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Author: Mike Celeste Editor: Tony Ponzo May Circulation: 7282

Stat Sheet Week Ending May 12th 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+61.0+0.4%+863.0+6.9%
S&P0.00.0%+88.0+6.2%
NAS-10.0-0.4%+147.0+6.1%
Highlight of this past week: POT runs up 10 points in 3 days and we're out.
In this Issue--- SplitMaster Basic System---
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Last week we told you that we were going out and getting some POT--stock, that is. We did and we got rid of it in a hurry, too. After only 3 days the stock ran up 10 points and we didn't wait this time---an alert was sent to all of our team members that we put it on the sell list. It could go a lot higher, but we have seen too many take a quick, large run up only to fall back by Sell Date. You know the old saying--"A bird in the hand is worth 2 in the bush." We're going to keep our eye on it to see if it is possible to get a signal to get back in if the stock drops back a bit.

For yesterday, it looks like it was a perfect move to get out . Our signals were telling us the stock was peaking. We sent an intra day signal to get out at 199.48 or better. By the time we could get an order executed, it ran up to 199.85. Not long after, the stock started to fall back and it closed yesterday at 196.14 - over $3 down from our out point. So we are pretty happy with our tools and the signals they gave for this stock.

 Big Dipper System---
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We didn't see any stocks dip down into our Big Dipper buy prices this past week, but it sure was exciting. We can't keep it out of our mind that last year we saw every stock on a long list go down and hit their dipper buy prices. On Thursday we saw the market take a steep dive, but none on the list hit--yet. We remain with one active stock on the Big Dipper list, BPO, and it is sitting at a decent profit at this point, waiting to hit the target sell price or sell date, whichever comes first.

 Options---
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We just wanted to give a quick mention to our thinking as it pertains to specific stocks. As stated above, we were in and out of POT in 3 days, but we did not put it on the Option buy list. The doggone CALL price was $11.30 bid, $11.70 ask for the June 185 CALL on buy date. The stock was 189.96 at the time. That meant that the stock had to go to about 196.70 just to be even, or with no time value, all intrinsic value. That means it had to go up about 7 points just to get to that point. It seemed a bit excessive to us, so we didn't list it--especially in view of what happened last May. Well, the stock did its thing to the upside on Friday and the option would have made a profit, of course. Sometimes we wonder if an option seems so out-of-line that maybe there is some indication to the option market maker that the stock is ready to make a move. Now, it could be a move in either direction. If the options seem too cheap, maybe the stock is giving some indication of falling. If the options seem too high in price, maybe "someone" thinks it is going to go up--and that "someone" is a person that makes the option market in that stock. This is just a thought, but it would be nice if there were some study on it--and maybe there is. If anyone knows of a study along those lines, feel free to pass it on, and we will let all of the readers know, too. BUT--we also do not lose track of the fact that POT was on the stock buy list and made a very nice profit in 3 days.

 Momentum Day Trade Plays---
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We had another winning week with a net gain. We had seven potential plays but were only able to get into 3. Out of those 3 plays, 2 were winners and one was a relatively small loser with a .38 cents loss. The other four just did not show any life and our signals were weak so we made them "No Plays". It seems like a lot of these stocks that were winners last quarter, for some reason, are lackluster this time around. They gap big but then just seem to lose their steam. The big disappointment of the week was WFMI. We had a huge profit on this one last quarter and fully expected it to perform for us again. Everything was lined up well too. The stock missed the street, it had a downgrade that day, it gapped down huge, our signals were showing more down potential and the play was on the day that the marekt goes down over a 140 points. But after its gap, it basically traded within a .50 range and drifted up a little toward the end of the day giving us our loss.

Now, we are certainly happy about having another winning week. This system continues to go in the right direction. But we were looking forward to have three out of three wins and a big win with WFMI and it didn't cooperate and we are still wondering why. That's the stock market though and if one is going to trade, these kind of disappointing trades are going to happen from time to time. Also, keep in mind that things go in cycles. Sometimes the cycle is up and everything goes well and sometimes the cycle is down and things don't go as well. Over the last three weeks, the Momentum strategy has been in a down cycle and still it continues to win each week -- not as much, but profit is profit and we'll take it.

One more thing I want to bring out. We had a member ask us how we decide the number of contracts we go into. During these last few weeks, while the cycle has been not as good as the prior weeks, we have been playing it conservatively and buying less contracts. But basically, we go by the dollar amount. If for example an option is selling for $4.50 or $5.00 we will go with about 3 or 4 contracts. If it is selling for about $2.50 or $3.00 we might go with 5 contracts. And if it is selling for less we might go with 7 or 8 contracts. When the cycle picks up again, we will increase our numbers. You can always go to the past results and see our action. I hope this helps for those who are interested but please keep in mind, each member should play within his/her comfort zone. Just because we might trade 7 contracts on a play does not mean you should do that too. Plan and work your own bugdet and try to, within a certain margin, dollar average your plays.

 Chart Indicator---
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Last week we sent a definite warning about the seemingly overbought condition of the market as shown by our CI. So what happened on Thursday, as the market went higher and higher during the week up to Thursday? WHAM, BAM !!! A steep dive in all 3 major indexes--the Dow, the S+P and the Nas. This indicator has been such a valuable tool.

 Stock Split Comments---
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Another point we mentioned last week was the number of stock splits that have been announced recently--going hand in hand with the new highs that have been seen on the major indexes. We couldn't help but get an eerie feeling about that because of what happened last year right around this same time. We cautioned about an investment decision regarding how to approach the large number of splits. We still feel that way, especially when the market took a dive on Thursday, May 10. It was on May 11 last year that the markets started a deep slide that lasted into July. We hope that history doesn't repeat itself this year. We already had a pretty good hit in Feb. this year and don't need another one. OK, the market did seem overbought, according to our Chart Indicator, and there was a correction. This year, tho, the market rebounded the next day (Friday) and much of the previous day's loss was recovered. We just continue to say that investors should give consideration to the allotment they make for each stock, and for which system to concentrate on. You may also want to consider trailing stops, especially when the number of splits grow. For those who do not know, a trailing stop is a stop loss that trails the stock. So let's say you buy a stock for $58. You may put a trailing stop on it at $56. If the stock dips down to that price, you will be stopped out. However, if the stock goes up to say $61, the stop loss will automatically adjust itself to $59. So now if it goes down and gets stopped out, you would still have a profit. Not a bad trading trigger to use during heavy trading times. This trading trigger though has to be each individual trader's decision and you have to set it up with your broker. Most on-line brokers offer this tool and once you know how to do it, it's not hard to activate. You can also set your trailing stop loss at a percentage so you auto traders should be able to set up a rule with your brokers.

 New Systems---
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In addition to the Momentum System, which has done very well overall, we thought there might be an extension to the profit potential of these plays. We wondered if there is any repetitive movement in the stock prices of those that are on the Momentum list in the days following the earnings release. So far we can say that the results definitely look interesting to say the least. It takes time to build up a suitable database of results, but at least thus far the results are very encouraging. The one area that concerns us at this point is the loss side. We have a great percent of wins, but among the few losses are some that are pretty hefty. We have yet to devise a stop loss criteria that will cut the loss to a livable level, yet at the same time allow the price to recover and finally end up in the direction and profit level that we want. We also started using a criteria of 7 trading days after the earnings are released. The results on that basis are 60 wins and 23 losses. Now that is a 72% win rate--excellent, right? Well, in those 23 losses are some that might take up to 5 winners to make up for the loss--so--back to the drawing board.
We have now cut the study down to what happens in 2 days following earnings releases. We don't have the count yet, but we can see that the wins still are great and we think that even with a slightly higher number of losses, the amounts of the loss have been cut back.

We mention this just to give you an idea of what is happening on our end. We are always searching for newer and better results. Time is always the factor that slows us down. And, sometimes, we see that the data just doesn't come up with the results we need to make a system official. More on this potential system as we get that additional data.

 The Economy & Commentary---
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The economic reports that are coming in continue to be mixed and somewhat confusing. The results are that volatility seems to be picking up. This is also evidenced in our Chart Indicator, which 2 weeks in a row gave us overbought signals, and was right each time. There were quick drops in the major indexes, but later each week the markets recovered. This volatility was a definite opportunity to take advantage of the situation. It is another indication to us that there is profit to be made in shorter term trading, using this information. On the other hand, we are not alone in our memory warning light that flashes--remember last year at this time. Almost to the day we had a shock in the markets. Last year it was on May 11 that we started a severe drop that lasted into July, as we mentioned before. This year we saw that May 10 was a sharp down day. Of course the next day, Friday, we saw a very nice rebound. The mixed results of the economic reports seem to add to this volatility. We see weaker consumer retail spending, but we also see inflation reports that were encouraging. This week the inflation was at zero--when taking out the energy and food factors. Again--time after time--we are basically told that if we don't eat and don't drive, our prices are level. That's pretty hard for me to swallow as a consumer, paying record prices after record prices, week after week, for gasoline, especially. Earning reports are coming in to the upside, overall. That is good if you are an investor in those companies (remember, if you can't beat them, join them--i.e.. energy companies) The question came to us that made us wonder if company earnings are going up because they are able to raise prices and increase profits?? That would mean that the consumer is paying those higher prices, and the consumer has less money to distribute in spending needs. Very confusing--but we try to stay ahead of the game a little bit by providing our readers with some potentially profitable means by which they can gather more money to be able to maintain or even increase their standard of living.

An update on the media as it reports on economic situations---

Probably our leading source of news is the AP. Here is verbatim what they reported on 2 stories---
AP report on TTEC--"The stock surrendered $1.10, or 2.8 percent, to $37.60 in aftermarket trading. In Wednesday's regular trading session, shares rose 27 cents to $38.07." Our comment is that we don't claim to be mathematical geniuses, but when someone says that the stock closed the regular session at $38.07 and dropped $1.10 in aftermarket trading, then the price at the end of the aftermarket should be $36.97 (38.07-1.10)---not $37.60, which is a drop of just 47 cents, not $1.10.

AP--"Disney Earnings Grow 2.1 Percent
Wednesday May 9, 1:13 am ET

The Burbank-based media conglomerate said Tuesday that net profit rose 27 percent in the quarter that ended March 31, boosted by strong results from its film studio, advertising sales at ESPN and international sales of its TV shows, including "Desperate Housewives." ...Disney said its net income for the quarter was $931 million, or 44 cents per share, compared with $733 million, or 37 cents per share, in the same period a year ago." End of quote. Again--our comment--The headline says that Disney earnings grow 2.1 percent. Net profit rose 27%, and because of a different number of shares outstanding, that accounts for the 27 percent increase. That part is fine, even if confusing. Then it says that earnings were 44 cents per share vs. 37 cents the previous year. That's a difference of 7 cents. 7 cents increase over 37 cents is 19 percent, while the headline says 2.1 percent. How do they expect us to have credibility in their reporting in this fashion? You continue to have to be diligent about what your read or see being reported. We have one talk show host that is syndicated all across the country, Tom Leykis, that frequently discusses reports that he states to be facts, just because it is reported, it would appear. He always says that these are the facts, not opinions, as shown in "x" report. It is as tho it has to be true, because it is printed. Far from the truth, sometimes, far, far, far. I found that out many years ago when I was quoted in the newspaper with comments that were way off the mark and very misleading. I just mention these things so that you, the reader, can be on the lookout for possible misleading articles. Be critical in your analysis of what is being fed to you. This way you can possibly make better decisions on your investments, etc.


Today's Thought---
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When you are a mother, you are never really alone in your thoughts. A mother always has to think twice, once for herself and once for her child. ~Sophia Loren, Women and Beauty
--Also--
Sweater, n.: garment worn by child when its mother is feeling chilly. ~Ambrose Bierce


Mike (From the Splitmaster Staff--Happy Mother's Day to all of you Moms out there)

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