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Author: Mike Celeste Editor: Tony Ponzo February Circulation:

Stat Sheet Week Ending February 3rd 2007

ChangesWeeklyJanuaryYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow+166.0+1.3%+159.0+1.3%+190.0+1.5%
S&P+26.0+1.8%+20.0+1.4%+30.0+2.1%
NAS+41.0+1.7%+49.0+2.0%+61.0+2.5%
Splitmaster Strategies
Basic......................+3.3%+3.3%
Big Dipper......................0.0%0.0%
Option Calls......................+32.0%+32.0%
Option Puts......................0.0%0.0%

In this Issue--- SplitMaster Basic System---
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We are finally seeing a buildup of acceptable splits. They are sputtering a bit while getting established, but we remain optimistic.

 Big Dipper System---
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There is one current play in the BD system, and it remains a question. The stock is GROW and they have again re-scheduled the company meeting to Feb. 21 so that they can continue to push for enough votes for the stock split. It is very frustrating, as this is a totally unique circumstance to us. It is going to be a split or isn't it? The company is very strong in their emphasis that they will get this done. They need a 2/3 vote for the split, not just a simple majority, so that is another factor that has been a problem to overcome. They currently have 64.5% approval and need 67%. So they are close to being able to move forward. The company has stated that they feel that some hedge funds are trying to get votes withheld so that the stock drops. So far, the hedge funds have been successful, but it would seem to us that, while technical, this investment strategy does not seem ethical. There is also a time factor as to who is eligible to vote, and it goes back to people on record in November, 2006. There are many of those that no longer own the stock, so it makes it time consuming to contact those that have voting rights--at least that is what we get out of all this. We have contacted members and notified them of our findings so they can make decisions on their holding of this stock. All members still owning the stock that we have talked to, have communicated to us that they wish to hold the stock for now. So we will keep it on the system as well. The stock has appeared to stabilize so if we get any good news we may see some sort of up move. They announce earnings this coming week and quarter they had blow away numbers so let's see if they can do it again. We repeat that this is a volatile stock and can move quickly, up or down.

Options---
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While we are building up our plays on splitters, we also would like to point out that we are trying to give our team members more choices in options. By that we mean that we have option plays in the Basic System, the Big Dipper System---and also, for those that are following the work we have done on the Momentum selections, there are quick moving options there, too. In the Momentum Play we point out that there are both CALLs and PUTs to work with, depending on which way the momentum is going. In addition we are always looking for more ways to use the options, as we feel they are a good way to use less investment for a very decent percent return.

 Momentum Play Update---
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This week, we stopped sending out the email signals to the testers so we could do some experimenting with the play. We are looking for a we to more cosistantly win. This means taking a more conservitive approach we are pleased to say, that out of the 5 plays we were able to execute this week, all were winners. This encouraging and we may open this up to the testers this week. However, there are still a couple of issues that we want to address so we will keep trying to improve. If you would like to see the results of efforts this week click on this link: Past Momentum Plays. More on this next time.

Chart Indicator---
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The CI has moved back into a Positive position, after going back and forth and even for a number of sessions, based on the Nas. We are always happy to see that indicator as a positive. Keep your eye on it, as it has proven itself to be a valuable tool.

 Stock Split Comments---
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There hasn't been a surge (using that popular word of the day-Iraq) in the number of split announcements, but there has been a noticeable increase, and we are happy to see that. There are 2 more coming into consideration this coming week, and more on the horizon. We like to work with large numbers and our systems are based on statistics from as large a database as we can get. The definition of a term is very important, so "large numbers" can mean many things to many people. Based on historical studies we keep saying that over the course of a year we have seen profits in stock splits every single year since our data started in 1975. Each year we can add more numbers into the pot, but if those numbers dwindle, the results can be affected more so. At any rate, we are glad to see more announcements. Major news groups have been calling attention to the lack of split announcements, and that they are saying anything about splits is unusual. We like our niche in the investment world and our stats from the database confirm our belief that this area of interest will continue to bring positive results.

 Another possible strategy---
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While we have been putting in many, many long hours working on the Momentum System, and refining the criteria, I have been tinkering with another strategy potential. This one would be base on the RSI Indicator. I ran across a study of over 7 million trades using the RSI and it raised my interest, as I stated above when working with large numbers. In fact, here is the exact quote of what I am referring to

"* Our research looked at 7,050,517 trades from Jan 1, 1995 to June 30, 2006. We applied a price and liquidity filter that required all stocks be priced above $5 and have a 100-day moving average of volume greater than 250,000 shares."

From this study I have been trying different criteria and so far it looks very promising. This would be a short term play--1 to 3 days, and can be used with both stock and options (CALLs and PUTs). We are finding out that if we don't go for a home run each time, it seems we get better results by winning far more times on lesser goals of profit. At this point, depending on the price of the stock, the goal would be a profit of $.50 to $1.00 (maybe higher than $1 on some.) When I get some more results and when the criteria works itself out, we would put info on the site for a Beta study, etc. The first 2 plays were on COST (Costco) and RL (Ralph Loren), and they were both done as a short for the stock, or a put. Both worked out very well. Other paper trades did, too, but I tried so many different ways, they can't be mentioned now. You can keep you eye on a couple that have my interest at this level---ATRC (short at 12.20), AMWD (short at 46.00),RDEN (short at 20.75). I haven't sorted them out as to which would be the better plays, but watch them next week to see what happens.

 The Economy---
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The poor media gets a lot of blame from a lot of places. Today, they are getting blame from us. It seems to us that the media has a responsibility to be accurate in what they put out as news. I am specifically referring to three instances where it seems to me that they were negligent--one grossly wrong, one misleading and one that was too one-sided (didn't give a contrary opinion or a fully discussed statement),

Let's look at the first one. It is my understanding that a large number of people that still read newspapers (the numbers are dropping fast, probably due to TV news and the Internet) do so by just reading headlines. If the headline doesn't really grab them, they move to the next headline, etc. Well, my newspaper for Sat., 2/3/07, in the Business section front page read--"Chevron sees quarterly loss". If that is all you read, you would assume that the recent drop in oil prices had such a negative affect on Chevron that they lost money for the quarter. No way--by going into the story we see that the quarter referred to in the headline made $3.77 BILLION for the company. Quite a difference, don't you think? Yes, the earnings did decline 9% from the same period a year earlier. But a relatively small decline is not a loss, and especially when the net profit is $3.77 billion.

It is my understanding that there are editors for this purpose--check what is being printed before it gets released. I just hope that some person that read just the headline doesn't go out and make an investment decision based on the headline. To me, this is grossly wrong. In other instances I have even seen the same story with completely opposite headlines in two different newspapers. This is not a single happening, in other words.

The 2nd one is in the area of one of my 3 favorite subjects (stocks, real estate, energy). A team member sent me an article about real estate and how misleading the news can be. The article was titled "When Housing Up 4.5% Is Really Down 4.1% ". I won't go into the whole report, but this quote is telling---" So much for my thoughts of a housing led recession. Was it the weather? Overly optimistic builders? Or was I just wrong and the bottom in the housing slowdown had been reached quicker than it has in previous housing slowdowns. It turns out that new home construction did not rise. In fact, if you look at the data, new home construction was down by 4.1%. What was up was multi-family apartment construction which by a very robust 19%." (I don't have the source of the article, but it makes good sense.) The implication from the reports that housing was up 4.5% most likely was taken by readers to be that residential housing was up--putting a positive spin on the sector. However, when residential housing was determined, it came to be down, as most in the real estate field expected.

The 3rd media story that made me not need a jolt from an extra cup of coffee was a story from AP on Jan. 20, 2007. It was a long detailed explanation of why gas pump prices don't fall quickly. All the gobble-de-gook that the oil companies put out to try and cut down the resentment the public feels toward them is quickly shown to be hogwash. This past week there was news that one of the big-shot Saudi oil leaders might retire--and boom, oil jumped up Almost immediately, here in our Los Angeles area, gas prices went up 6-10 cents per gallon. The latest official report from "This Week in Petroleum" showed another increase in inventory. Why didn't the AP reporter go into detail about how fast prices increase when oil price rise? No, they only gave info on why the price doesn't drop quickly when oil prices drop. You can't have it both ways---either it takes a while for the prices to get thru the pipeline, or it doesn't.

Remembering back in school, I was told that much of the news comes in the form of press releases and is tidied up a bit and then released as news. It seems to me that this is still what is going on--maybe even more so. Most of the reports I see on the state of the news production are about cutbacks in the news departments, in order to cut costs. It sure looks to me like less and less research is being done---and less proper balance being given to us, too.

So much for getting that steam out of me. We also just want to mention that the Nas has been up for 6 straight days--a warning signal. Also, we want to point out that even with this 6 day rise, we are still not at the highs of mid-January 2007. The DOW did make new highs, but the way they calculate the DOW and the few number of stocks in the DOW leads us to put more faith into the Nas when looking for a trend.
Finally, a reminder that you might want to take a look at the new site that is publishing our Economy and Commentary section. I believe you sign up for their newsletter at the site http://www.pro-option-profits.com/ It is easy to sign up and easy to take your name off their list, if you wish. To show how international all this is, this site is from Australia. The world sure is getting smaller because of the internet, isn't it? The reason it might be of interest is that it has a number of columns and by reading other opinions you might gain more insight into what is happening. We try to be specific in our newsletter and not stand on the fence and say "if this" but "if that". That kind of commenting can lead some to claim they were right, depending on which way the final result went. It reminds me of the horse racing touting system where the touter published sheets with his "Play of the Day" and made up different sheets, with each of the 6 horses being declared the big pick---he was right on 1/6 of them, and those people that got that horse thought he was really good at picking them,so they could well come back and buy his next "Play of the Day". No, we will live or die on what we think and publish---we have losers and we are not always right.

Today's Thought---
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Don't find fault, find a remedy........... Henry Ford (Note---Media--pay attention to what you do.)


Mike

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