|
| Author: Mike Celeste | | Editor: Tony Ponzo | | November Circulation: 7362 |
Stat Sheet Week Ending November 4th 2006
|
| Changes | Weekly | October | Year to Date |
| Indexes | Points | Percent | Points | Percent | Points | Percent |
| Dow | -178.0 | -1.5% | +412.0 | +3.5% | +1.0 | +11.8% |
| S&P | -13.0 | -0.1% | +42.0 | +3.1% | +116.0 | +9.3% |
| NAS | -21.0 | -0.9% | +109.0 | +4.8% | +126.0 | +5.7% |
| Splitmaster Strategies |
| Basic | ...................... | +1.4% | | +15.1% |
| Big Dipper | ...................... | +9.0% | | +28.8% |
| Option Calls | ...................... | -53.0% | | +70.0% |
| Option Puts | ...................... | +89.0% | | +154.0% |
|
Highlight of this past week: New splits --- announcements are finally coming in.
In this Issue---
SplitMaster Basic System---
*****************************
Altho we didn't have a big gain in the Basic for the month of October, it was to the plus side and enabled us to stay ahead of the market averages. Being on the plus side is the most important factor, but we try to beat the other major indexes as well. There is no reason we can see to change our belief that this is going to be a good quarter, and that the number of plays will increase our possible net returns.
Big Dipper System---
************************
Our potential Big Dipper list is increasing and we are happy to see that. So far, more 3-2 splits have been announced than 2-1 splits, but even tho the 3-2 splits don't appear on the Basic list (historically they don't do as well using the Basic criteria) they do provide decent returns if they hit the Big Dipper target prices.
Options---
************
This past week we had new options to consider. We felt they were overpriced on the original buy date, so we priced them at what we thought was fair value. It paid off, for the CALLs did drop about $1 and they were picked up. The PUTs didn't hit the target buy price to sell/write them, but we think it was because of inactivity. The stock did drop in price to a point where the PUT should have been triggered, IF there were orders in. Writing PUTs to open has always been less used by team members, and we think that the price would have been hit if there were orders in. We can't keep track of every stock and option for every minute of the trading day, even with alerts, but even so, the executed price did get within cents of our target price. There is the possibility of losing more than 100% in writing a PUT, versus not losing over 100% if buying a CALL, but the theory of stock splits advancing in price has proven out that writing of PUTs as being a net positive trade over each year that we have had these presented. Last month we had only one CALL and it was a loser, so it dragged down the yearly total quite a bit---but that is the way the system is set up and we accept the bad with the good. At the end of the year we take a look and see how we did for the year--and adjust accordingly. This has been an unusual year in all the markets, not just in stock splits. At this point we are ahead and we are eager for future events to unfold.
Comment---There was a very unusual occurrence lately that we would like to mention. It involved a potential Spread play, where we were Beta testing buy both CALLs and PUTs in stocks one day ahead of earnings releases. This particular stock was PPDI. The unusual part was not on earning's release day, but the days that followed. Earnings were actually not that bad, according to the news page for the stock. The stock then proceeded to go down 11 straight trading days. This past Friday it finally went up, but that was because some analyst saw this decline and gave the stock an upgrade. Who knows what would have continued to happen without the upgrade. Not only 11 straight down days, but there was no news, absolutely none, on Yahoo Finance, to account for that happening. I really defy anyone to send me a stock that is going to go down for 11 straight days. The odds of that happening have to be enormous. If a person held on to the combined options they would have made a very high return on the PUT, of course, and it would have been enough to more than cover the total cost of the CALLs, with a good profit left over. That was not the play, but someone probably bought the PUT and rode it out---pure luck on their part, but luck is all part of this investing game.
Beta Test---
************ *******
Although we discontinued the Spread Beta Testing with our testing members, we have continued testing internally by making changes, testing, making more changes and testing again and again. Our spread test has now evolved into a one option play per pick which definitely has some advantages. The option can be a CALL or a PUT. What we are testing now is riding the momentum of the direction a stock goes after the earnings has been announced. If the stock goes down a PUT would be traded, if it goes up, a CALL would be traded. Before a trader would execute a play however, there would have to be a certain amount of movement one way or the other. But the basic idea is, if there is a certain amount of momentum after the announcement, a trader should be able to jump in at a strategic point and ride the direction and get out at another strategic point. Usually the play is only a couple of hours long. How do we determine the strategic in and out points? By studying the history of each stock that turns out to be a potential play. Like I said, there is a lot of criteria to determine whether or not a stock is eligible (our job) but this play, so far, has been much more consistent then the spread.
How consistent? Out of 21 plays we have only lost 3 times. And some of the winners have been in the thousands on just 5 contracts. Further, after each loss we made an adjustment that would have turned that loss into a profit if we had that criteria prior to the trade. So, we are still cautious about the play and are not ready to start testing with the members yet, but we are feeling pretty excited again.
We'll keep you updated and start telling you more about the details - good and bad. And testers, if we keep getting these kind of results this coming week, we will bring you back into the testing. Stay tuned.
Chart Indicator---
*******************
At the close of this past week the Nas closed just about dead even with the break even line. The overall CI is still above that because it takes some days to verify a change of direction. We do point out that the spread above that break even line is decreasing. The Nas has been down 3 straight days and it usually rallies after that---but--one of those down days was down only -0.33 points, so it wasn't really definitive.
Stock Split Comments---
****************************
We think we are seeing a fresh beginning in stock split announcements. There were more new announcements this past week than the week before, relative to our plays, and that is what we have been expecting for quite a while. It certainly isn't a flood, but an increase is an increase and a step in the right direction, we believe. Even tho the markets seem to be pausing due to economic reasons, we continue to look forward to more split announcements. There are just too many companies doing very well, and their stock prices are reflecting it. We keep repeating that generally bad economic news doesn't affect every stock, for it is a known fact that what is bad for one company is good for another. That helps keeps our supply of splits coming, year after year, no matter what the general market does. Granted there are fewer splits in bad times, but always enough to make it worthwhile, at least for the last 31 years that we have been following data on splits.
The Pattern Play Watch List ---
******************************
You can take a look at the October monthly results for the retailers that we listed on both the members and non-members (Past Results) pages. All were at a profit. We do recognize that the retailers slid later on in the week, mostly due to WalMart's news release being a bit on the weak side. The consideration here would be whether to close out after one month, or extend it into Nov. and then if to extend thru December. We will post the results as we go along and you can see what would have been the better decision. At any rate, October was a very good month, overall, for the stocks we posted--as they were for the previous year, also.
The Economy---
*****************
The economy has tilted to more of a recognition that we are slowing down and upcoming earnings are going to be put to the test. More and more companies have been talking along those lines. On the other hand, not ALL of the companies are in this position. For various reasons there are still many that continue to shine. We like that. The DOW declined every day this past week as this news was absorbed. Nas was up Monday and Tuesday, but succumbed to the downside the rest of the week. Again there was mention of the affects of the slide in the housing market, but we don't want to dwell on the slide, but we do want to mention a little bit about how these things work. We think most of you can relate to this theory. When someone decides to sell their house, what do they usually do? They usually spruce it up to make it show better. They spend money on the house on things they have been putting off, but would make the home show better when it is offered for sale. That is a help to the economy--and the record inventory of homes for sale would suggest that a lot of money went into the economy when they spruced up their houses. And we're not done yet, either. I've seen this many times--a house is sold and the new owners want it fixed to their own likings, so they replace with more new things. Another shot in the arm for the economy. We have 2 houses on our street that sold recently and the previous owners had spend a lot on the house just before selling it. Both new owners came in and put in extensive changes to each house. One of them even gutted the entire house--and believe me it was in prime condition in the first place. Another neighbor is an architect and he tells me that even with the slowdown in the housing market he is busier than ever. Part of that is due to the above mentioned happenings. Anyway, there is always something good coming from something not so good.
Today's Thought---
*****************
The secret of joy in work is contained in one word--excellence. To know how to do something well is to enjoy it.........Pearl S. Buck
Mike
The Splitmaster.com information system delivers email to addresses provided by subscribers. To Subscribe or Un-Subscribe go to our Newsletter page.
