMITS of Fed policy in boosting growth – a speech aimed squarely at the President in which the Fed Chair also stressed the importance of a fully independent Federal Reserve.

With about half the S&P reporting, over 30 companies, including Netflix (NFLX), Delta (DAL) and Estee' Lauder (EL) have lowered their guidance for Q1 and, as I noted in yesterday's Live Trading Webinar, a lot of the "best" companies have already reported and the 2nd half of the S&P 500 may already be showing sighns of strain in their Q4 reports.  Even now, estimates are that Q1 earnings will DECLINE 1.4% from last year  – quite a comeback from projections of 7% growth from September's guidance.

Many investors say multinationals will find it increasingly difficult to generate the type of results they did in prior years, with the outlook dimming for the global economy. If earnings estimates keep coming down, many say they doubt the 2019 market rally can continue for long.  The sheer scale of the drop-off in earnings estimates has some analysts nervous that there could be further damage ahead. That could potentially put pressure on a bull market that many believe is in its late stages.

Morgan Stanley analysts, who have been among the more bearish of Wall Street firms in the past year, said this week that they “wouldn’t be surprised” if S&P 500 companies wound up delivering lower earnings every quarter of 2019.  Goldman Sachs analysts said, in a recent note, that lower oil prices and pockets of economic weakness in the U.S. support a more conservative earnings outlook for the year. “More estimate reductions are likely rather than boosts to forecasts,” the analysts wrote.

IT companeies are particularly hard-hit, followed by Materieals, Energy, Consumer Discretionary and Communications while Health Care, Utilities and Industrials are still growing at a good pace – though Trump said in his SOTU that he wants to reign in drug pricing,…
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Will We Hold It Wednesday – Russell 1,525 Edition

Woah-oh, we're halfway there….

The Russelll 2000 Index is halfway back to 1,750 after falling from there to 1,300 (25.7%) since the August highs.  Yesterday I expressed my misgivings about the recent low-volume rally and it's easy enough to manipulate the Dow, with just 30 stocks, the Nasdaq, with just 100 stocks and even the S&P 500 has half it's market cap in the top 30 stocks so it only takes a bit of firepower aimed at the leaders to prop up the markets so unscrupulous people can pretend things are better than they are

Not so much the Russell, with it's 2,000 small-cap stocks, which are more evenly distributed throughout the index or even the NYSE, with it's 2,800 companies that trade 1.8Bn times a day – those are VERY EXPENSIVE to manipulate but, the good news is that they generally follow the other 3 so manipulating the Big 3 usually leads to the NYSE and Russell following suit.  

Still, when we get to major inflection points, it's often the NYSE or the Russell that warn us that things may not be quite as they seem.  The NYSE topped out at 13,600 last January but then plunged 10% in two days and never regained its highs in the Summer, which is one of the things that kept us cautious while the rest of the indexes were making records.  In December, the low for the NYSE was 10,723 but we'll call the support line 11,000 and that's a 2,600-point fall (19%) and now we're back to test the 50 dma at 12,500 after a 13.5% rally, 2/3 of the way back to the top.

The Russell's 200 dma is at 1,588 and we need to see both of those indexes cross over before we waive the all-clear flage and get back to more bullish betting (we have plenty of bullish bets so less hedges, really).  Until then, we're crossing our fingers that we don't have a repeat of last January, where the market collapsed right after the State of the Union address, leading some people to believe the Administration had manipulated the market into the address in order for Trump to brag about it.


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Zero Hedge

There Is A New "Most Crowded Trade" And "Biggest Tail Risk" On Wall Street

Courtesy of ZeroHedge. View original post here.

The monthly Bank of America Fund Managers Survey (FMS) is perhaps best known for exposing Wall Street's cognitive dissonance, if not schizophrenia, to the world because while on one hand survey respondents cry over soaring corporate and global leverage, at the same time they rush to 3x oversubscribe a bond package with the "worst-ev...



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Kimble Charting Solutions

Financials About To Let Down The Bull Market Again?

Courtesy of Chris Kimble.

If the saying So Goes The Banks, So Goes The Broad Market is true, what message are we receiving when financials have lagged the broad market for over a year?

This 2-pack looks at the XLF/SPX and EUFN/XLF ratios over the past couple of years.

The XLF/SPX ratio has created a series of lower highs for the past 12-months after peaking at (1). The EUFN/XLF ratio has created a series of lower highs for the past 18-months after peaking at (2). These falling trends look to be sending a negative divergence message to the broad markets if one believes that banks are important for bull markets.

Each ratio is near falling resistance at ...



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Phil's Favorites

Brexit may usher in point of no return for UK tech start-up scene

 

Brexit may usher in point of no return for UK tech start-up scene

Other European cities have been quick to sense opportunities from Brexit. Charles Hawley/Twitter

Courtesy of Martin De Saulles, University of Brighton

Sifting through the noise to really understand what impact Brexit and all the uncertainty that it brings is having on the UK’s technology start-up scene, it’s possible to see a picture emerging. It is one that should cause serious concern for anyone with an interest in keeping the UK at the centre of Europe’s technology sector.

In The Sun Also ...



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Chart School

Weekly Market Recap Mar 17, 2019

Courtesy of Blain.

A very good week for market bulls as the prior week’s selling was all reversed.  Last week we asked how many times can we rally on the same Federal Reserve juice.  It seems indefinitely.  Jerome Powell went on ’60 Minutes’ and talked dovish – that sparked a big rally Monday and it continued all week.  The only down day all week was Thursday when the progress on the U.S. – China trade deal seemed to hit a delay.

A meeting between President Donald Trump and Chinese President Xi Jinping will be delayed until at least April, Bloomberg News reported, indicating that a bilateral trade deal will n...



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ValueWalk

Pension Flows Add 5 More Years To Credit Boom/Bust Cycle

By Michelle Jones. Originally published at ValueWalk.

The pension crisis has been capturing headlines for years, but there’s another layer to the pension issue that’s starting to draw attention to itself. Public pension funds have shown an increasing appetite for credit and related holdings, the latest round of pension flows demonstrates that this trend continues One analyst believes pensions are largely to blame for the extremes of the boom/ bust cycles we’ve seen over the last year or so. He now suggests that the equity bull market could last another five years—thanks to the extremes driven by pension funds.

...

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Insider Scoop

Needham: Facebook No Longer A Buy Amid A 'Negative Network Effect'

Courtesy of Benzinga.

The bullish case for Facebook, Inc. (NASDAQ: FB)'s stock has come to an end, according to Needham.

The Analyst

Needham's Laura Martin downgraded Facebook from Buy to Hold with no price target.

The Thesis

Needham's multi-year bullish stance on Facebook's stock can no longer be justified for three key reasons, Martin said in a research report. These include:

  1. A negative potent...


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Biotech

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

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

 

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

Assorted cannabis bud strains. Roxana Gonzalez/Shutterstock.com

Courtesy of James David Adams, University of Southern California

Medical marijuana is legal in 33 states as of November 2018. Yet the federal government still insists marijuana has no legal u...



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Digital Currencies

Facebook's cryptocurrency: a financial expert breaks it down

 

Facebook's cryptocurrency: a financial expert breaks it down

Grejak/Shutterstock

Courtesy of Alistair Milne, Loughborough University

Facebook is reportedly preparing to launch its own version of Bitcoin, for use in its messaging applications, WhatsApp, Messenger and Instagram. Could this “Facecoin” be the long-awaited breakthrough by a global technology giant into the lucrative market for retail financial services? Or will...



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Members' Corner

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

Are you ready to retire?  

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

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

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



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

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

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



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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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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 >>