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| Author: Mike Celeste | | Editor: Tony Ponzo | | November Circulation: 7362 |
Stat Sheet Week Ending November 11th 2006
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| Changes | Weekly | Year to Date |
| Indexes | Points | Percent | Points | Percent |
| Dow | +122.0 | +1.0% | +1.0 | +13.0% |
| S&P | +17.0 | +1.2% | +133.0 | +10.7% |
| NAS | +59.0 | +2.5% | +191.0 | +8.7% |
| Splitmaster Strategies |
| Basic | ............... | +15.1% |
| Big Dipper | .............. | +28.8% |
| Option Calls | .............. | +70.0% |
| Option Puts | .............. | +154.0% |
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Highlight of this past week: Splits announcements finally increasing. Keep watching for buy signals.
In this Issue---
SplitMaster Basic System---
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There is definitely a stirring of the split pot. The split announcements are starting to roll in, not in droves, but a nice steady increase. We even had 2 in one day this past week (that qualified), and that has been a rarity. We are almost at the half-way point of the month and we see that we still are looking forward to 3 more splits of 2-1 or better, and 2 splits with a 3-2 ratio that will be qualified to be on the potential Big Dipper list.
Big Dipper System---
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We feel that we should remain on the conservative side with regard to the price drop level that triggers our target buy price in the Big Dipper system. Our figures don't show that we have a solid reason to raise the dip level, just to get more plays. Right now the market is pretty solid as far as not seeing volatile price moves (excluding earnings reports--but see the comments about that sector.)
Options---
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I have to admit that I couldn't resist writing a PUT for my own personal account. STLD probably could have been a play earlier if people were interested. We still feel that this is an overlooked area, and it can be a very rewarding system, for those interested in looking for income. We have written about this in detail before, but every once in a while we want to bring it up as a reminder. Anyway, I wrote some Dec. 55 PUTs in STLD on Friday. There is one very interesting point that I would like to mention about that particular PUT. Before putting in my order I kept checking the Option Calculator on the CBOE and found that it was indicating a price about 15 cents lower than what was being quoted by the market maker. Since our system calls for writing/selling the PUT, it made me wonder why it was out of whack. Near the end of the day I decided to go once again to the option calculator, but this time I was looking past this weekend. Those of you that are familiar with the calculator know that you can plug in a price and number of days until expiration. So, I put in the current price and cut 3 days off the time until the Dec. 55 PUTs expired. Guess what?--an easy guess at that--Monday's PUT value was the same as what it was being quoted on Friday. It appeared to me that our old friend, the market maker, was making sure he was going to come out all right for the time frame counting the weekend. One final note on these PUTs. Our reading of the chart on it said that it would seem to be a very good buy just in case the stock dropped to that level and was put to me. Team members can note that if it was put at 55, that is lower than the Big Dipper target buy price. Therefore, if we are right that the BD price is good, then this would be even better. There you have it, the reasoning behind the move.
Beta Test - This week's results---
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This week we tested the new announcement momentum play by making 8 trades. We could have made 11 trades but missed 3 trades by being a little too conservative with our limit orders. Too bad because those three trades would have given us a nice profit and increased our winning record. However, we still had a great result on the 8 actual trades we made.
Of the 8 trades two lost and 6 won. The total results after deducting the losses, amounted a net gain of about $1,825 which represents a 53% gain on investment. This is on a low number of contracts so you can see that if number of contracts were doubled it would have made about $3,650 on these plays. Triple the number contracts and the profit numbers start to get very interesting. Remember, we mentioned before that these were all short plays that last from one hour to one day (in and out in the same trading day). So the play is continuing to prove to be interesting but we still need to test certain aspects to make the play easier to execute. Also, one thing we are a little worried about is, on smaller volume contracts, what would happen if we had a large number of members making the play at the same time? Many plays have option volumes that number in the thousands. We do not worry about those. It is the options that only trade a few dozen contracts that we are concerned about. In those cases, it may be necessary to trade the actual stock instead. The advantage of the stock is it is much easier to get in and out of the play and the actual dollar gain would be more. The disadvantage would be that it would take more capital to make the trade. More on this as we progress.
Chart Indicator---
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Last week the CI had moved very close to the Positive/Negative break even line, as mentioned in the last newsletter. We also pointed out that the Nas had been down 3 straight days ending Friday, 11/3, and usually there was a rally at that point. How did that observation turn out? The next day, Monday, there was a huge rally in the Nas, 35 points (equal to 175 Dow points) and the rest of the week ended with 4 up days for the Nas. That meant a weekly gain in Nas of a very large 2.5%. Needless to say, the CI is now in a much more comfortable position. Remember that the CI is a tool that can be used in your investment program outside of stock splits.
Stock Split Comments---
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We have mentioned that the number of stock split announcements is steadily increasing. It is also of interest to us that there is a better mix of sectors involved in these new split announcements. At an earlier time the large majority of splits were in the energy and commodity fields. It's sort of like being careful about not putting all your eggs in one basket. We like it better when the splits come from a wider assortment of the economy.
The Economy---
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This past week was a pretty exciting one because of the elections. It is not usual to see such a dramatic shift in the political winds and the after- effects are interesting to watch. Of course, the results of the elections won't show measurable results for quite some time as Congress doesn't change until after the first of the year. What especially caught my eye was something that did happen immediately after the election--at least out here in California where we live. There had been rumors before the election that gas prices were dropping only because of the election and that we would see increases right after the election. That might have been watched closer here in California because we had a ground roots presentation of a proposition for the CA voters that was directly aimed at the energy industry here. The vote was whether to put a tax on energy that was supposed to fund work toward alternate sources of energy, so we wouldn't be so dependent on foreign sources. The energy companies put up huge amounts of money to urge the voters to defeat this, saying there was no guarantee that the money would be directed properly and that prices of gas would actually be driven up if the proposition passed. It was narrowly defeated. The very next day after the election, gas prices took a big jump. Now they had been dropping a cent or two at a time. As usual, the increases were far larger in size. It was about 6-7 cents the first day, and by the end of the week the prices had gone from a low of $2.21/gallon for regular up into prices above the mid $2.30's. Was there a conspiracy? I don't know anything other than we saw a big price increase right after the proposition election went the way the energy companies wanted it to go. And oil prices remained pretty stable during this time. Something to talk about at your next party, maybe.
A special thanks to all of our troops and veterans on this day of observance. We appreciate their sacrifices and you might want to join Snoopy and Bill Mauldin for their annual toast of root beers. (Snoopy fans like me know he quaffs a few root beers with Bill, the outstanding cartoonist of WW2, every Veterans Day--and this year isn't any different if you take a look at today's comics.)
Today's Thought---
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What the mind can conceive and believe, it can achieve........Napoleon Hill
Mike
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