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

Stat Sheet Week Ending September 22nd 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+377.0+2.8%+1.0+10.9%
S&P+42.0+2.8%+108.0+7.6%
NAS+69.0+2.7%+256.0+10.6%

Highlight of this past week:--Past Results--good profits taken this past week. We hope to extend the streak.
In this Issue---
SplitMaster Basic System---
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That Fed meeting on Tuesday had us on pins and needles and thinking of that old saying "A bird in the hand is worth 2 in the bush." We took some nice profits before the announcement. You can see on Past Results how we did. Also, we waited for the Fed news and then sold JCI, which was a play for the 2nd time during its split run. We made nice profits on each play. Naturally, after the Fed decision there were higher prices on those we sold, but we still think we did the right thing. We've gone thru too many times of holding on and then seeing the stocks and options get clobbered. This is the rail track that we want to stay on, too. Our subscribers can see the list of all the splitters that are under consideration and awaiting the signal for them to be a buy. We had a buy signal on one on Friday, but by the time we got the alert sent out, the price moved up so quickly it was over the price we wanted to pay, both for the stock and for the option. We hope that it takes a little dip so we can take a position on both the stock and a call. We feel this stock is going to be a good one and there is room for it to go up quite a bit before reaching its 52 week high. That's another definite plus we like to see. It is a little nerve-wracking to buy a stock at its 52 week hi and then expect it to keep going up another 10 points or so. We'd much rather see it have to go up another 15 points to get to its high, AFTER we get in.

 Options---
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There is quite a bit to talk about regarding options this week. September options expired on Friday and we wanted to let you know how I did on my personal writing of puts on splitters. There were 5 splitters on my writing list and I'm happy to say that all 5 of them expired worthless, which let me keep 100% of the written premium, without having to spend any of it on commission to close the position. We wanted to write some more puts before the Fed decision, but that decision was too powerful to take a chance on. Now, we have some puts written for Splitmaster and showing on our Options page, and we want to write more. However, this week was so strong after that decision, that we are concerned that if we wrote them after the decision, and if there would be a general pullback, the puts would increase in value, contrary to our desires. So, we are waiting for a pullback and will look to write more of those puts on splitters that are currently on the list. Keep in mind that we feel splitters are going to go up, generally speaking, so if we write the put and if it is put to us, we believe the stock is a good buy anyway especially at that lower strike that we wrote the put for. Sort of like picking up a Big Dipper in another way. The other thing you can do with written puts is if the stock goes down to a point where it could get put to you, and you decide you do not want to buy the stock at this strike, you can always buy back that put to close and sell it again at a lower strike. This is a creative play for sure but as usual we suggest that only those that completely understand and have experience with options, make this play.

Another option strategy that is under consideration involving the splitters is to take a stock position, then write calls at a high enough strike price that would show a nice stock gain to get to the strike price, plus the amount received for writing the call. We would be looking to see if we could make what the average splitter gains. As an example of this we might take a look at BCSI. We have already taken a nice profit on this one, but have time for another play during its split run. The stock was up 2.57 on Friday, closing at 84.48. If we look at the October 90 call, we see it quoted around 3.00. Let's say the stock runs up to 94. We would make 5.52 on it getting to the strike price of 90, and then we would get to keep the 3.00 for the written call, making a nice gain of 8.52. If it goes to 100, we do miss out on a higher gain, and many times I would say I'd rather wait for the big winner--but lately we have not seen those big winners, so a 8.52 gain looks pretty good. The other benefit to this strategy applies if the stock falls. If the stock drops from 84.48 we are protected for 3 additional points to the downside, or a break even point of 81.48--and that is because of the 3.00 we received for writing the call. We also like this when the call options are at high premiums, with all time value in them.

The regular option play isn't too shabby, either. Some of the Basic system splitters have shown very good returns on the calls. We got out of some positions because of that upcoming Fed decision, and then saw the options take off when the news was so good.

The options are also available on the Momentum Play and the SPX Play (more on them in their separate sections). Lots of option potentials in our systems. Take your choice.

Momentum Plays - Some Action---
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We got a little bit of unexpected action this week. I say unexpected because due to the time of the quarter, the earnings plays dwindle down and we had only been able to come up a few plays. Just as we thought it might be over for the quarter, we got quite a few potiential plays. Unfortunately, we only were able to execute one of those earnings plays but it was a good one. There were two more plays that several members were able to get into as they were more aggresive than we were. And they were both winners. So congratulations to those members. We were also able to get into an SPX play (see below) which gave us a nice profit as well. See Past Momentum Plays

We are anticipating a return of the drop of announcements now until the second week of October. This is normal as we always state. However, we will keep watching. There may be some plays we can find during this time. Also, as the earnings plays take their rest, we can concentrate on the SPX plays. They do not come everyday but when they come, they are usually nicely profitable plays.

Three Indicators---
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The 3 Indicators are continuing to do a good job. They have been very accurate and are a great aid. Team members can look on the Big Dipper page on the site and see them every day.

New SPX System---
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We had a new play this past week and it was a profitable one. We didn't play the higher priced put, but decided to act on the safe side and went for a lower costing put with an October expiration date. Team members note that we are going to enter a new SPX play next week, so be ready for an email alert. This system has worked out very well so far, in the testing and also in members plays even before we went official with it. We were profitable this past week, and we look forward--very much so--as we get ready to take another SPX position next week.

Since we like to think we are educational as well as having 31 straight years of historical net profits, we would like to say how gratifying it has been, especially lately, to get reports from team members that are catching on to some of our plays that require decision making. For instance, we give a strike price and say what price we are trying to get in at, but that doesn't stop the members from making their own decisions. More and more we are getting reports that indicate members are doing even better than the goal prices we set. Nothing is hard and fast in most of our strategies.

Especially in regard to the SPX plays, we want to point out that we enter positions that are far out of the money. That is because the SPX option prices are far too expensive for us to invest in, and for most of our members. We like to be under $10 in option cost, and preferable under $5. The SPX options are a different animal than regular stock options though for two reasons. One, the volumes on these options are huge so they are very liquid. Two, the fluctuation in price swings are more than most options so when you place an order in you have a good chance of getting executed - of course that assumes your order is at a reasonable price between the bid and ask.

Sometimes we go over $10, but not too often. We are either buying a call or a put in this system. We are not writing calls or puts. The other very important factor involves expiration dates. And there are 2 points in this area. First of all, the SPX options expire on a Thursday, at the close, instead of Friday, at the close, like stock options expire. You have to be careful and aware of that. The other point is that if there is a play near or during expiration week, and we are entering a new position, we would enter the next month's option. For example, this week the Sept. options expired, so for any play starting this past week, we would be looking at the October option. That way we don't have to worry about needing the option to drop way down or up to our strike price (remember--we buy far out options, where they are entirely made up of time value, and not a penny of true value. If you bought Sept. options this past week, you had to be very nimble and make sure you allowed yourself enough cost, etc., when starting the position. The additional factor about expiration week is that sometimes we would get another signal for the same direction for the very next day, so we would continue to hold our position (or possibly even increase it) into another day--and maybe even further. By going into October options, we allow ourselves plenty of time, even tho we are hoping for a one day play.

 The Economy & Commentary---
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What a blockbuster from the Fed, wasn't it?!!! We were very cautious about getting into anything just before the Fed news was released, and it looks like most of the investment community felt the same way. The news was great and also surprising, for if it came as expected to the good side and drove the Dow up over 336 points that day. We felt that there were 3 moves possible and 2 of them could have been down. The big deciding factor was gong to be what the Fed said or hinted at--and that was really good stuff, as it turns out. If they did what was expected, there could have been a sell off on the expected news, taking profits from the big run up the week before. If the Fed did less than expected, there could have been a bigger sell off. Or--if the rate cut was good and in addition the explanation was good, then we thought we could see an up market. We got all the good, and the rest is history, as they say. So, for at least the time being, our investment people are satiated. How long this will last is unknown to us, but our confidence in splitters has paid off. We are close to entering a period when retailers catch our attention. For the last several years we have tracked them and found that purchases of leading retailers in October has shown very nice gains. That's a freebie for everyone--track them in about a week and see how they do, month by month until the end of the year. I think we saw that they reached their peak, in general, before Dec. 1. Remember, its the leaders we are watching, not the retailers that are not making their numbers.
The 4th quarter should be very telling for the economy, and point us in the direction we will see going into 2008. Consumers are the driving force behind the economy and if people aren't buying, the markets would be in for a tough time. We like what we see so far, but it is early in the game.

 Today's Thought---
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A single idea--the sudden flash of a thought--may be worth a million dollars.......Robert Collier: 20th Century author........and then again, it may be worthless....(Mike: a lifetime observer)


Mike

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