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| Author: Mike Celeste | | Editor: Tony Ponzo | | October Circulation: 7596 |
Highlight of this past week:-- DRQ--closed out in the Basic System at a gain.
In this Issue---
SplitMaster Basic System---
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It feels like we are caught in a traffic jam when looking at stock splits. Not much seems to be getting thru, except for splits of 5-4 or 11-10. With a number of stocks hitting 52 week highs, it seems to us that there is going to be split announcements coming at any time. In the meantime, DRQ closed out this past week and was a winner--not much, but a winner, and it did go for a higher price than it closed out at a day earlier in the Big Dipper program.
Big Dipper System---
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Since there aren't plays currently in the Basic System, we don't have any on the list for the Big Dipper. Since this is a very good winning system, we look forward to getting more available.
Options---
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Again, as there are no Basic System plays, we don't have anything at this time for options. This week we will be checking out the SPX play. However, I have been watching the options of stocks coming out with earnings, and see that the market makers are definitely at it again. Tony has also been keeping track of them for the Spread plays and has more to say in the section of the newsletter re the spreads. What is teeth-gnashing to us is to see time value in options being almost totally wiped out right after the earnings are released. The one that topped others was to see a stock drop 2 points and the PUT and the CALL both dropped in price also. Normally, of course, if a stock price drops, the PUT price should rise. But to see both of them fall is beyond belief. On top of all that, both the CALL and the PUT were both undervalued when using the option calculator. We have spoken to former market makers who admitted that they just put it to option traders whenever they could--and here is a case that boldly stands out. We have seen others move 5 and six points and the options hardly move. Google was a wild one, too, this past week. It usually is, but what a gamble that one is. On Thursday, with one day only to go to expiration, the price for the October 420 was at 15, when the stock was about 427. That meant the time value for that one day was 8 points. The Nov options had over $20 of premium. Well, the stock opened at 458.99, so it ended up actually making a profit---but who in their right mind can make the play and try to overcome a 20 point time value on each option? Not us, I can tell you--.
Spread Play---
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The number of plays to choose from really increased this week as we suspected they would. We had two plays a day and could have had even more but we did not want to overwhelm the beta testers. The results were pretty mixed with some winners and some losers. You can check out the action by going to the Past Results section of our site and clicking on Past Spreads.
For some reason, this week had a lot more frustration in the actual trading. The market makers were really unfairly cutting the premiums in a couple of plays as Mike mentioned above. This made it hard to get the profits that we wanted. Also, a couple of the plays moved around so fast it became a game of chasing the option price to sell. So, we are back at the drawing board trying to come up with ways to keep this play easier and more consistent. We will keep everyone posted.
Chart Indicator---
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Last week we pointed out that the CI seemed to be in dangerous territory, with the spread between break even and the hi on Nas being 86 points. Tuesday saw a pretty good decline in Nas and it did end the week at a lower price for the week. Remember this is a very short indicator, maybe a day or two---as well as showing whether we are in positive or negative territory overall. In regard to that, we point out that we have been in positive territory since Aug. 16--and that was 242 Nas points below the close this past Friday, or a rise of 11.4% in a little over 2 months. We like this indicator--and a reminder that it is on the Past Results page of the Big Dipper. In addition, we have added a new item to that listing. You will now see the spread between the break-even and the high of the Nas on each day. For instance, it shows a spread of 49 for Friday, down from that 86 the week before. That could indicate that an overbought position has been relieved of some of the pressure.
Stock Split Comments---
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We have to say that split announcements continue to be sparse, as mentioned in comments on the Basic system. It seems to us almost incredible that there have been so few lately---but the odds seem to be that this scarcity of split announcements is going to end soon. We know we have been expecting it earlier, but this is getting fairly ridiculous. Good earnings are the precursor to split announcements and we continue to believe that will be the case.
Pattern Plays---
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We mentioned recently that we have posted the retailers that have done well for us in the past and thus seem to have a pattern of rising at this time of year. Have you been following them? They are not official plays, but some members do trade them. Right now they are all looking good, with WMT, on the secondary list, having been lower this past week at one time, and now just a bit above the 1st trading price of October. We have a way to go in time, but you might want to continue to watch their development.
The Economy---
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Probably the biggest news this past week was that the Dow finally hit the magic 12,000 number, and closed slightly above it to end the week. We had mentioned earlier that the decline in the real estate market could mean that money from that sector could be turning to the stock market. The logic is pretty good that this could be happening. Add on the fact that if you factor inflation into the Dow since it hit its last high in 2000, we have lots of room to go upward. The flood of earnings reports have started to come in and it appears that there is a pretty even distribution of winners to losers among the big names. At this point we don't see any real dark clouds on the economic horizon, outside of the housing and energy sectors, which had their huge run to the upside and we now see declines from them, as we have been harping on for months. The lower oil goes, the lower gasoline goes, and the more that can be spent on something else by consumers--you and us. I don't know about you, but every day I drive by a gas station and see another lower price, I give a little "hurray !".
Today's Thought---
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"October. This is one month of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." ---Mark Twain
Mike
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