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| Author: Mike Celeste | | Editor: Tony Ponzo | | August Circulation: 8266 |
Stat Sheet Week Ending August 19th 2006
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| Changes | Weekly | Year to Date |
| Indexes | Points | Percent | Points | Percent |
| Dow | +293.0 | +2.6% | +663.0 | +6.2% |
| S&P | +37.0 | +2.9% | +54.0 | +4.3% |
| NAS | +106.0 | +5.2% | -41.0 | -1.9% |
| Splitmaster Strategies |
| Basic | ............... | +13.4% |
| Big Dipper | .............. | +25.8% |
| Option Calls | .............. | +105.0% |
| Option Puts | .............. | +33.0% |
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Highlight of this past week:---GRMN--- increases its gain to about 6 points and still time to go.
In this Issue---
SplitMaster Basic System---
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Splitters are returning to more normal patterns, it appears. Yes, the market has been up 5 straight days (every day last week), but it is still reassuring to see the splitters in the Basic doing well, too. There are currently 6 active picks in the Basic, with one scheduled to close on Monday and one on Tuesday. At this point we see that 4 of the 6 are ahead multiple points, one is down about 56 cents and the last one is down about 2 points. That is a very good net figure, especially at this time of the year, here in the 3rd quarter. We are looking forward to Sept., and especially the splitters that will have sell dates in the 4th quarter, starting in October. We remain firmly committed to the belief that splitters will end up for the year on a positive note. In fact, we are excited about the upcoming months that lead us forward.
Big Dipper System---
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Things remain so quiet in the Big Dipper arena that we don't even have any plays showing as potential dippers. That will change soon, and we will at least have some on the list. In a way, this is good, as it means that the market has been behaving in a positive manner, with those that were on the list getting thru their time periods without even coming close to dipping to their buy levels. The list will grow and some on the list will hit--mostly thru downgrades or some negative news. We don't worry much about earnings, as almost all of the splitters are doing well in that category---we hardly ever see a company announce a split and then follow with an announcement warning about a bad quarter coming up. That remains the beauty of stock splits--you are dealing with companies that are earning good returns for their investors. It is our rock solid belief that good earnings eventually end up in higher stock prices---interrupted every once in a while by total emotional market reactions. Earnings win out far more often than not--and we like the logic of that.
Options---
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We just want to take this time to dwell on one particular option that we finally closed out this past week. TEX is a company with a super-excellent earnings report and prospects, but it got caught up in the emotion that was ruling the markets this summer. We had a PUT written in the system at the 85 strike (42.50 adjusted for the split). The stock was a bit over 100 when it came to buy date. When fear took over, TEX was not immune and dropped down to a low of 37.69 after the split. That's 75.38 pre-split---a huge drop. Now we closed out the stock in the Basic when it was 42.34 and took our loss, but we held onto the PUT because it was right about at the strike price, but there was so much time left on it that the time value was very high and because of the recent volatility, it was going to be high for a while. The stock had not dropped to the 37.69 level prior to the time of the Basic sell, but came later which made us a bit nervous. That is especially true since the PUT did drop to a level of about 25 cents after the stock sell, but that recovery didn't last. In fact, at a stock price of 75.38 pre-split, that meant the PUT was priced well over $10 per PUT---and we had written it for $1.15. Now that was a real loss staring us in the face. We had faith in the stock, however, and we gritted our teeth and held on. The worst part was that when the stock was 37.69 there was only 1 week left until the PUT expired. Then it started moving up again (and we feel it should never have dropped so much) and on Thursday of this past week, the stock was over 43 during the day, meaning that the 42.50 PUT had no true value left in it--but--it couldn't hold until the end of the day and it closed with a loss of over 1 point, being at 41.78--or a true value on the PUT of 72 cents, plus some time value, even with just one day left--a volatile stock, as we mentioned. Well, we mulled over the situation after the Thursday close, and felt it would be best to put in a price to get out of the play. We had to include the time value the market maker added, so we put in a bid at 85 cents (1.70 pre-split). Surprise, surprise---the stock opened the next day right at our strike price, 42.50 and the PUT opened at 35 cents---that much time value right on the day of expiration. That meant, tho, that we went from a loss to a profit--70 cents pre-split on the original written price of 1.15 ended up being a 39% profit. Wait--the story isn't over.
After the open, the stock dropped below 42.50, and the price of the PUT went up again. Volatility, they name is positive and/or negative, depending on your situation. The market caught on during the day and TEX did, too---closing at 42.83--or 33 cents above the strike price. That meant that the PUT expired worthless in the end. However, with all the fluctuations we saw, which we really were not looking forward to, we were happy going from a 900% loss to a 39% profit in a week. TEX was an extreme example of what you can see in options. Can you imagine the feeling of the person that bought the PUT when it was 25 cents, saw it go to over $10, didn't sell it, and then saw it go back down to being totally worthless. For the sake of that person, I hope the PUT was unloaded at a high price, instead of waiting each day, after it went up, to hope it returned to its declining ways. Even in this short period of time, the good value of TEX brought it back--and I actually think it has a good way to go, still.
Spread Testing---
We continue to test the new CALL/PUT non-directional spread strategy with good results. Non-directional means it does not matter if the stock goes up or down. As long as it moves, there will be profit. We are honing in on the aspects of the play that increase the odds of success - and there are a lot of components to consider. Those components are for us to deal with though and members will only have to follow the signals for the most part.
Every week however, we learn something new and wind up adding a new piece of criteria. So we will continue the testing but if we can continue getting the kind of results we received this week, we feel the launching of this strategy could be getting close. Stay tuned.
Chart Indicator---
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We finally confirmed a positive position on our CI, on 8/16--Wed. This time it has pushed pretty strongly above the break-even line, and it would be a most welcome sight to see it stay there for an extended run. We know that more and more of you are following this indicator, which is based on our own calculations, and hope it helps you in your other investing areas.
Sidelight---The word positive certainly has good thoughts when it is used. However, it hit me this morning that positive also means negative in some definitions. I got the morning paper and right on the front page of the 1st section of the LA Times was an article stating that it appears that Marion Jones, the world class female track star, has tested "positive" for drugs. The word "positive" here means just the opposite of what we normally assign our meaning of the word. I just think that the world is getting too confusing---why can't they say that the results were negative? Off the top of my head I can't think of any other area where positive means something negative and negative results mean something positive--why assign this area with the tag of switching gears? Showing drugs in the system is a negative thing--just call the results negative. We don't need more confusion when trying to teach our kids meanings--and we adults don't need it, either. So much for going aside from our financial thoughts--sorry about that.
Stock Split Comments---
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September is rapidly approaching and we thought we'd mention what's coming up. Well, not much is coming up yet ---and that is usual for this time of year. We'll keep posted as the new splits start coming up -- and they will. Maybe it will be a good time to look into the spreads that are mentioned in another section and covered by Tony P. He has been working very hard on narrowing down a good set of criteria and it could be that he is just about ready--see his comments above.
More on Bernie---
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We don't usually spend a lot of time mentioning other ways to play the splits, but Bernie has been with us a long time, and has a unique way of combining our split systems with his own outlook. Over the years, we have heard from him numerous times, and always hearing that while there are the occasional losses (as we freely admit there will be), Bernie has done exceptionally well with the splits. The latest example of this involves MRVL. It closed out of our Basic system with a very small profit of 43 cents---but--Bernie just wrote in to say he closed his position on Thursday with a very good profit. Now Thursday was a recovery high for the stock price--and boom, on Friday, it dropped 1.43. Bernie's timing was exceptionally good. So-----we again mention that if anyone wants to talk to Bernie, he is more than happy to accommodate. This time, too, we will give you direct contact points--as shown directly below. We at SplitMaster will continue with our computer generated policies, and have extreme confidence that our 31 year history of never having a losing year will hold up (but nothing is guaranteed, of course). At the same time we recognize the power of the "Comfort Position", where investors want to feel comfortable with what they are doing. Bernie obviously feels comfortable with his adjustment to the SM systems, and maybe some of you would like to hear what he thinks. We have published his feedback from time to time, as you probably recognize, so this is your chance to hear it from the "horse's" mouth, so to speak (Bernie is a really nice guy, too). Here is his contact info:
BK Financial Corp
Bernie Konig, President
246 West 235th St
Carson, Ca 90745
(310)918-8939
Berniekonig@hotmail.com
The Economy---
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We have mentioned that the market has been up 5 straight days--every day this past week--and we all know that is good. However, we also are noticing a possible swing in the pendulum. This summer we have seen emotion rule, and it wasn't a pretty sight, to be sure. FEAR ruled, and that applied to almost all stocks, good earners and bad. That was distressing to us. We may have seen just a hint of a change in the wind. Yes, the market was up 5 straight days--but what made it go up? There actually was quite a bit of negative news ("negative" being bad) that came out. Housing is continuing to slide down. Here in CA we saw sales numbers that were the lowest in 9 years. Prices are starting to come down, also. We feel there is much more to come, as we have been saying for quite a while. And, in CA, the areas that were the hottest are now the areas falling the greatest. That will expand around the country in our opinion, like ripples on the water. Also, consumer confidence fell quite a bit more than what was expected. Dell had a double dose of negative news. They are having a tremendous recall on their laptop batteries and then they announced a drop in earnings of about 51% from last year. Here's the possible swing indicator---with some pretty strong negative news the markets ignored the news and went up 5 straight days. That's the strange and frustrating thing about the market. It is going to do what it is going to do, that's all there is to it. Oftentimes logic goes right out the window. In this case, we are enjoying it, don't get me wrong. Too many good companies lost value in their stock prices this summer and still appear to be pretty cheap relative to not only their recent earnings, but their projected earnings. Of course, what the positive (positive being good) out of this bad news is, the markets are taking this to mean that the odds of higher inflation are dropping and that is a good thing. Again, we feel stock splits will take their place near the top of the list for positive results.
Today's Thought---
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Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy......Dale Carnegie
(Note--Action can also be in the form of being conservative and conserving, when the time warrants such.)
Mike
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