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Author: Mike Celeste Editor: Tony Ponzo August Circulation: 7232

Stat Sheet Week Ending August 11th 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+62.0+0.4%+777.0+6.2%
S&P+21.0+1.4%+36.0+2.5%
NAS+34.0+1.4%+133.0+5.4%

Highlight of this past week: SPX-Option tests had a great week, with one PUT making a 221% profit. All 3 plays were big winners.
In this Issue--- Options---
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With the extreme volatility in the markets lately we have seen the potential for exciting profits in the SPX field. While we are posting them as tests, they are available to team members for actual plays. We had 3 opportunities present themselves this past week and all 3 were profitable, led by the 221% profit made on the play. See comments in the Indicator segment.

 Momentum Plays - Wild Market---
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There was no action this week due to the wild and very volatile market. On a momentum play, a trader is counting on a direction of a stock to last at least 10 minutes or so. That was not happening this week. Each day we checked to see if the market would settle down so we could make some plays. But no sooner would we pick a direction on a stock and before we could even put an order in, the direction changed. The only play we made was to close out WY. It had a small loss but it had an amazing come back because at one point the option was almost worthless. The stock went on to go into profit territory and some members did hold on to realize that profit. We have two longer term plays that are active and have been beat up pretty good so this week we hope to do some repair work if the market will settle in even a little. It doesn't matter if the market is up or down to make these repairs. It just requires that it become more reliable in whatever direction it goes. Of course if the market trades up, that would be a good thing. Should be an interesting week but we will settle for a little boredom in the volatility at this point.

 Three Indicators---
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Last week we spent considerable time explaining the 3 Indicators so that team members would be able to understand and recognize signals for tracking these indicators. The week proved to be wildly successful in this sector of our analysis. We topped off the plays with a 221% gain in the SPX put, when one indicator, our 3 Day indicator, directed us to a put at the close on Wed. and the S+P.dropped 44 points on Thursday. It was interesting to note that the last sale on Wed. for the 1450 put was 5.60 and within the first 15 minutes of trading on Thursday, the put sold at 18.00. That put went higher during the day, but our exit point of 18.00 more than satisfied us. Also, we had 2 other test plays last week and they were calls. The gains on those two were 69% and 54%.

It is also very interesting to note that out of the 3 indicators we use, the 3 SPX plays used all 3 of them. The big winner was based on the 3 Day indicator, the 69% winner used the Spread of the Chart Indicator and the 54% winner used both the Spread and the “W” indicators. We have long stated that we think the power of the indicators had definite worth and with these markets, they are really showing their stuff. These results can be seen by everyone on Past Results, Past Options. Team members can also see these results on the Active page for Options.

Just as a reminder, we point out that we sent all team members an email alert during the week, explaining all 3 indicators. We post the numbers for each one every day, and our 3 Straight indicator can be determined by anyone near the close of trading on the day it might be a play, so each one can see if it is there, even without us posting it.

Split Comments---
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There are times when it seems that some of our team members just can't resist what they think is a definite opportunity in the price of one of the splitters. Team member, Anthony, reported that he couldn’t pass up the price on an active splitter, FFIV. In 8 days it went from a high of 93.85 to 63.09—over 30 points down for a company that is doing well, and part of the decline was due to the market and part due to an announcement that they were buying another company. Obviously there was a difference of opinion as to whether the buyout was going to be beneficial to the company. At any rate, Anthony says he just had to get in on a play. He doesn’t buy options, so he just bought the stock at the open of 66.00, up from the close of 64.05—a good chunk right there. Within a few minutes the stock rebounded to 70.88 and he took his quick profit. Later he had the opportunity to buy it back under 67, but he said he was too busy trying to figure out where he was going to spend his profit. I did a rough calculation on what the option trade would have shown. Now you have to remember that there are very few people that have the emotional fortitude to do this, but, hey, we are paper trading and we can be a lot braver. Anyway, Anthony said he bought 400 shares of the stock—if he had put the same amount of money into calls, the profit would have been $50,000. Isn’t that something!! Yes, it is, but we know that it isn’t in the realm of possibility—still fun to calculate what could have been done in just minutes. Congrats to Anthony for a good stock trade. It sure paid for him to pick a good entry point.

The Economy and Commentary---
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I believe the volatility in the recent markets set a record, and it definitely is not a market for the weak-hearted investor. Long, long ago we warned about the real estate market and stated that there was no doubt that it could affect the economy. Boy, was that understated. Now we don’t know where the bottom is in this market, especially the mortgage market. We’re finding more and more areas of the world that are being affected. It seems that investors from around the globe bought into these mortgages and some groups, like hedge funds, have gone completely under when they couldn’t raise the cash needed to keep their investment going. This volatility has affected us here at SplitMaster, too. The market is moving so fast that even our new software can’t keep up with the sudden change of directions in the markets. We base our decisions on history, be it the last 2 minutes or the last few weeks. We use minutes normally for our Momentum plays and days and weeks for splitters. With the quick changes happening, days become ancient history and not useable. I think we counted 6 changes of directions in one trading day—and that might be conservative. Because of this quickness we are not able to get our signals transformed into actual trades. This has saved us, actually, from some real mean whip saw action. We didn’t miss it all, but by far the great majority of the whip saw was when we just sat on the sidelines. CNBC couldn’t figure it out, either, with all their “experts” proving that they didn’t know a good plan for actual investing right now. It made us laugh to hear them continually say that they were buyers in this kind of market—Yes, at some point you will be on the right side by buying, but the market has had a pretty darn good correction going. Just as an example of what we think is really happening in the markets, it was noted that the Russell 2000 was actually down for the year---down for the year—going into Friday, when it rallied and is up less than 1% for the year. Remember the Dow has 30 stocks in its index, and the SP is made up of 500 stocks. The Russell, with 2000 stocks, is a better indicator of what is really happening out there, we think. Therefore, if you are wondering why your portfolio isn’t showing yearly gains of 5-10% that could well be the reason.

At this point we hope that the worst is over. The Fed pumped in billions of dollars for the credit markets and may have assured the markets that they will continue to provide liquidity and availability of money for the banks, etc. The REAL concern in money markets is not near as much the interest RATE, but the AVAILABILITY of money. Borrowers will pay higher rates, maybe on a decreasing volume, of course, but if they can’t even borrow at ANY rate, then they are in deep trouble. Those funds that went belly up, along with the many mortgage lending companies that closed their doors are examples of this problem. We don’t make many predictions, but we do have hopes, and we hope that this infusion of money by the Fed will settle these markets down to more stable levels. In the meantime, by using our other group of strategies, our three Indicators, we shift our focus there for profit potentials. So far, that is working very well.

 Today's Thought---
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In a world where the big things have little difference—it’s the little things that make a big difference……Peter Thomson: Author, personal growth strategist.

Mike

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