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Author: Mike Celeste Editor: Tony Ponzo July Circulation: 7252

Highlight of this past week: Momentum Past Results--continue at 100% win rate for July.

In this Issue--- SplitMaster Basic System---
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We felt it was time to update everyone on more specifics about our new software and what it is showing thus far. We are excited about it and while it is early in the game, you can now have something to track to see how this is going to work out. Every time a qualifying split is announced we will start tracking it with our software. Whatever direction it is in when we start will steer us to look for an opposite signal. If the stock is in an up signal at that time, we will look for it to turn around and that would be a signal to short the stock (and/or buy a PUT). If it is heading down we will look for the up signal, at which time we would go long the stock, or buy a CALL. We emphasize that shorting is for experienced investors and we want everyone to understand all the risks of shorting a stock. There is no limit to a possible loss when shorting. If the stock keeps going up, the loss increases. Buying a PUT does limit the loss if the stock goes the wrong way. Everyone should have a comfort level about how to approach this form of investing.

Let's take a look at how we have been doing by following the signals on announced splitters. Overall there have been great savings by waiting for the right signal. Remember, not losing is very important, too. We tested a few plays before posting to the members, the first PUT/SHORT play on a Split stock. All of our tests were profitable and the last trade we did was a PUT on TXT. We entered the play on Wednesday and exited on Thursday with a nice $1.40 or a 44% one day profit. Of course, yesterday being a huge down day in the market would have gained us an even bigger profit but we took our profit early this time and are very happy with the results. Friday, we entered and posted to the members, down play on FTI and as of the end of yesterday's trading, we have a good profit going. We sailed right thru the huge declines of Thurs. and Friday by not having up plays and our PUTS and shorts looked good.

We will give the stock symbols, followed by their opening price after the announcement, their closing price on Friday, and the signal that we are looking for to enter the position. (These stocks are seen on the Big Dipper page, marked by "Awaiting Signal")

FCSX--Price right after announcement, 58.80, Friday close 49.90, looking for an UP signal.
ARO--42.40--39.26, looking for an UP signal.
HCSG--33.19--27.83, looking for an UP signal.
DIOD--42.92--39.46, looking for an UP signal.
SPAR--is on the BD list already, looking for an UP signal to double up on our position.
RIMM--195.87--215.67--looking for a DOWN signal.
FFIV--Was downgraded on announce day, but closed at 91.01--now priced at Friday close at 91.20, looking for a DOWN signal.
JCI--116.70--109.71--looking for an UP signal.
MTW--75.15--72.98-- looking for an UP signal (Friday was announce day, so not much to go on yet.)
NE--102.66--102.26--looking for a DOWN signal. (Another Friday announcement.)

At present, we are posting the shorts on the Big Dipper page, under the list awaiting signals. We did a test on TXT as mentioned above, seeing the signal for a short on 7/25 (Wed.) when the stock was $120.45. TXT closed Friday at $114.05, so a gain of 6.40 could have been taken at that time.. We then saw a signal on Friday to short FTI at 90.95 or better. Shortly after we sent the Alert the stock went up to 92.15, so there was an opportunity to get in the short at a much better price. The stock closed Friday at 90.26. See below for the option comments on each one..

 Big Dipper System---
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The changes that are coming are based on our new software. As mentioned by email, we used to post a target buy price, but with our new software we are going to wait for a signal and then send an email alert for buying and selling. The website page now says "Awaiting signal". This should work better for individual splitters rather than rely on a general buy/sell for every stock. If options are a play on Big Dipper splitters we will notify you the same way, by email alert. See the above comments in the Basic System re specific stocks.

 Options---
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Our new feature is the result of so many of you asking if we can come up with plays to go for profits in up or down markets. The answer is "Yes". We have started buying PUTS when we see a signal for a down move. Sometimes a splitter starts out in a down position, so we will wait for it to turn to an up signal. Or--in reverse, it might start out up, and we look for a new signal indicating it should go down. When that is the case, we will buy a PUT. Team members can see this on the Option page on the website.

As mentioned above in the Basic System comments, we tested TXT options, starting Wednesday, 7/25 and then sent an email alert for a real play on FTI on Friday, 7/27. The PUT we selected for TXT was the Aug. 120 put (TXT TD) at a price of 3.20, when the stock was 120.45. The stock closed Friday at 114.05 and the PUT closed at 6.90 bid, 7.20 ask. I think you can see the potential---even tho it did catch the market in a major decline. However, we point out that this is what the signals are supposed to do. Re FTI, we took a position in the Aug. 90 PUT at a price of 2.70. When we send the alert we always give our price OR BETTER. As happens MANY times after we send alerts, our team members are, and were in this case, able to secure a much better entry price. I believe it hit a price of 2.25 after we sent the alert. The PUT closed at 2.90 bid, 3.40 ask.

Another opportunity appears to be waiting for use. When our CI and other indicators warrant an action, we can look to the S+P CALLS and PUTS for some plays. For example, this past week we were in that overbought position that we told you about. We tested the SP 1500 PUT which had a price of $11.30. In one day it went to $21.50, for a profit of $10.20. That would be $1,020 profit per contract. Not bad, is it? We use 3 indicators, the CI (Chart Indicator), the "W" and how many days in a row the Nas has closed up or down. Right now the "W" is at "0", which means that anything under 10 is a buy indicator (or the market is oversold). The CI and Days Straight are not quite there yet, but the magnitude of the decline could indicate a bounce-back soon.

Momentum Plays - Profits Keep Mounting---
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Our win rate for July still stands at 100%. The only negative to this entire month has been not enough excution on our potential plays. We had 17 potential plays this week of which only 4 were executed. But they were all profitable and one had a nice 13.9% gain in about 10 minutes. Momentum Past Results

For some reason, this week saw most of these stocks gap up or down nicely then start to trade in a small range making it hard to get an "in signal". Others moved but in a very wild and fast pattern making them too volitile to trade. Then, some of them made nice moves later in the day after we stoppped looking. This does not usually happen because most of the action is in the first two hours of the market as usually the trading ranges shorten up substantially starting at about 8:30 AM or 11:30 ET. So we had a strange week indeed.

We have been talking about adding a 1 day to 1 week long play to the Momentum Strategy. We would not stop the fast plays but rather add these to them. We have been testing these kind of plays and like what we see. We would most likey do this on our up and coming splitters as mentioned above by Mike. The thing we like about this is, it is a slower moving pace so we can enter and exit the plays in a more relaxed manner. And the profit potential is much larger. There could be plays that we post onboth the Momentum Strategy and the Option strategy since these are option plays based on splitters. We'll keep you posted on this as we progress.

Chart Indicator---
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It isn't hard to guess what happened to the Chart Indicator this past week, after seeing the Dow drop over 500 points in 2 days. We have now moved into a negative position on the CI and once again we were warned in advance when we stated in the recent newsletters that the markets were overbought.

 Stock Split Comments---
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While we have been concentrating on our new software we almost lost track of the number of splitters being announced. Friday is usually a day when companies don't like to announce splits, because the next two days are non-market days and the companies like to get a pop up out of the announcement on the next day. However, this Friday saw two new announcements, and that went along with a decent list of new splitters that have joined our list. We now post each splitter right after the split is announced, looking for signals to enter or short or long. Our list is growing rather quickly for this time of year, with 7 new split announcements that met our criteria coming since 7/17.

 The Economy & Commentary---
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Here we go with EMOTION ruling the markets and in turn, affecting the economy. We had stated for a while that the markets seemed overbought and we did see the corrections. The snowball really didn't hit until Friday. We had alternated days showing the market up and down the next day, and up for 10 straight days. I kept telling our locals that there will come a day when the markets will be down 2 straight days. WHAM-BAM !!! and there we were. To show how emotion is the real factor, there was an announcement that 300 of the SP 500 stocks had reported earnings and 65% of them beat estimates and about 17% met estimates. That means about 82% beat or met estimates. That sounds good to me, doesn't it to you? That was on Friday, too. No, the markets tried to rally on Friday, but finally collapsed in the last 1/2 hr. to end up down over 200 Dow points--to go along with the 311 point drop on Thursday. Earlier in the week, on Tuesday, we saw a drop of 226 Dow points, also. Monday had been an up day, along with Wednesday. Each day one of the main reasons given by the "experts" was related to the sub-prime mortgage situation. It is now showing that the prime mortgage element is being affected, too, with more restrictive rules being instituted, which will result in fewer mortgages being issued for prime-qualified borrowers. The report also stated that many more homes are being vacated, with all hope of avoiding foreclosure being given up. Of course, we have been predicting this for many months. Now it hits us that we all missed a golden opportunity---short the builders and/or buy PUTS on them (Leaps would have done nicely.) HOV, for example, was 38.66 last December and Friday it closed at 13.28. I mean, there was no doubt in our minds that homebuilding could not keep up and hard times were coming.

Overall, tho, most commentators are saying that this is a normal correction. It makes me laugh to hear them say that this decline was not a surprise to them, that it was a few weeks ago that the selling position was indicated. My memory is of most of them saying how high the Dow and SP will go by the end of the year. Hey, it was only last week that the Dow closed at a record high of 14,000. That was on July 19. Now it is at 13,265. I wish the interviewer of these people would ask them to show their positions as they are on the books now and what they have sold to back up their statements. If they believed it several weeks ago, why didn't the market drop then, instead of hitting a new high? CNBC hardly ever follows up on these comments by throwing it back at them at a later date. What is asked is what they are buying or selling now--and only by sectors, usually. If they give a stock, CNBC should mark the price down and then see what it is the next time the "expert" is on the show. Sometimes they do it but not enough.

At any rate, the economy doesn't seem to be as bad as the markets show, but that is always the way the pendulum swings--from one extreme to another. Fear has taken over right now and we just have to wait to see what happens. In the meantime, we believe our signal system will carry us thru and point the way for our investment programs. So far, everything seems to be working as it should and we are very excited about the possibilities.

Today's Thought---
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Man is the most extraordinary computer of all.....John F. Kennedy: 35th President of the United States
(Stop and think about how true it is......mike)


Mike

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