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Author: Mike Celeste Editor: Tony Ponzo October Circulation:

Stat Sheet Week Ending October 20th 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-571.0-4.1%+1.0+8.5%
S&P-61.0-3.9%+83.0+5.9%
NAS-80.0-2.9%+310.0+12.8%

Highlight of this past week: SPX--continues to show its power.

In this Issue--- SplitMaster Basic System---
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We were wondering where the new split announcements were, and this week we saw some new ones roll in. That increases our supply and will also increase our option potential.

Options---
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This past week saw the written Put options expire worthless, so they did pay off nicely---all with 100% profit. The profit didn't require any buying, but did require assets in the account. This system is best used by investors that have assets just sitting in the account--drawing interest, most likely. We had neglected them recently, but we are back in them, and it was some nice "side" money added to the account.

Momentum Plays-Seven weeks of 100% Wins---
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Most of what I have to say about the Momentum Plays is covered in the SPX section below. The earnings plays have started back in and we will have earnings plays next week for sure. But as we have said recently, with the great results we have had in the SPX play we will concentrate more on the SPX and only play those earnings plays that we have had good success on before. Yesterday we had one such play - COF, and once again we had a nice .45 profit.

Click Past Momentum Plays and check it out. We have had 14 straight winners - mostly SPX plays. The month of September had no losses and so far the month of October stands at a 100% win rate. We realize that we can't continue to have a 100% win rate forever but we are certainly happy at our 100% win rate since the beginning of September.

Three Indicators---
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These 3 Indicators just go on and on, like the battery in the rabbit. Team members should be looking at these daily as they have proven themselves time and time again. We base our SPX System on these and they have been excellent predictors of the near term market.

New SPX System---
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Lately, we have been having our greatest success in this system, so we continue to dwell on that which is doing the best. It was a very interesting week because this was the week that the SPX options expired (on Thursday, 10/18). We hadn't paid much attention to expiration day before, but we did this time. The concern was that on the day the options expired, the action was little known to us. We hesitated about going in on the October or the November options for the SPX. We ended up going into the October SPX options to see what would happen.

They did very well and in fact, we think that options expiration week is a great time to do the plays. Our week was very good and we like to think we are getting a better handle on it all the time. It does get to be pretty tricky for us, but we are narrowing down our concerns and getting answers to our questions about how this specialized market works. There is a whole lot more to learn, but we are making good progress and good profits as we learn.

This week we had 5 official SPX plays, or an average of 1 per day. However, some of our team members reported making as many as 4 plays in one day--and a good number of reports of multiple plays in 1 day. We did have a double play day during one day this week, and we should have more to come, as our proficiency and understanding of the makings of the SPX improves. We have a lot of experience on options in general but the SPX options definitely bring up opportunities that regular stock options do not have. The more we get into these options the more they seem to present us with creative alternatives.

Knocking on wood (and knocking very hard), we continue to report that we have not had a loss in this system. There will come a time when a very sudden and deep move up or down will get us, and a loss will result. However, our strategy does allow for some time go by before this happens. As we say, it will have to be a very deep and quick move to get us. Even on Friday of this week we were able to avoid a loss, while still ending up with a profit. The first day since Oct. options expired was a feeler for us, and we were pretty conservative. As it turned out, you would think we should have made a fantastic profit with the Dow dropping about 367 points--but we didn't do more than make a small profit. Luck goes both ways, and it seems we catch the downgrades and bad news at the wrong times in the splitters and today we had bad luck in the timing of our play. The market was down a bit over around 220 points when we took a position in a put. Then there was a rally and we figured we had some time to get out at a small profit, and we waited for the rally to stop. Well, it continued and we waited extra long before we finally got out---and it was a tough battle, changing prices down 10 cents at a time. Wouldn't you know---yes, you do know what is coming next--that was the end of the rally when we got out. Now, our members got in from 5.20 down to 5.00 and then got out at 5.20 to 5.30 and some even got 5.40. We reported on the conservative side, saying we made 20 cents profit (an average figure, we think). That was it for the rally and the market dropped more than twice as much as it was at that point. The put went from 5.40 to a high of 9.90 actual sale, with the last bid/ask being 9.10 bid, 10.00 ask. We left a lot on the table---and our Indicator said it was going to be a down day--we just didn't know how much. No one could have known that the market would suddenly take this extra big drop.

How much can be made and what is the potential in this system? We told you about Friday just above, and now we can talk about the play we were in on Thursday. The low on the option we played that day was 2.10 and the high was 13.30. Two other days the Put we selected and the one we were in ended up tripling in price. We repeat--we have been conservative, going for less than $1 profit generally speaking---BECAUSE a .60 or .80 cent profit is still pretty good for 20 minutes worth of work and we don't know anyone who has figured out how to predict the immediate future of the market. Also, with team members reporting daily profits in the thousands, no one seems to be complaining. We DO remember, tho, the days when it was tough to get out with 20 cents profit, or we made 50-70 cents and that was the best for the day. We're trying not to be greedy, but we do want to try for higher profits per play.

Another direction we are shooting for to make more profits is what we mentioned above. More plays per day--and we think that is definitely doable--and now. Some of the feedback from the team tells us that it is not only possible, but is actually happening.

Look, we don't want to overdo this enthusiasm, but we have a passion for this option trading, and we get excited and it is really nice to see others making nice profits--even more than us many times. When you get on a roll, it is really fun--and we have had those times before with the splitters and we saw the size of the profits in splitters slow down. Now this SPX seems to be taking its place.

One final comment---As many readers expressed over time---they want to see something that can make money in both an up or a down market. This SPX System is geared to do just that. Speaking a little ahead of ourselves, we are testing both a CALL and a PUT to be bought in the SPX at the same time--or an attempt to buy both, that is. They would be at different strike prices, of course. The logic would be that there are rallies and declines throughout most given market days--and we would try to catch both, without reaching the point where one is at a loss. We have a hunch it can be done, but one thing at a time. For now, we are aiming at multiple plays in a day. When that is pretty consistent, we can move on to trying to go both ways at the same time.

 Feedback---
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We think that team members and readers of the newsletter would like to know what other members are doing by being associated with SplitMaster. Here is some of the feedback we have been getting and this is primarily in regard to the SPX System---Remember, these are not our words, but words from our team members---all from this past week.

1, "SXMVG IN AT 3.60 OUT AT 4.60..THAT WAS A GOOD ONE. WAS IN FOR 9 MINUTES."

2. "Momentum Play--already in at 4.00 and out at 4.70 of the sxmvh"

3. "It's so easy to trade 'x' contracts. And as we have seen, we can make thousands doing it that way."

4. "We're having a great week. Best week I've had in months so I don't need to rush into any bad situations.

5. "I've been in and out of the sxmvg's twice this morning."

6. "Also, I got in the spx play today. I bought at 2.10 and sold at 2.65. I
should have sold at 3.00, but not greedy."

 The Economy, The Markets & Commentary---
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We have been saying for some weeks, now, that the markets were overbought--plain and simple overbought. That was based on our Indicators that we developed over a long period of time. Our readers have benefited from this, and were able to take advantage of the recent downturn. The economy now seems to be moving away from its mixed reading and leaning toward more negative news about earnings, warnings, and the affect of the housing and mortgage markets on the rest of the economy. You regular readers of this newsletter know we warned about a major happening downward in housing, just based on mathematics. Now we are finding out that the situation is spreading throughout the financial markets. We will warn you on one thing the "experts" have been saying about this sector. Financial institutions are reporting huge write-downs and charges to earnings for the quarter, and saying that the worst is now behind them. Take a big hit and move on is what they are saying. There is one problem with that---most knowledgeable people have been saying (and I believe them) that these financial people don't even know how bad the situation is, because they don't know the real value of the mortgages they control. They can actually set their own value, and make it look better than it really will end up being. Also, it doesn't help when some housing group, another bunch of "experts" says that the price decline in housing will be 2%. It's already been reported quite a bit more than that. Talk about living in lala land--and they are not from Los Angeles, here where we are--the supposed king of lala land.

Factor in the price of oil moving up over $90/barrel on Friday and we have even more negativity to deal with. We have inflation--at least the average working person has inflation, and more than they would like to see. But wait--we have an election year coming up and we have a ton of candidates that claim they can solve all our problems if we only elect them. Problems solved---

When these negative things are happening, it doesn't help to have some media people keep hammering all week on past negatives that really don't have anything to do with this present day. I'm referring to CNBC all week bringing up the anniversary of Black Monday, when the market dropped 25% in one day. First they said it was the week of the anniversary, then the days approaching the actual date, then on the date of it---every day talking about that day. We have many safeguards to prevent a recurrence--not to say it couldn't happen, but it couldn't drop 25% in one day, because the rules would close the market long before 25%. There are enough economic concerns facing us and we don't need anything more than a reference to that day in 1987.

On the other hand, there are many prospering companies and new companies that are being developed because of negatives in other companies. That's the beauty of a free economy; it is always changing and evolving and introducing new and better things into our lives (even if I am so far behind electronic gadgets my grandkids call me a dinosaur).

 Today's Thought---
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Knowledge is the eye of desire and can become the pilot of the soul........Will Durant, Philosopher

Mike

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