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Author: Mike Celeste Editor: Tony Ponzo December Circulation: 7343

Stat Sheet Week Ending December 2nd 2006

ChangesWeeklyNovemberYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow-86.0-0.7%+105.0+0.9%+1.0+13.8%
S&P-4.0-0.3%+19.0+1.4%+149.0+11.9%
NAS-47.0-1.9%+46.0+1.9%+208.0+9.4%
Splitmaster Strategies
Basic......................+7.2%+22.4%
Big Dipper......................+11.8%+40.6%
Option Calls......................+105.0%+175.0%
Option Puts......................+71.0%+225.0%

Highlight of this past week---STLD CALLs---made a 76% profit on the Basic System purchase--it also made 130% CALL profit when it hit the Big Dipper System. (Purchased two different times)

In this Issue---
SplitMaster Basic System---
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It did feel good to get back on track with a significant win on STLD this past week. The very satisfying part to me was the fact that STLD was able to overcome 2 downgrades at different times during the time it was in play. The first time enabled us to get in on it as a Big Dipper and the 2nd time it moved it down, but it was able to recover a good portion by sell date. To us, that is a good indication of the strength of splitters. As we continually say, splitters do so in large part because the company is doing well. Strong companies can overcome downgrades--even tho sometimes they are not given enough time, but value does win out in the long run.

Big Dipper System---
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We don't have any of the 5 current possibilities very near the BD price, but the quivering of the market this past week could move one or more down into the BD buy range. The closest one is about 2 points away from the target buy price, with another one about 3 points away. With a stiff downward move in the general market, we could see a hit. Remember, options are also a potential play when a stock hits that BD target buy price.

 Options---
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We saw that November brought us back up after the CALL loss in October. STLD became a play twice during its run. Once when the CALL was initiated when the Basic system introduced it, and the 2nd time when it hit the Big Dipper buy price. Both times were nicely profitable, with the BD purchase showing a bigger return. This doesn't always happen, but the theory is that we sell the BD purchase at a suggested level, but let the Basic purchase run until its posted sell date (usually, but sometimes there is a huge run-up and we close even the Basic out early--we would like to see that happen more often, right?) This time STLD did rise higher by the sell date of the Basic play, and so we had 2 profitable plays on the one stock. It's nice to see the theory work.

 Beta Test - Taking the next step---
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While we only had two plays in our announcement momentum testing this last week, they were both profitable. In fact, the last 6 out of 6 plays have been profitable.This is the time of the quarter that the announcements slow down. But, we still expect plays to come through and based on last quarter, we should have some very nice winners left in this quarter. And remember, this momentum play can be based on a down movement, in which case we buy the PUT or on an up movement, in which case we buy the CALL. So the bottom line with this play is we do not care what the market does as long as the targeted stock is on the move in one direction.

We have now taken it to the next step. Today we posted all of our plays on the site. For now, they are under the Past Spread plays. We will soon change the name to reflect the announcement play. In fact, we may even call this play just the momentum play as we can visualize other reasons for momentum moves other than the quarterly announcements. That is still to be determined.

Go to the Spread Past page and take a look. Out of 23 plays since we started the testing in late October we have only had 4 that lost. Further, the average loss was only $187. This is based on 5 contracts for each play. So if a trader traded 10 contracts or 2 contracts, you can see what the numbers would be.

The next step will be to open this up to all of our testers. We will first send an explanation page so traders understand how the play works. Testers, expect this to happen within the next two weeks. If the testers like the strategy, we will then post it as an official strategy.

If you have any questions about this play, drop us an mail.

 Chart Indicator---
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The major indexes had a bad week, led by the Nas decline of 1.9%. Our CI dipped close to the Positive/Negative break even line, but has held above it, so we are still in a positive trend. If team members follow the stats on the Big Dipper page that refer to the spread in the CI, you saw that it reached the very high level of 86 (70 being a high range) a bit earlier in November. We keep pointing out the value of this indicator as a tool for your other investments. It could be worth the price of a subscription just to have this tool, and use it for other general investments. During the week, after the warning from those high spreads, the spread dropped to a low level of 9. Yep, from 86 to 9 in a short time. And in that time we saw the indexes fall from their highs. If we use the Friday close as our example, we see that the spread at the close was only 3. You can see we are flirting with that negative range, but after all, the CI has been positive since Aug. 16--a very long run. On the other hand, we are in the 4th quarter and you know that is a strong quarter. Maybe emotion on the positive side will rule out over weaker economic reports.

The Economy---
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We are seeing red flags being raised on the economic front. The confidence report was weaker than estimated. Manufacturing turned down for the first time in 4 years. Housing construction was down for the 7th straight month, the longest on record. The oil report showed a drop in inventory--BUT--the inventory is still considerably higher than at the same time last year. Gasoline demand showed a steady decline, dropping each week during the month of November. We mentioned in another letter that here in CA we were apparently snookered by a drop in gas prices before the election, only to see immediate increases after the elections. We are now up above 20 cents higher than the pre-election price. I'm visiting a sick relative in Oregon now, and the prices up here are higher than CA---ranging from $2.53-2.56/gallon, while they were in the mid $2.40's range in CA when we left at the beginning of the week. The markets are definitely getting a bit jittery, as shown by the declines this past week, with Nas leading the way.

The volatility index was under 10 just a little bit ago, and it has risen to 11.66 at the close on Friday. That is still a low number, but it is rising. High volatility is in the mid 20 range, just to give a comparison. To compare, we had our STLD close on Thursday, toward the end of a weak week (our English language showing its confusing nature--weak week) and it showed a very good profit in both the Basic and Option systems. Again, our belief that splitters come from companies that are doing well seems to have carried us through. True, when the market is extremely bearish, it takes everything down with it, including splitters, but we haven't come close to reaching that point at present.

Today's Thought---
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Supreme Court justice Oliver Wendell Holmes Jr. was 87 when he passed a pretty girl on the street and remarked to a friend, " Oh to be seventy again."

Mike

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