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

Stat Sheet Week Ending December 9th 2006

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+113.0+0.9%+1.0+14.8%
S&P+13.0+0.9%+162.0+13.0%
NAS+24.0+1.0%+232.0+10.5%
Splitmaster Strategies
Basic...............+22.4%
Big Dipper..............+40.6%
Option Calls..............+175.0%
Option Puts..............+225.0%

Highlight of this past week: -- EZPW--- Stock in Basic up $4.45 and CALL in Options Strategy up $2.60. Looking very good.

In this Issue---
SplitMaster Basic System---
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There is a new play coming on Tuesday, so team members should take a look at the site to get details. There will be an email, also, but we should not rely entirely on that, due to technical problems that might prevent email from getting thru to some members due to Spam blocks implemented by ISPs and overfull mailboxes. Every week we get email bounced saying that it was undeliverable due to the mail box being over limit.

EZPW is a Basic system play that is doing well at present, and we still have some time to go until sell date, which might give the stock time to break thru its high and go "blue sky" or a nice jump from present levels. It is only a little over $1 under its 52 week hi, which was made recently. We like the stock for another reason, also. The PE and the PEG comparison show that the growth rate is higher than the PE, which means that the expected earnings growth in percent is higher than the Price Earnings ratio. If they meet the expected earnings, that would mean that either the PE would be lower, or the stock price would go up to maintain the same general PE ratio. We like to think that the latter is what usually happens. Investors generally like to buy stocks that are growing faster than their PE ratio.

 Big Dipper System---
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You may have noticed that there isn't as much action in the Big Dipper as earlier in the year. We think there is a reason for that. First, we are in our 4th quarter of the year, the quarter we look forward to each year because its past history of doing so well. Secondly, the splitters are not dipping enough to hit their target buy price--and not really coming close at this point. That means the market is doing positive things. Every once in a while we do get a downgrade from an "expert analyst" and that usually gives us a great opportunity to get in. Most of the time, the stock bounces back rather quickly and we are able to see some nice profits. That's why you see the Big Dipper Past Results showing a higher percent of profit return than the Basic. They take their dip and then bounce back. STLD was a great example of that recently. It was downgraded at two different times and yet both the Big Dipper and the Basic ended up showing profits by our sell date. In fact, the stock has continued to move up. Another splitter with a higher growth rate than the PE, by the way. It wouldn't be practical to keep owning all the splitters, beyond the SplitMaster sell date, but we do see our computer results showing that by playing the picks during our buy/sell dates, we end up with more profits than by holding them--even if we did have enough $'s to keep every one of the splitters. Yes, we did go thru some rough times earlier in the summer (which is a bad time, anyway), but that was a totally emotional market that affected almost all stocks--and the recovery since seems to prove to us that it was just emotion and not logic.

Options---
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While we don't have a long list of options currently running, we are more than satisfied with the results of those that are on our list and those that have been recent plays. Of course, not all are winners, but since we go by averages, we continue to see more net wins than losses. They are bearing the fruit and just like fruit trees, some years you have more yield than other years. The object is to end up with a profitable yield. At this point we are showing lower net profits than our other years, but we are still showing a decent net profit. If that May-July emotional crunch didn't hit us, we would be right up there with other years. It is our feeling at SplitMaster that the emotions during that time were totally unfounded and most unlikely to happen again any time soon. It was the quickness and the severity of the decline that surprised us--and just about everyone else--and while we do expect declines, we don't expect them in that fashion. Hopefully, our deduction will prove accurate. So far, the 4th quarter has been as much or more than usual--and we firmly believe that history has told us that the 4th and 1st quarters will be winners far more often than not. See more comments about this time frame in the Chart Indicator section below.

 Testing -The Momentum Play - This week's results---
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We had four plays this last week, with two good winners, one loss and one that we are still holding. We are holding because it did not perform well but it cost us only .15 to get in. So we feel we have very little to lose and everything to gain. We had 7 winners in a row before we hit our loser this week. You can click on this link--Momentum Past Plays--and see all of our results since we started the test. Out of 26 plays there are only 5 losses and they are small losses. That's an 80% success rate and look at the percentage gain to investment on each play. 50% gain is not unusual to see and most of those plays are only two hours long or less. So we are still excited about this play and will start to open it up to more testers this week. We just have to write up some instructions and we'll be ready to go.

Next week we should have a number of good plays. Now we have enough history for the same plays to come around again. So we already know the personality of some of these stocks. And this is supposed to be the slow time in the announcement cycle. Stay tuned.

Chart Indicator---
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The Energizer Bunny has nothing on our Chart Indicator. Our positive run in the CI just keeps going and going---and this suits us fine. You old timers might remember the TV ads for Times watches, where they would put the watch thru severe damage tests and the watch would just keep ticking. The slogan was "It takes a licking and keeps on ticking". John Cameron Swayze was a news anchorman and he probably ended up more famous for his ad pitches than for giving the news, giving them for more than 20 years. Anyway, our CI spread dropped quite low during that recent market decline near the end of November. Keep in mind, tho, that we had been seeing dangerously high spreads before that and our reading over overbought certainly turned out to be true. This week the Dow recovered over 100 points and is back over 12,300. Our last CI spread (Team members follow this number daily at the top of the active Big Dipper page).

We mentioned above, in the Options section, that the emotional decline during the summer months was quick and severe. Our CI did go negative during that time. Take a look at the Nas daily chart and you will see what I mean. Keep in mind that the CI has to be confirmed and that takes a few days to achieve. The date we went negative on the CI was May 11-06 (coincidentally that is my anniversary date--what a celebration that was, as you can imagine---NOT!). It did not return to positive until Aug. 16. (confirmed--it went above on Aug. 15, tho). We used to stop our program when the chart went negative, but it turned out that the computer showed us that the splitters still made profits--normally, and on average. Naturally, we stopped investing during negative times because during a short spell, the split results were affected--but not over a long period--so we resumed the plays even during a negative CI. This year, we would have been better off not playing--with the benefit of hindsight, of course. There are some of the team that do use the CI to at least draw back on the amount they put into each splitter. There was another reason, too, for that negativity--but it came about a month early this year. That is the fact that the summer months are notoriously not good for the markets--people are away on vacations--and decision makers in mutual funds and companies are people, so they are not around as much as usual, either. We are going to take a long hard look at the upcoming summer months as they approach in 2007, you can be sure of that.

Note--You may have noticed the green circle on the Home page, to the right side of the Basic and Big Dipper details. During the time we cut back on the programs when the CI went negative, we had a 2 color system--green for full investing and red for less, or even no investing. We might have had green on the Big Dipper and red on the Basic. That could be another thought for your personal investing strategies. That CI is a good tool--I know I've said it a number of times, but it does continue to impress us. (So much so that at one point we even thought about charging a fee for anyone that wasn't interested in our other split programs, but did want the CI numbers---at this point it does not stand alone. Our split members have always received it included in the normal SM fee system.

 Stock Split Comments---
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For some reason we seem to have slipped back to the point where we are not getting very many split announcements. This puzzles us to no end, as many companies are near yearly highs and that is when they usually announce splits. We continue to feel that it is just a matter of time. The good news, tho, is that those that are announcing are making good net profits.

Comment--We had a very unusual occurrence recently and we just wanted to follow up on it with you. We can't remember this happening before, but we're sure it has---WLT rescinded its split plans. The company is also splitting into two companies, and it is our feeling that it became too complicated to do that at the same time a split was in the works. Many people were confused by it. So--no split, no play for SplitMaster. We removed it and the stock was slightly above the buy price and the options were not hurt, either, when the rescission was announced. Fortunately for some of our team members that are smarter than we are, they kept the stock or option. What has happened? The stock was 43.30 on our buy date of 11/21 and it is currently around 50, after hitting a high of 51.84 on this past Thursday. Obviously the investing public put a lot of faith in the decision. Congrats to all of you that held on. Normal sell date would have been 12/26 (just as a reminder).

The Economy---
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We have said many times that the markets always find something negative to fear. It varies and at the present time, we see that they can't seem to make up their mind what the economic news means to the investor. At one point greater employment, for example, is a worry because of possible inflation. At another point (current general consensus) greater employment is a sign that we are not dropping into a recession. Same news--different conclusion. That's another reason we have always liked splitting companies. Another repeat--but it means so much to us--companies that split are very likely to be going very well in their business--probably about 99% of the time. So, to us, it doesn't matter too much what the economy is doing, it is far more important to zero in on those companies that are currently bringing in good earnings. Another repeat (we realize we have newcomers every week to the newsletter and they haven't had this educational benefit)--what is bad, or even tragic, for some is a real boon to others. The quickest example is the after results of a big hurricane. Homes are destroyed and a greater number of people are injured or even die. That means that construction and building supply companies are going to get more business than usual. Gruesome as it is, medical supply, doctors, and even coffin makers are going to see increases. Insurance companies are another thing, tho. We have infrequently mentioned that when a disaster hits, the insurance companies are extremely slow in paying off claims. True, there are lots of fraudulent claims, but too many deserving policy holders are left stranded and can't afford to rebuild, etc. Now, I am quick to say that not all of the insurers are like this, but there are too many. Katrina is the current best example of this, and here in California we see that when we have rather severe earthquakes, we see the same thing--slow insurance payouts. And here is where another group benefits--the lawyers that are hired by policyholders. See what I mean? Loss for one group, benefit for another.

In that same vein of thinking, there was a news report this week that is also typical of a big tragedy. Investigators reported that the government is squandering millions of dollars in Hurricane Katrina disaster aid, in some cases doling out housing payments to people living rent-free. This is from the Associated Press. In these large disasters there are always people that defraud aid programs, and that is one reason, as mentioned before, why the insurance companies are cautious in the payouts. My good ol' dad used to say that the difference between the US and Italy, where he was born, was that there is corruption in both countries' governments, but in the US there is enough dollars left to bring aid and service to the people, while in Italy (at that time) all the money was taken by the corrupt people. I think it is good that we give aid from the government (slow as they are, and inefficient) and know that there is going to be some fraud, for it is more important to help the victims. The goal, tho, is to become more efficient, as Katrina pointed out--and the tragedy before that, and the one before that one, etc. We need vigilance and oversight. Private enterprise, like insurance companies are far better at efficiency, so they are more cautious. It does seem that they err on the side that benefits them, but they do have a duty to their shareholders, if they are public companies, as most of the big ones are. We have to have oversight on them, too, as every day they hold out insurance payments means a lot of interest $'s earned. (One of the reasons we have punitive damages as a solution to improper activities.)

One comment about the mortgage/housing industry. A wholesale mortgage lender in the sub-prime market has not cut back on employees, etc., it has shut down completely. Their funds dried up after a November report came out from investment bank UBS said sub-prime borrowers were falling behind on their payments at a record pace. This was a story in the LA Times. You can recall that we forecast lots more foreclosures due to the slowdown in the sale and high prices for homes. You can add fraud on top of the problem, as we have also mentioned before, from appraisers turning in false values and loans that were made that couldn't really support those values. Recently we have seen the majority of "experts" on housing saying that we have bottomed out, re new home sales especially. It is our opinion that this is not going to be the case. We feel this sector is going to see far more foreclosures and more price dropping. And, when you have more foreclosures (bad for the homeowner, good for the foreclosure service people) you are putting more houses on the market, at fire-sale prices, which adds to the inventory and decreases other home values. No, we think there is more pain to come for the housing field.

 Today's Thought---
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In the middle of difficulty lies opportunity........Albert Einstein


Mike


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