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Author: Mike Celeste Editor: Tony Ponzo January Circulation: 7323

Stat Sheet Week Ending January 27th 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-79.0-0.6%+24.0+0.2%
S&P-9.0-0.6%+4.0+0.3%
NAS-16.0-0.6%+20.0+0.8%
Splitmaster Strategies
Basic...............+3.3%
Big Dipper..............0.0%
Option Calls..............+32.0%
Option Puts..............0.0%

Highlight of the week: We are pleased to announce that the Economy section of our newsletter is now being published in two national publication, Pro-Option-Profits.com and Pro-Stock Profits.com. This is a publication that publishes a number of econcomic reports from various sources to give their readers a wide range of information. We are thrilled to have been chosen as one of the reports being published. Click on this link and check it out. pro-options-profits.com

In this Issue---
SplitMaster Basic System---
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We are sort of replaying what we said--January is done on our books for SplitMaster and we ended the month showing a net gain of 3.3%. The major indexes headed south again this week and are up less than 1% for the year to date.

Big Dipper System---
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We are still waiting for the one BD play on GROW to develop some further news about a split date. We sent an alert this week saying that the company is still counting votes and while it is close, there is no official decision about a split until the company meeting reconvenes on 1/31. If the vote passes, and the company said they are confindent it will, the split date is supposed to be 2/8.

 Options---
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There seems to be a holding pattern on options on splits. We are seeing more split announcements, but most do not have options but there are a few and one is coming up as a buy yet in January.

 Momentum Play - This week---
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We had a lot of potential plays this week but we only executed three of them. It seems like these stocks that showed great results in their past announcement history, just did not follow suit this time. So we are going to be analyzing things this week to see if there is something we are missing about the first quarter of the year. At any rate we did post 3 plays. Two showed a nice profit and one was break even. Some of our testers got into more of the plays than we did and made out pretty well. The SplitMaster team may be playing this a little too conservatively and that is another thing we will be analyzing this week.

Chart Indicator---
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The CI has continued to be a good indicator--accurate, that is. It headed down this week, and the major indexes also headed down. Right now, at the close of the week, the CI is dead neutral, with the Nas actually being below the break-even line, but still needing confirmation that the CI will be negative. Team members, take a look at the stats on this on the Big Dipper page at the top.

 Stock Split Comments---
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The new split announcements are definitely picking up, but we need more, that's for sure. I had occasion to go back to 2004 re. a particular splitter. While there I counted the number of split announcements that were made in Jan. of 2004. There were 22 of them--of course they didn't come up as buys for Jan., but there were that many announcements for that month. For 2007, thus far in Jan., we have had 6 announcements--and that is an increase from what it has been. We had no 2-1's announced in December and only 3 at 3-2, which were only considered for the Big Dipper. Yes, we are seeing an increase, and we remain optimistic for the near future.

We also want to give thanks to team member, Ron B., who spotted an article in USA Today (1/22/07) regarding stock splits. The article was titled "Why are companies shying away from stock splits?" Here is the site in case you would like to read the whole article--
USA Today

It was very interesting to see that others have noticed the inactivity in split announcements. We disagree with a reason given that the market is overbought (we agreed on that-per our Chart Indicator a bit ago) and the companies might not want to announce in the face of a downturn. That didn't happen in the face of other downturns and there is no reason we see that it should be a reason this time. More likely could be the reason given that companies are wanting a higher average price, in order to keep up with the higher prices of other stocks and indexes. There might be a status factor in a higher price.

Here is one paragraph taken from the article re. the number of splits---
"Only 37 companies in the Standard & Poor's 500 index split their stock last year, says S&P. That's almost 40% below the average number of yearly splits since 1979 and 60% below the 91 that split in 1999 as the last bull market was peaking. It's not just S&P 500 stocks. Last year, 228 companies in the DJ Wilshire 5000, a measure of the total stock market, split. That's down 16% from 2005 and 40% from 1999, says Wilshire Atlas."

Take a look at the full article, we think you will be interested.

The Economy---
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We all remember the boy that cried "Wolf". It reminded me of what's happening in real estate at this time. You will recall that boy kept crying "Wolf!" when there was no wolf, and then there came the time when there really was a wolf, but no one believed him when he cried out. I relate the boy to the "experts" that have been saying that the Real Estate sector was going to have a "soft landing". That was defined originally as a leveling off in the market. Now "they" have altered that to say that they feel there won't be a substantial decline--while not exactly stating their definition of "substantial". You readers have known that we have been negative on real estate for quite a long time, while acknowledging the large part it plays in our economy.

This week there were two articles that caught our attention. One was on the number of foreclosures in California where we live. On 1/24 the LA Times reported that "the number of Californians defaulting on their mortgage loans is rising rapidly.....providing striking evidence that more people are at risk of losing their homes. Default notices jumped 145% in the last three months of 2006" The article pointed out that notices of default are a long way from an actual foreclosure, but still, the notices are up 145%. That still hasn't reached levels at the bottom of the last housing recession here in CA, so while they spin that as a positive, I can look at it being that we have a lot more room to go in the foreclosure area.

The other article was on the Internet and can be seen in its entirety at Economy

The headlines of this report were
"AP
Existing Home Sales Plummet in 2006
Thursday January 25, 10:40 am ET
By Martin Crutsinger, AP Economics Writer
Sales of Existing Homes Plunge by Largest Amount in 17 Years "

You will see two words there that I think are just a bit stronger than "soft landing". He uses "Plummet" and "Plunge". Then, there is this quote--

"David Lereah, chief economist for the Realtors, said that even with the December setback, he still believes that sales of existing homes have hit bottom and will start to gradually improve."

This is the part that reminds me of the boy that cried wolf. There has been this statement that the bottom has been reached, but they have been saying this for about 3 months now. Yes, sooner or later, they will be right, but will anyone believe them at that point. I don't believe them now, haven't believed them from before and it will be quite a while in the future before I think we will see the bottom. That report was a yearly report, too, and it was interesting to me to note that the 17 years mentioned brings us back to 1989--and that's when the real estate market headed south here in CA--and in a big way, needing about 10 years to recover to the 1989 prices. At that time I admit I was about a year early in predicting the height of the market, but I did feel it was going to last for a long time. It is that old rubber band theory. The more you stretch it, the bigger the snap---and I think 10 years is a pretty big snap. The one good thing--so far--is that the drop of 8.4% in sales for the year 2006 was far below (even tho it was 2nd to 1989) the 14.8 drop in 1989. In a side note on local real estate here in Los Angeles County--Home sales dropped 14.5 percent just in December 2006 compared to December 2005.

Employment took a little jolt this past week, too, with more applications for unemployment showing up than were expected. Earnings have been mixed. So far, we have seen the markets going along as expected for January. If the markets follow the norm, we should being seeing February return to a more positive move.


Today's Thought---
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Confidence comes not from always being right, but from not fearing to be wrong.....Peter T. Mcintyre
(And this is a really tough one to overcome, speaking from personal knowledge--mc)


Mike

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