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| Author: Mike Celeste | | Editor: Tony Ponzo | | September Circulation: 8204 |
Stat Sheet Week Ending September 23rd 2006
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| Changes | Weekly | Year to Date |
| Indexes | Points | Percent | Points | Percent |
| Dow | -53.0 | -0.5% | +790.0 | +7.4% |
| S&P | -5.0 | -0.4% | +67.0 | +5.4% |
| NAS | -16.0 | -0.7% | +14.0 | +0.6% |
| Splitmaster Strategies |
| Basic | ............... | +13.7% |
| Big Dipper | .............. | +19.8% |
| Option Calls | .............. | +123.0% |
| Option Puts | .............. | +65.0% |
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Highlight of this past week: -- Spreads working out very well again this week.
In this Issue---
SplitMaster Basic System---
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This appears to be the time when the systems are switching gears, with no new plays coming in on the Basic system, we see the Big Dipper picking up on new plays. Be sure to read the comments about the Spread system that Tony is developing, as this seems to be very promising.
Big Dipper System---
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This week we saw another new play enter the list on Friday, making it 2 plays currently active. Both are in sectors that have suddenly become unpopular in the last few weeks, with one in metals and one in the energy area. Have these sectors become oversold? When you consider the fundamentals of our picks, PCU and DRQ, they are both excellent with low P/Es and very positive PEGs. (PE to growth). So yes, we think they have become very oversold. So is this down move temporary? Again we think so but the question is, when will the bleeding stop which once again is based on emotion, and when will the mending begin. Only time will tell.
Options---
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We remain in a conservative mode on new entries into options, with conservation of capital being of prime importance at this time.
Spread Test - Two way win strategy doing well---
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Once again, we had a good week in the testing of our two way win spread play and our confidence is growing. Two way win means if the underlying stock goes up you make profit, if it goes down you make profit. So with this play, let the market do whatever it wants. The only thing we do not want to see is the stock making a small move. But even then losses are minimized. By now, all of you who have been following this process, understand the nature of the play. Now some words from Tony about this week's action.
This play is becoming very exciting because it gives the trader a chance to make a huge profit and minimizes losses which really stacks the odds in the traders favor. Now to be fair, much of the wins are only $400 to $600 while the losses are break even to -$250. But if we can produce more wins than losses, the profits substantially dominate and that is exactly what we have been doing - producing more winners than losers. And, then we have those plays that produce $1,000, $1,500 or more really adding to the excitement. Plus, this is a play that lasts less than 24 hours meaning your dollars are invested for a very short time with a great return and minimal risk.
We mentioned before that since this is the end of the quarter, we only get a few plays a week, but earnings season starts all over again in two or three weeks so we will be very busy once that happens. This week we had two plays, KMX and BBBY. KMX made a nice $400 profit for us. However, we had a number of testers who wrote in saying they made over $500 after commission and they made the trades for real - not paper trading. Great going to those testers!! Now that is on 5 contracts per option so if one had traded 10 contracts the profit would be double and so on.
The other play was BBBY and it only made $25. Some testers did not do as well on this one and some did slightly better. It comes down to how you leg in and out of these options. This can be a creative and fun process. Go to our site SplitMaster.com and click on Past Results and then click on Past Spread to check out the action.
What makes us feel even better about the picking of these plays is there were a number of plays we could have posted but for one reason or another, they did not test well. So we nixed the play. The good news ----- we were 100% correct not to make those plays. NKE for example made a very good move of over $4. Our analysis told us that the options just were not positioned well and it would be very hard to make a profit. What happened? Although the stock made a big move, the play would have been even at best. So we were right on. I don't know if we will always be 100% accurate but I have to say again that our confidence is growing.
Soon, we will discuss with the tester as when we will be ready to go live with this strategy along with a few other important decision and let you know what we come up with.
To be continued.
Chart Indicator---
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The CI remains a shining light to us in the field of trying to get some indication of near-term market movements. Last week we warned that the Nas seemed overbought and our CI had the largest spread of the year between the high last Friday and our CI break-even line. In addition the Nas had been up many straight days in a row. Monday saw a change in the Nas of less than a point and on Tuesday came a sharp decline, with another one following on Friday. We again stress how well our CI is working. This might help in investment planning and it certainly is an indicator we believe in--proving itself time and time again. Team members can see the figures at the top of the Big Dipper page, along with other statistics. Also, a quick note that the spread in the chart went from 73 on Friday 9/15 to 38 on Friday 9/22.
Stock Split Comments---
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We expect the new split announcements to start rolling in during earnings season. Sectors of business seems to be increasingly more important than usual, and we see that when one sector falls into or out of favor, almost all stocks in the sector get affected---and that means that it could be to the upside or the downside in direction.
The Economy---
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Here we go again. As we have mentioned several times in the past, the markets can always find something to be fearful about. Interest rate concerns were ruling the emotion of the market, but this past week the Federal Reserve didn't raise the rates, so that was good. However, the fear factor moved to the direction of the economy, so we quickly switched from worrying about inflation and interest rates to worrying about the state of the economy. The loud whispers are questioning whether it is slowing down more than expected. The problem lately is that there is too much emotion in the market (in our opinion) and not enough attention is being paid to earnings and value. Now we are talking about companies that will do well even if the economy slows down. Those are the future potential splitters, too. If the value is there, the markets will catch up at some time --or else there is no need for the markets. We all know that the reason we have the markets is that there is a divergence of opinion. When one side of an opinion has the pendulum swing the furthest from the bottom of the arc, we see illogic moves, again up or down in direction. The markets get oversold and overbought. The good part about splitters is that when reason is anywhere near "normal" and value means something, then we see splitters outperform the market. To us, we want fundamentally sound companies to see their market prices appreciate more than companies that are not able to do as good a job. While we are definitely seeing oil prices declining (as they should based on our observation of inventories that we have pointed out to you in the past), that is not to say that energy related companies are going to stop making a profit. No, there seems to be a long way for oil prices to drop before that happens. It just means now that energy companies are not going to be making obscene profits like they have been, but they are going to do very well at any price around these levels. We might be concerned if oil dropped below $50/barrel, but we are far from that price at current levels. Of course, as we have mentioned many times, a drop in gasoline prices means that more $'s can be spent on other areas of the economy. That will be good for all of us.
Today's Thought---
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"You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face... The danger lies in refusing to face the fear, in not daring to come to grips with it... You must make yourself succeed every time. You must do the thing you think you cannot do." - Eleanor Roosevelt
Mike
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