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Author: Mike Celeste Editor: Tony Ponzo September Circulation:

Stat Sheet Week Ending September 1st 2007

ChangesWeeklyAugustYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow-21.0-0.2%+146.0+1.1%+895.0+7.2%
S&P-5.0-0.3%+19.0+1.3%+56.0+3.9%
NAS+19.0+0.7%+50.0+2.0%+181.0+7.5%

Highlight of this past week: SPX--goes off testing and on to the real thing.

In this Issue---
SplitMaster Basic System---
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Usually volatility is a good thing for splitters. We like to see stocks move up and down as it gives the stocks a chance to show their stuff. However, at this point, the volatility is so fast that it is just about impossible to make a move without the market reversing direction by the time we would get an order in. There are lots of splitters now, but we have only 3 on our active list, and it is all due to that wickedly quick movement in all stocks, it seems. Two of the 3 are ahead, but we are not able to take advantage of the split theory as much as we would like to. Some stocks race up, announce, and then race ahead another 10-20%. Others race ahead, announce, and then fall back, recover, fall back and recover. It has been impossible to determine which ones are going to take off from new high ground, and we notice that the "experts" can't figure out the general market, either. Sooner or later though things will get back to being more predictable.

 Options---
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We mentioned a little while ago that we shouldn't ignore writing puts. We know that hardly anyone of our team members have been into this aspect of splitting, as we can see by the volume on the options that it just isn't happening. Well, I got tired of no action in this area, and on last Tuesday, August 28, I wrote puts in 5 different splitters. They are posted on the Past Results, Options, for everyone to see how they are going and to track them. The object is to watch them deteriorate to nothing by Sept. expiration date of Sept. 21. What I did was wait until we had an Indicator give us a signal that the market might drop. We saw the signal via the W Indicator, and when the Dow was down about 150 points on Tuesday, we started writing. The Dow had leveled off at that point, so we thought it might make a good entry level. WRONG ! The Dow ended down 280 points by the end of the day, so I was far from getting the best prices of the day, altho the entry prices weren't bad. By the end of the week, all were in the profit position, having dropped in value from the prices I sold them at. Remember, writing puts means you want the put value to drop, so you can buy them back cheaper, or wait until expiration day and hope they are worthless---no commission that way. I am still looking for good puts to write--trying to get as far down from the current price as possible, while still bringing in a decent price.

 Momentum PLays - Still Slow---
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The Momentum Plays are still slow to come mainly due to lack of earnings announcements and the extreme volatility that still seems to persistently hang on. It reminds us of the hot weather here in Southern California. It stubbornly hangs on this time of year. The market is not as volatile as a few weeks ago - that's for sure. But it is still volatile enough to make it difficult to enter a Momentum play with any amount of certainty. We had several picks this week but only one turned into a play (JOYG) and it went against us giving a small loss. So there is not much to talk about this week. We'll keep pushing forward. Now that the new month is here, and most traders will be back from their summer vacations, maybe we can get back to a better market. We are working for the type of action we had in July with a 93% plus win rate.

 Three Indicators---
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The Chart Indicator has moved back into positive position, and that is always good news. That happened even tho the Dow and S+P were down a bit for the week. The Nas has been up for the last 3 days of the week, so that is a short term down indicator. Our W Indicator is at 94, which is also indicating a short term down move. Actually, the W was at 97 with 15 minutes to go on Friday, and the market dropped quickly in that little time left for the day.

New SPX System---
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Our excitement is building for this system. The test results for our trial period showed 12 of 13 plays were winners--with the losing play dropping about 1.60 is all. In fact, we didn't even post it, as it didn't have a full indication that it should go down. We have been testing the SPX, and yet we hear from team members that have been doing well with actual plays. We sort of got tricked with the indicators for this on Friday. Two of the 3 indicators showed a short term down move for Monday, so our usual move would be to buy a put 10-15 minutes before the close. At least, we would like to let our team members know what the indicators are showing at about that time. In fact, we didn't even post it, as it didn't have a full indication that it should go down. At present time we are posting the 3 Indicators and their numbers on the top of the Big Dipper page for our team members. It needs a different place, as this is an option play, and the options are posted on the active Option page and when completed they are posted to Past Results, Options page, for everyone to see. We live and die by posting all of our plays, gains and losses. Let's hope we can continue with even close results to the test period. Anyway, back to the Friday indicators. Since the put is all time value, with it is deteriorating each day, and with a 3 day weekend coming up to take away even more of the time value by the time Tuesday rolls around, we right away changed our plans and voted to wait until shortly after the open on Tuesday to see the market direction. This way we hope to catch more of the loss of the time value in the put, so it theoretically is to our benefit. Well, it hasn't started out that way, as the market started dropping the last 15 minutes of Friday, and the option we selected, the Sept. 1350 put, went from 4.10 to close at 5.00-5.10---all of which would have been in our favor, of course. Keep in mind that a team member can select any other put that they feel more comfortable with. We are going quite a ways from true value in order that the option cost be kept somewhere in the 5.00-8.00 range. We will track at least one other put that is closer to actual value, but that is the theory we are using for which put we select. Also, we let you know in advance that the Indicator can continue into the next day, or even days, even tho we want it to be a one day play. Our studies, going back into April, show that when the direction does turn, it makes up lost ground and the majority of the time shows a profit--there were a couple of very small losses with these kinds of markets. Let us know if you pick other strike prices and how you do, or even send in your comments--this helps all of us.

 The Economy & Commentary---
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Predictions----tough thing to do, and I had one slap me in the face pretty hard. Last week I stated that it seemed like the markets were calmed down, that the Fed had assured investors that credit would be made available, etc. BOOM !!! Tuesday showed how wrong that could be, with the Dow dropping 280 points and Nas dropping even worse, at -60.61 (over 300 Dow compared points). The next day, Wed., the Dow went up 247 points, almost making up the entire 280 point loss, with Nas rising even more, at plus 62.52. Friday saw another Dow triple digit day, rising 119, and the Nas even more again, up 31.06. As you can see by the stats, the week saw the Dow and SP drop, while the Nas had a gain. The volatility in the markets is still there and still pretty doggone strong, too. The economy looks decent and the number of splitters is good, always a positive sign--at least to us, it is. It's not even the volatility by itself that is the problem, it is the sudden reversal of directions so many times in one day that is the problem. We can't get a good fix on the markets when that happens. When Sears gave its earnings we tried to play it in the Momentum system and I lost track of how many times the stock price changed directions in that one day. Finally, Pat and I said, "Let's see if we can make a profit both ways by buying a call and a put" (paper trade). Son-of-a-gun, it worked, and all because of that rapid change of price direction. We don't want to start doing that, tho, because it will surely change if we do that. Calmness has to return to the markets at some point. There is one thing that bothers me, tho. That is the question we ask ourselves---Are we getting the really true picture of the condition of the financial companies that are involved in mortgages? Somehow, in the back of my mind, I'm waiting for more news to come out that will show the picture to be darker than it is now. On the other hand, there is no doubt in my mind that we will work our way out of it, even if it requires a helping hand from the government. If that happens, it will not be the first time, even in the mortgage business. There was an article that said that back in the 1930's the government established some agency to help people with their mortgages. Dust that one off, and let's put it to work again. Yes, the taxpayers will subsidize it somewhat, but that is better than all of this bringing down the economy. There was also the statement that the adjustable mortgages will see the greatest number adjust in 2008, so we have the worst to come---let's hope we plan accordingly, in time to prevent something we don't even want to think about from happening. In spite of what seems to be government inefficiencies and taking too long to take steps, the right things do eventually get done, and it might cost more, but it does get done and it does help. We will continue to have cycles in the economy, that's just part of that magic pendulum that we talk about from time to time. Things just swing from one excess to another, but at the same time there is a lot of in-the-middle of that pendulum where lots of good things happens. Keep the faith.

 Today's Thought---
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Man is the most extraordinary computer of all......John F. Kennedy, 35th President of the US.


Mike

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