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Author: Mike Celeste Editor: Tony Ponzo September Circulation: 7231

Highlight of this past week: SPX--System still showing outstanding possibilities.
In this Issue--- SplitMaster Basic System---
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We finally closed out NE and it was a real tough one to figure out. Of course, we got "lucky" and sold it on Friday, the day the markets crashed again, so we lost quite a bit from the previous day's close. It is so hard to figure out why certain stocks go one way and others in the same category, with the same outlook, go the other way. NE is rated very high by most "analysts", including Motley Fool (via their CAPS system--and I like Motley Fool's logic in general). So is MDR, and they are both in the energy field. NE lost ground in stock price, while MDR went up from 73.50 to 99.96 in about the same period of time. That is further proof to us that we like to group them all together and the results should show a profit at the end of the year. This might seem strange, with all the market volatility, but we actually like the market's chances of advancing in the area of splitters. We will soon be going into the stronger months of the year, and we certainly look forward to getting there.

Team members, look for a buy order coming up on Monday, unless there is a pre-market that is down strong--we will advise by Alert.

 Options---
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We entered some orders for calls recently and the stocks behind them look strong to us. Also, I have been entering more written PUT orders--on JCI and a 2007 splitter, EME. However, I wasn't able to get those 2 orders executed and will probably try again this coming week. While this past week saw profits erode on the written puts (see them on the Past Results, Options page, bottom, for Mike) they are still showing overall profits. We know that most of you don't get into this area, but we like it and our plan is to do more PUT writing.

Debbie, our famous, fabulous female continues to rock and roll with options. She is playing almost everything, short and longer term. She even made Momentum play 2-way profits, playing the CALL and PUT side on the same stock, on the same day. She has a great feel, and while sometimes she gets out a bit early or late, she is doing a great job. (She bought the Sept. MDR CALL instead of the August, and is reaping the rewards, BIG TIME, on what she bought.) Big congrats to Debbie.

 Momentum Plays - Still Slow---
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There are two things making this strategy slow at this time. One, is it is the third month of the quarter and the amount of announcement plays that meet our criteria are dwindling. As I always say, there will be plays over the next few weeks but they will be harder to come buy. Two, just as we thought the market was settling in to a more normal pattern, the volatility really picked up again with the sub-prime and credit issues being the reason. As a result we had no plays this week. We tried to get in on a couple of plays but there either was not enough action in the stocks or they moved too wild to pick a decent in. So, we have to employ patience once again. About the only good thing with times like these is it prompts us to brain storm and test and consider other ideas that might improve or add to our existing strategies. That is what we are doing now and if we find anything really interesting or promising, we will certainly let you know.

 Three Indicators---
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With the drop in the indexes this past week, we see the CI is still positive. Of course, that is encouraging, after seeing the Dow drop 250 points on Friday. The CI is the basis for the Spread Indicator, and that isn't close to being a signal either way at this point. The NAS3 isn't close to a signal, either, along with the mid-range of our W signal number. We post these daily for team members, presently on the Big Dipper page, at the top.

 New SPX System---
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After being specific in describing what to look for in our new SPX system, we found some team members that did better than we did--because they followed the instructions. Hat's off to you winners for the gain on the play for 9/4 to 9/5. We hit it on the button by waiting for the 3 day weekend to pass before we would enter the SPX position. The market went the way we expected, along with the time value of the out-of-the-money SPX Puts. At that point the Nas went up 4 straight days by the close of 9/4, Tuesday.. That should have indicated (along with our W signal) that a play was to be effected. Because the market was strong on Tuesday, we did not enter the play near the close, but waited for the open on Wednesday---in opposition to the instructions we gave about getting in the play near the close, which would have been on 9/4. Wednesday the markets were weak from the start, so we missed an official play. Some team members did get into the play Tuesday near the close---and they did nicely on the SPX Puts. More congrats to those of you that were more aggressive than we were.

We did not have a signal from any of our 3 indicators going into Friday, and it would have been nice if there was one, as the S&P dropped 25 points that day, and the Puts would have made a handsome profit. Then, again, we have to look at the reason for the drop on Friday. That reason was clearly the jobs report, which didn't come out until Friday, so we couldn't have had a signal, anyway.

We have very strong feelings about these signals---and if you are experienced--and only if your are experienced in trading options--keep your eye on this system.

 The Economy & Commentary---
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There are times when the "experts" drive me absolutely up the wall with their analysis of what happened in the markets---and most of them are about worthless when it comes to predicting the future of the markets. This past week was definitely one of those times. There was a government report that came out that appeared to be negative, but the markets went up (so it certainly was not the Friday Jobs Report). The "explanation" was that negative news was good for the market because that should drive the Fed to lower the interest rates. Well, the Jobs Report was negative on Friday, but no explanation that such was a good thing, as it should push the Fed to lower rates quickly---no siree, indeed. That negative report crunched the markets, big time. If any of you can figure it out, let us know, because we can't. If the logic makes sense one way, then that logic should have much the same results if it happens again--and it didn't. Remember, this is coming from the same "expert analysis" that said the housing market would have a soft landing, and there would be very little price drops. Tell that to the historically high record number of people that are losing their homes to foreclosure because the price drops have caused them to lose all their equity, and they are unable to sell at any price above what they owe. We still feel the Fed will take care to see that credit will be available--but we don't make any predictions, as we just can't read their minds. In that same vein of thought about mortgages, there was a report out that many foreclosures are happening to speculators that don't live in the houses. They hoped to buy and "flip" the house at a higher price because the housing market was so hot. We keep trying to tell people that mathematically those price increases have to stop--you can't get so far out of whack with other aspects of the economy without paying a penalty. Anyway, there seems to be little sympathy for speculators that are losing to foreclosure, but our experience shows that when there is a bailout, it helps the needy and the greedy, also. That is not to say there is going to be a bailout, but there is a lot of discussion about some program to help the situation--and that will help all of us as an economy, so if we pay a price out of taxpayer's pockets, it could be a good thing. Just look back some years to the bailout of big companies, like Chrysler and the NY Central Railroad--and then the bailout to the Savings and Loans. The needy and greedy all got help, and it helped the economy, so it just seems to be the price we have to pay to have some sort of stability--otherwise we can all suffer a whole lot more.

We have a great deal to look forward to in the economic areas in the near future, and the markets will react to news as it always has. The degree of importance will probably determine the volatility in the markets--and that's what makes the markets--volatility due to a certain number of people thinking one way and another group thinking the opposite. Interesting times we live in, isn't it?

 Today's Thought---
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Do you realize than in a relatively short time we'll have tens of thousands (maybe even millions) of old ladies running around with tattoos, and RAP music will be the Golden Oldies--along with that number of old men wearing earrings. Oh, my............I'm too old


Mike

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