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

Stat Sheet Week Ending September 29th 2007

ChangesWeeklyAugust2nd QuarterYear to Date
IndexesPointsPercentPointsPercentPointsPercentPointsPercent
Dow+75.0+0.5%+537.0+4.0%+486.0+3.6%+1.0+11.5%
S&P+1.00.0%+53.0+3.6%+24.0+1.6%+109.0+7.7%
NAS+31.0+1.2%+105.0+4.0%+99.0+3.8%+287.0+11.9%

Highlight of this past week: CTSH--call makes 93% profit in 2 days.
In this Issue---
SplitMaster Basic System---
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The month's trading is done for September and we are pleased with the results. Our team members have apparently been pleased, also, as we are getting a lot of emails expressing their happiness over their trades. And, it was a "Feel Good" week, too. When you get back on a winning streak, it naturally feels good, but it feels especially good now. We closed out CTSH with a 4.52 point profit in just 2 days. We thought it was coming very close to a resistance point and since it was just 2 days after buying, we might as well take the profit and if it dips down, we will buy it again. BCSI is another one that we closed out, but continued to look at. It is now below our sell price, so it is drawing close attention. You will notice in the Past Results for the Basic System for September that we closed out 7 plays and 6 were winners. The only loser was NE and that stock was a carryover from a 7/31 buy date--a time when we extended a Momentum play into a Basic play--and probably won't do that again. We have quite a long list of potential plays still on the board and hope to get them active as soon as we get the proper signals.

Just a quick mention that we are in the process of updating the data thus far in 2007. Our goal is to uncover any changes in the data that would indicate even better buy and sell dates. Combining the data with our signal system is making us more accurate and profitable.

Options---
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One of our long term team members, Randy, has written to point out a strategy that frankly, we had forgotten about, but it definitely is worth mentioning. This would concern both Basic and Option players. It is a "cheap" way of investing in a splitter and since we are only in a stock for a limited time, the option consideration would definitely seem worthwhile. Here it is------

Instead of buying the splitter stock, take a look at the deep in the money option. We figure you can possibly control 100 shares of stock for 1/2 ro less the investment amount of just buying the stock--and still get the full benefit of a run up in the stock price. Of course, if the stock drops, you will lose the same amount of dollars, too---but we think optimistically here at SplitMaster. Let's take a look at a current example that shows exactly what we are talking about. BCSI, a current splitter, closed Friday at 78.76. If you bought the stock you would pay $7,876 for 100 shares. The alternate possibility is to buy the call with a strike price of 40. Since there are still 3 full weeks in an October option, that month might be a consideration. The Oct. 40 call in BCSI closed at right about 39, with a bid/ask of 38.70/39.30. At 39, there is only a 24 cent time value to the call, which is virtually even with the stock price. Yes, you have a limited time, but if the stock does what is expected of it and goes up, the Delta on the call is 100%, so the call should go up dollar for dollar. The Delta is the % move expected in a call related to the movement in the stock price. If the Delta were 50% that would mean that the option would be expected to go up 50 cents for every 1.00 move up in the stock. Therefore, you would be controlling 100 shares of the stock for 1/2 the cost of buying the stock outright.

Now, let's take this one step further. We can leave the call alone and see if we can catch a good ride up and get the full value of the move, or we can hedge a little bit. We can do an additional step and sell a higher strike price for the same month--in this case, October. For BCSI we see that the Oct. 85 call can be sold for right about $2.00. That is income to us right away, and additionally protects us for a $2 move to the downside, making our break even point that much lower. If the stock gets hot and moves back up (it's already been to 89.80 just 5 days ago) to 85 by expiration date, let's say, then the Oct. 40 call would go up 6 points, too. We would have that profit from the call and also be able to keep the $2 for the call we wrote that expired worthless. Over a price of 85, we are limited to a profit of $6 in the stock and $2 in the written call, but that's not a bad profit for a $39 investment. This could be a considerably higher percentage profit than if you bought the stock outright. The normal sell date on the stock (without any signal) is Oct. 11, so that is prior to expiration date--we can close out the position at that time, or carry it a little longer to the expiration date of Oct. 19--depending on the price, etc., at that time.

Thanks, Randy, for bringing this to our attention. Naturally, we can look at other splitters that fit this criteria---and that is the deep in the money option should have little or no time value at about the 1/2 price mark or less, and the Delta should be 100% so that a move in the stock price means the same move in the option price.

PS in the Options System---We had a very satisfying comment come in from a brand new member, Punit, who made his first play and it was in the call on CTSH. He wanted to tell us how exciting it was to make that first play and then see it come out at a nice profit, and so quickly. We can't guarantee those results and that quickly all the time, but if it was your first play, it was very nice to see it happen on CTSH. More success to you in the future, Punit, and thanks for letting us know how you did.

 Momentum Plays - This week----
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During this week, as to be expected, the earnings announcements have dwindled. We don't expect any announcement plays next week as well. However, the SPX plays (see below) have taken up some of the slack and have produced some nice profitable plays. And as you can see our split plays are doing very well too. So, we have enough systems that when one strategy slows down, another strategies pick up and keeps us busy. Past Results

Three Indicators---
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This past week we saw all 3 Indicators giving us the same signal, which was that they were all very positive. So positive, in fact, that they were showing the market to be a bit ahead of itself. We don't see that very often, but when it happens, it almost always is confirmed.

New SPX System---
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We had 3 SPX plays this past week, and they were all puts. We get our signals from the 3 Indicators, when any one of them signals that the market is overbought or oversold. We had a tough battle on our hands on one of the plays (we actually closed out 2 of the plays at the same time) that we carried forward for more than 1 day. Usually we want to be in and out of an SPX play in the same day--ideally speaking, that is. This time we had continued signals, so we bought more--and then we had all 3 Indicators showing the market overbought, and that carried us into Friday. We initially put our order in to sell at 2.70 and with the stubbornness of the market (very low volume in stock sales might have had something to do with it) we lowered our sell price to 2.50 and it was executed. We think that some of the team members didn't get to see our change of price early on, as we saw that a number of puts were sold at the original sell price of 2.70. Congrats to those that were able to benefit at that price. When those 3 Indicators were all showing the same thing, it was a confidence builder, and it did turn out to be confirmed, with another profit play going into our accounts.

We have to mention Bernie again. We can't figure out if he is that smart or that lucky---we lean toward both of them. On one SPX trade he couldn't get out at 3.00, so he held until the next day, when it opened at 3.60 and he sold at 3.70. The fun wasn't over yet, either. I think it was Friday that he re-entered a position again by placing his order at or near the bid price, and then putting in a sell order at the ask price--just to see what would happen. Lo and behold, he got it. Now we know that the spread on the bid/ask varies greatly, but is pretty much around 40 cents, at least. That was a nice move--but we're not done yet. Bernie said, "Let's see if it will work again"---so he tried it again--and it DID work again. Now, we find it hard to believe that this can be done on a regular basis, but I'll bet Bernie, for one, will be trying it again. Keep your eye on the SPX prices to see if it does move that way.

Finally, we MIGHT have an SPX play on Monday, so team members, be sure to check your email to see if we send an Alert.

 Stock Split Comments---
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It was a slow week for new split announcements, but we're not too concerned at this point. We already have 11 announced splitters that we are tracking, waiting for a signal, up or down.

The Economy & Commentary---
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The economic signals seem to be mixed and one enjoyable thing has come out of this rather indecisiveness. It has been entertaining to us to listen to the "experts" on CNBC TV debate the issue. The one item of inflation seemed to be the hottest topic last week. The extreme opposite feelings of whether we are having troublesome inflation shows that someone is going to be wrong. Rick Santelli in Chicago got into it pretty heavily with believers that inflation is not enough to worry about. Rick just asks what we do---does anyone eat and/or drive? My goodness, prices are going up all over the place. In the food area in our neighborhood prices that are advertised as sale prices are at the level the regular price used to be. Since I'm a person that looks for sales (and with coupons, even better), it is discouraging to see this. I buy popcorn in a 50 lb. bag at Sam's Club and the price has gone from the $10 level to $12.50. That's a 25% jump--and it ties in with the commodity prices showing huge gains this past year and how it affects the consumer. In the corn area, it is even more exaggerated, since so much corn is being taken by ethanol producers. I'm not sure if popcorn is used, but it could well be that less popcorn is being produced because farmers are planting more ethanol corn instead of popcorn. We can add in oil prices in this area, too. They are now over $82/barrel and gas prices are rising, AGAIN, accordingly. There are so many everyday expenses that are not on the government list that we don't feel that those inflation numbers are accurate for the everyday person.

The news on the home front was again negative. Home sales keep dropping and inventory keeps rising. The one item that really caught my attention was the median sales price. Now this is the national median sale price, not just here in southern California, where home prices have been and still are out of sight. The national median sale price dropped 7.5% from the year earlier price. So much for the "experts" that predicted a worst case scenario of a 1.5% drop---and our esteemed Fed ex-chairman, Mr. Greenspan saying he never saw the drop in housing coming. I repeat, pay me far less than these "experts" get and I know I can do a much, much better job. Of course, that isn't going to happen, as I'm just a peon out here, one of those consumers facing inflation that to many don't see.

OK, enough about negatives. Let's take a look at the positive in all this stuff. We have heard again from the "experts" that the 3rd quarter is not a good quarter for stocks, and September specifically is the worst month for stocks. Well, this year anyway, the 3rd quarter and especially September were very good to investors. Actually, Sept. made up most of the profit for the quarter. It just goes to show that it is very difficult to predict the future. The only thing we do in this area is try to predict a very short time frame, maybe even a day, as in our SPX play, or a month for our splitters. On the splitters we have data going back to 1975 that says splitters held for about a month or less makes profits every year since then, when considering the beginning of the year to the end of the year.

An interesting sector you might want to keep you eye on is that retail sector that we mentioned a little while ago. We are entering October, when our data shows that certain retailers (ones that are doing well in sales, of course) have stock prices that show nice gains from some point in October into November--with a little carryover into December. We haven't researched which retailers are doing well, or they would be mentioned. You readers can do it for yourselves, if this catches your eye. We will watch some that might be discussed in the financial news.
This play has worked over a number of years, so we will see if 2007 can be added to the plus list.

 Today's Thought---
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Great Truths About Growing Old---Forget the health food, we need all the preservatives we can get.


Mike

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