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| Author: Mike Celeste | | Editor: Tony Ponzo | | October Circulation: 7596 |
Stat Sheet Week Ending October 14th 2006
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| Changes | Weekly | Year to Date |
| Indexes | Points | Percent | Points | Percent |
| Dow | +111.0 | +1.0% | +1.0 | +11.6% |
| S&P | +16.0 | +1.2% | +118.0 | +9.5% |
| NAS | +57.0 | +2.5% | +152.0 | +6.7% |
| 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:---DRQ---hit Big Dipper target sell price and closed out with a good profit.
In this Issue---
SplitMaster Basic System---
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We are getting ready to close out DRQ on Monday and while it was also profitable in the Big Dipper, it has made a little more profit (if it opens at or above Friday's close) by holding on in the Basic, while selling in the Big Dipper. Of course it could have gone the other way, but they are two different systems, and we play them according to the strategy rules.
Big Dipper System---
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There were two Big Dippers that closed out at profits this past week: PCU and DRQ, with DRQ hitting the target sell price just before sell date and PCU just missing it, but still making a nice 6.6 point profit. The frustrating part is that the next day after sell date on PCU it did hit the target sell price and the 2nd day it kept rising and would have shown an exceptionally good profit. On the other hand, we did get a small benefit on DRQ, with the opening price being about 40 cents higher than our target sell price, and all put together we saw a good solid 7.11 profit. In addition, DRQ is still on the Basic list (see above comment) and is at a higher price. Our chart reading was pretty accurate, too--we sent an alert on DRQ at the close on Thursday, saying the chart looked like the stock could run another point if it broke just above the close, which was cents from the target sell price. Those that held on to the stock saw it do exactly that, and more, by rising well over $1 above the target sell price. And don't forget that means over $2 on the pre-split price. We posted the target sell price even tho it was lower than what we projected from the chart movement, as that was the official call. We want to be sure that we give alternate suggestions at times, but we don't mark it as a sell point unless we state it in advance. Some services quote the high of the day on their sale points and the low of the day on their buy points, but if anyone can tell me how to determine the high or low of the day, at the exact time it is happening, they are better than anyone I know and can get rich in a big hurry. Wait a minute--it did happen---of course it has been determined to be illegal, but it was done. Remember the people that were allowed to buy in the after-market, but based on the closing prices? Yep, if a company announced great earnings, for instance, after the close, these people were allowed to buy at the closing price--at the same time they were watching the after-market prices rising dramatically. On the other side of the fence, if there was negative news announced after the market closed they were allowed to sell at the regular closing price. Talk about getting rich quick !!! Match that technique up with the ongoing option scandals hitting so many companies whereby options were backdated to just before stock prices took a jump and you can see where the expression "The rich get richer" is in full play. Of course there are also the rich who get richer in honest ways. I'm in no way trying to put down honest progress.
Options---
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Some of the team became non-conformists and bought calls on the Big Dipper stocks, even tho we didn't post them. Good for you. They showed handsome returns. We did have a winner and loser based on our Basic system play, with the winner coming in the WRITTEN PUT being bought back to close. The loser came in the CALL, which 2 days later was at a profit--but we post the loss, as that is the day we posted as the sell date. As we move along in the 4th quarter we keep hearing about how good the 4th quarter usually is, and we agree with that. Now, with earnings season coming upon us, we will have an extra opportunity in options, we believe, by utilizing our developing Spread system. We're getting pretty antsy waiting for this to come, as we remain confident in the 4th quarter bringing good things.
Spreads---
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We posted no plays for this week. But as mentioned many times before, the earnings announcement season really kicks in next week and as we look a head, there are tons of announcements posted. We think we will have more than enough plays to choose from starting Monday or Tuesday. We are anxious to see how next week turns out. For all of our beta testers --- be prepared for action.
Chart Indicator---
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As we have explained before, we have more historical data on our Chart Indicator when the market gets oversold, indicating a possible buy point than when it might be overbought, indicating a sell point. Keep in mind that the CI overbought or oversold signal is a very short term indicator, More longer term is when the CI goes positive or negative. For instance, the CI went positive on 8/16 and is still in a positive position. Now, tho, we see the spread between the break-even line and the daily high on Nas at 86 points. Over 70 has been overbought at other times this year. Even comments on CNBC have said that---but--we often see that the more people say something, the more it can be wrong. This time, we go along, and would not be surprised at a daily crack in this strong upside move in the market averages---maybe just for a day, as we said, but it certainly looks like a dangerous area.
Stock Split Comments---
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Another week has gone by with no split announcements at all, let alone those that need to make our criteria. We think that this is going to result in what is called The Rubber Band Effect. The more you stretch out a rubber band, the greater the snap when it happens. The longer we go without new split announcements, the more that will come out at some point. There are just too many companies with good earnings to continue to go without a stock split announcement. The gates will open.
The Economy---
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We have dwelled on a couple of major points in the economy and believe most of what we have been talking about has come to be. We are referring to 2 sectors--Housing and Energy and specifically gasoline prices as related to oil inventory. In the past we watched housing prices go up to levels we thought were mathematically unsustainable. At present time we are watching prices start to decline--not level off for a "soft landing" as most "experts" predicted. Here in California we saw San Diego lead the dramatic rise in house prices and now we are seeing that same area showing declines over last year at the same time---not to mention that prices have been falling for a number of months from the high point. We feel that the same thing is happening or going to happen throughout the great majority of other previously hot areas.
Going along with that we take a look at what is happening in the foreclosure field. A new report came out by Rodney Tanaka, a staff writer for our newspaper. In it we see the following: "California saw a 19 percent increase in foreclosure activity, according to Realty Trac's September 2006 report....The rate of foreclosures for CA is 1.3 times the national average....The state's foreclosure rate has risen more than 40 percent over the last two months." At the same time the Federal Reserve stated "there was a distinct slowdown in housing with the majority of the Fed's 12 regions reporting lower asking prices for homes, a softening in sales and rising inventories of unsold homes." I chuckle at the term "softening in sales" as out here in CA it is more like emergency braking on the number of sales. So, put together, it seems that our past predictions are pretty much coming to fruition. We feel the future holds more of the same. That ol' pendulum has not swung as far as it is going to, we think.
OK, does that have anything to do with the stock market? You bet it might---There were many people that were speculating in the real estate field and many have pulled out of that market. What are they going to do now, or what have they been doing? Let's say they were able to see the light (could be from reading this newsletter) and pulled out with good profits. Hardly anyone stops trying to make money, so what could be a logical step for them to take? Yes, indeed---the stock market. We have been saying all along that there were tremendous values in stocks and now we see the market averages making new all time highs (Dow) or recover highs (on the part of Nas and S-P). Let's face it, the earnings expectations for the 4th quarter are not quite as good as for earlier quarters--good, but not quite as good. To an investor comparing the real estate market as an investment or the stock market, it doesn't seem there is much question--the stock market is a better looking pick.
What about other areas to invest in? Commodities and energy have seen their run to the sun slow down and reverse somewhat, so they don't look like competition for stocks, either. In the gasoline field we kept harping that inventories of oil were up substantially all during this run-up in oil prices. At some point they either run out of storage areas or they have to build more---or they can lower the price, which is what we thought was the logical move. It has come to pass, with some areas of the country even reporting that gas dropped below $2 a gallon. Here in our area it isn't that low, but at $2.43 for regular, it is almost $1 lower than the highs set not too long ago--and the "experts" were predicting $100/barrel for oil. With those rising inventories, we thought it would never happen. It might--but at some distant point down the road. Right now prices are still falling, so we don't think we have seen the lows for gasoline.
What does this mean for the economy? Again, our past comments stated that if you have to pay those outrageous prices for gasoline, you don't have $ for other things--unless you borrow. Now that prices for gas have dropped substantially, we see that retail sales in other areas are looking pretty darn good. Higher sales numbers usually means higher profits and higher profits usually mean higher stock prices. Higher stock prices usually mean more stock split announcements, and history says that is a good thing for investors if they use timely investing tools.
OK, you say, so you agree, but you also say that the Dow is at an all-time high, can it go higher? One of our good team members, Steve from Paradise, CA (a real city--sounds nice, doesn't it?--Not the city in the movie "Trapped in Paradise" with Nicholas Cage, --altho that was a delightful movie you might want to rent and watch around the holidays) wrote in to show us a report about the individual stock prices of the Dow stocks the first time they made a closing hi a few days ago. A very interesting report that gives fuel to the thought that there can be room for further advancement. It was written by Michael Nystron, Tuesday, Oct. 3, 2006 and can be viewed in its entirety at http://www.bullnotbull.com/archive/stocks-6.html
The part that caught our eye said---
"But look beyond the headlines, and you see a different story. While the Dow hit a new high today (Tues.), not a single of its component stocks did. Interesting, isn't it? The index is at a new all time high, but 70% of its components are down 20% or more. The Dow Jones Industrial Average is composed of 30 stocks. Of these, fully one third of them- 10 stocks - posted their all time highs last century:.....KO, DD, MCD, WMT, HON, IBM, PFE, VZ, T, and MSFT. Ten stocks made their all-time highs in 2000: ...C, JPM, DIS, AIG, GE, HPQ, HD, MRK, GM and INTC.
Only 7 stocks made their new high in 2006, and of those, only 3 of them are within 5% of their new high today. 21 of the 30 Dow stocks-that is 70%, folks!-are down 20% or more." He goes on to show the chart of each Dow Stock."
Thanks for sending us that, Steve---Having read that, it opened our eyes to the fact that it could well be that there is still lots of upside room for the market to go. Combine this with our earlier newsletter report about the Dow being so undervalued, and we think you can make a good case for expectations of higher prices to come. Naturally, expectations are not always met, but it seems to us that the logic is there.
Special note on last week's mentioning of the Pattern stocks in the retail field. Altho we said that the list could show more, we neglected one we definitely wanted on the list---SHLD. Sharp-eyed Phil, from Toronto, Canada brought it up to us--another thanks--to Phil. It first traded in October at 158.70. To make it easier for you to keep track, we are going to post the opening prices in October for those stocks and show them on Past Results, Past Pattern plays--FREE for all to keep track of. They aren't really in the Past, but that section is the free section and want everyone to be able to keep up on them. I will try to get them posted there this weekend.
Today's Thought---
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A man is not idle because he is absorbed in thought. There is a visible labor and there is an invisible labor.....Victor Hugo
Mike
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