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Phil's Stock World



Daily stock picks and option trades, market analysis, and investing strategies for investors and traders of all types.



Last Build Date: Sun, 25 Jun 2017 15:20:06 +0000

 



Friday Already? Russell Rebalancing Should Make Things Interesting

Fri, 23 Jun 2017 12:25:31 +0000

(image) $8.5 Trillion.  

That's the value of the Russell "small cap" Index (IWM), which is up $3.7Tn (77%) from $4.8Tn in 4 years.  While that's impressive, of course, it's lagging the Nasdaq, which is up 130% in the same time-frame, so the Russell (and the other indexes) have a long way to go if they are going to catch the Nadaq (QQQ) – or maybe the Nasdaq is ridiculously overvalued?

The Russell rebalancing or "Reconstitution", as they like to call it, takes place today and thank goodness they have made their own infographic to explain it because I couldn't figure out how to do it in less than 10 pages – so click here if you want the details.  There will not likely be a huge effect, they are simply rearranging the deck chairs – it's not like when the Dow or S&P add or drop companies but strange things do happen as companies shift from the Russell 3000 to the 2000 or the 1000 because it takes them out of one ETF and puts them in another in some cases.  

Last year you can see that red spike down in June though – that was the last rebalancing and the index dropped from 1,175 to 1,075 (-8.5%) in 2 days – but then recovered the next week.  We went long on the Russell Futures (/TF) yesterday in our Morning Report and caught a $500 per contract gain up to 1,410 but today we are watching and waiting to see what happens.  

(image) Getting back to the Nasdaq, although it seems outrageously high, the tech companies have come on strong with earnings – or at least Apple (AAPL) has, since that one company added $11Bn in profits or 50% of the Nasdaq's gains but that's enough to keep the p/e ratio of the entire index at a not-too-crazy 25.97 vs 24.09 for the S&P while the Russell 2,000 has a p/e ratio of 82.36 – THAT is why it's lagging so far behind!  

Now, to be fair, the Russell 2,000 tends to include some start-ups that are still in the money-losing phase of their existence and they have to get much bigger before they graduate to the…
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Thrilling Thursday – Nasdaq Makes New Highs, Ethereum Flash Crashes

Thu, 22 Jun 2017 12:34:32 +0000

Wow, what a ride!   The #2 Crypto-currency, Ethereum had a bit of a flash crash yesterday, trading as low as 0.10 from the high of the day at $317 as a single seller tried to sell $30M worth in what is really an illiquid market.  Even after the first wave reversed, a second wave took the currency down to $130 on even heavier volume than the first, forcing the main exchange, Coinbase, to go offline.     Even though the "Status ICO" (selling program called an "Initial Coin Offering") is over, there are still a huge number of transactions clogging up the network and the only way to get transactions in is to pay huge fees (which most of the exchanges probably don't want to do). Until it clears out, people are going to be missing ENS auctions, unable to withdraw from many wallets and exchanges, etc.  As noted by Emansipater, one of Reddit's crypto experts: "Badly designed ICOs, plus selfish and foolish miners = major delays and maybe even substantial losses for everyone else." Judging by the ensuing flash crash, this was an accurate assessment. Inexperienced traders on amateur exchanges – what could possibly go wrong?   That's what I like about the Dollar – it hardly ever goes off-line, freezing my assets while it's value goes up and down 99% in a day.  Have I mentioned how much I like CASH!!! lately?  We certainly have tons of CASH!!! in our 4 Member Portfolios and, as noted in this weekend's Portfolio Review, we're very well-balanced but still tilted a little bit bearish as we simply can't endorse the insane valuations that are driving indexes, especially the Nasdaq, to record highs.   I was on Money Talk last night and we discussed the trade ideas from yesterday's morning Report and I called a bottom on Oil (/CL), which was trading at about $42.50 last night after testing $42 during yesterday's carnage.  That's well below our $44.50 entry but we're sticking…[...]



Will We Hold It Wednesday – Nasdaq 5,700 Edition

Wed, 21 Jun 2017 12:29:36 +0000

We're still using the same chart. Our predicted range for the Nasdaq 100 Futures has been holding since last Monday (6/12) and, as you can see, it's been following our 5% Rule™ perfectly, which is why we were able to call the shorts for our Members in our Live Chat Room at the open, saying: "2,450 still a good short on /ES, of course and 5,780 on /NQ and we even hit 1,420 on /TF again.  Dow is unprecedented at 21,450+ but below that line will confirm a move lower for the day." This stuff isn't that hard folks, it's been the same range for 2 weeks and we play it until it breaks.  Notice how if we go long with tight stops at the red line and go short with tight stops at the green lines, we don't get burned too badly but we have several occasions where we make a nice sum of money.  This morning the Nasdaq (/NQ) hit the 5,720 line and that was good for one-day gains of $1,200 per contract along with S&P (/ES) 2,430, which gained $1,000 per contract, Russell 1,396 was good for gains of $120 per contract and Dow 21,400, which was up $250 per contract.   That's a nice way to start the week and we needed the money to double down on our, so far, wrong-way bet on Oil ($44.50, now $43.50) and Gasoline ($1.42, flat), which we discussed in Monday's Morning Report.    As we expected, the contract rollover caused a sell-off though, if you listen to the TV analysts, you'd think oil was going to $20.  We see the holiday just around the corner AND, much more importantly, Saudi Arabia is taking the state oil company, Saudi Aramco, public and they are trying to get a $2 TRILLION valuation and the logic I laid out for our Members was: Analysts are chasing all the sheeple out at the lows, methinks – then the Banksters can run in and BUYBUYBUY and take oil up $5 and make their quarter off of one trade.  Don't forget Aramco IPO is coming and every $5…[...]



Terrific Tuesday – What Could Possibly Go Wrong?

Tue, 20 Jun 2017 12:08:25 +0000

(image) I love market bubbles – people just lose their minds!  

On the right is a picture of Jeff Bezos' desk, according to the MSM, as they speculate about which company Amazon (AMZN) will buy next now that they have devoured Whole Foods (WFM).  This, in turn, drives the price of these stocks (and their sectors) higher on an endless wave of speculation which then forces companies that are looking to make acquisitions to overpay for their targets – before things get too expensive and pretty soon everyone is buying everyone else.

Exxon bought Mobile, Volkswagen bought Rolls Royce, Equitable Bank bought PCI bank, Bank of America bought Countrywide, Sears bought KMart, HP bought Autonomy, Mattel bought Kevin O'leary's Learning Company for $3.6Bn – and we're still suffering with the consequences of that guy being a Billionaire!    

Not all M&A is smart, Sprint spent $36Bn for Nextel and Sprint (S) is now valued at $31Bn total, Time Warner (TWX) bought AOL for $111Bn and TWX is now worth $77Bn total – the list goes on and on with massive M&A failures and they usually come in toppy markets where companies have no way to expand their natural business so they seek to mask that fact by buying other companies – the way Tesla (TSLA) just bought Solar City (SCTY) to help justify their 300x p/e ratio and the way Amazon is buying Whole Foods who's $500M in profits on $15Bn in sales with a $14Bn valuation gives them a p/e of 28, which is an incredible bargain compared to AMZN's $475Bn market cap on $136Bn in sales and just $2.4Bn in profits for a p/e of 198.  

(image) I'm not saying AMZN buying WFM is a mistake – it's a good move for AMZN as it drops their p/e from 198 to 163 so now it only takes 163 years for AMZN to make the $995 you pay for their stock – what a deal!  I'm just saying maybe the whole thing is silly and AMZN should be trading at, at most, 50 times earnings which, even if you assume that WFM is a brilliant acquisition and they double profits over the next 24 months to $6Bn, would…
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