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Author: Mike Celeste Editor: Tony Ponzo November Circulation: 7224

Stat Sheet Week Ending November 10th 2007

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-552.0-4.1%+580.0+4.7%
S&P-56.0-3.7%+36.0+2.5%
NAS-182.0-6.5%+213.0+8.8%

Highlight of this past week -- MEMBER BERNIE --- On a day we took off Bernie trades on his own and makes a new record with 6 profitable trades in the SPX--in one day--AND....see below.

In this Issue---
SplitMaster Basic System---
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This is the time when we think being conservative pays off. We have just had a terrible week in the markets and yet when we look at our Basic System splitters, we see that there are two stocks on the list and both of them are at profits at this point. This is why we keep saying that stock splits usually come from companies that are doing well---at that time. The ones in play now are the symbols IDXX and D. You can follow them to see what they do from this point if you are not one of our subscribed team members.

Big Dipper System---
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A week of extreme drops in the markets and yet we have yet to see even one of the splitters on our "watch" list hit our lower target Big Dipper buy price. You would think at least one of the splitters would drop down to the buy price, but in looking at the list there isn't one that is even close to the target buy price. We know that it will happen sometime, but for now, we have to just wait for the buying opportunity to present itself.

 Options---
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Looking for buying opportunities might shine a light on this area of investing. Some of the splitters that have already passed their Basic System sell points have dropped and puts that we wrote and did not close out at sell date are now in the money. The strike prices picked were at prices that appeared to be good buys if we had to buy them if the put were exercised to us. We point out that they are all well past the sell date for the stock, so we made out well by selling the stock at the given dates. Now we will see how the put ends up at expiration for November strike puts - this coming Friday. Will they really be good buys? Time will tell, but with so many stocks taking a dive, these on the written put list are certainly not alone.

Momentum Plays - Important Tax information---
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Again, we had a pretty boring week with only one play. It was boring unless you factor in the trading that some of our members did on their own such as the story we told about Bernie this week. Since this market was so erratic and down this week, we became too cautious, trying our best to make sure our members get profitable plays. Well, in doing so we didn't make any plays. (but one) So we took a day off on Friday, not from work, but from making these SPX plays with the members. After watching Bernie on Friday, we are looking forward to getting a little more aggressive this week and get back into our winning pattern. It's easy to forget on weeks like this that for the month of September and almost all of October, we had a lot of plays which were all winners but two. So, we look forward to getting back into that winning cycle.

Now, for those members who follow the Momentum plays which include these SPX trades, we have some important tax information to give you. The end of the year is getting near and you should know this information to report your taxes this year. Even your accountant might not know this information, so you need to let him/her know.

The SPX options are considered section 1256 contracts and regardless of the holding period, profits and losses are treated as 60% long-term capital gains and 40% is treated as short-term. This, obviously becomes a nice tax benefit if you have a lot of profits on these plays. So if you can, you should separate all your SPX plays on an Excel spread sheet and give it to your account and let him/her know the rule on these plays. They are reported on Form 6781 and Schedule D. We are not accounts so the information given here is the extent of what we can tell you. However, once you explain this to your accountant he/she should be able to take if from there.


Three Indicators---
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Maybe it gets tiresome to keep reading how accurate our 3 Indicators have been, and continue to be, but we are thankful we have them. We had been showing at least one of them indicating overbought conditions in the market for quite some time. That was our warning and we hope we took advantage of that warning because stocks have been selling off severely and believers in the indicators could have saved or made quite a bit by acting on these signals. Now we are starting to show oversold conditions. Let's see if the market has some good up days this week making the indicators correct again.

New SPX System---
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OK, here is the sector again. Up in the Highlight of the Week section at the top of the newsletter, you see Bernie as the weekly feature. This is a first for us; highlighting a team member. However, his results are so outstanding we couldn't resist telling you about what he did this week. As you know, our SPX plays are day trades and can be done more than once during the day. We also state that we hope that team members can act themselves, once they get comfortable working in this stressful environment. Well, Bernie has taken to the SPX like a duck takes to water. He reported making 6 profitable trades in one day, a record as far as we know. BUT--we're not done talking about Bernie. He did 6 profitable trades on one day TWICE this past week. He closed out Friday's six profitable plays (out of 6 total plays--no losses either day) in what seems to us to be extraordinary conditions. Bernie's six plays were 2 puts and 4 calls. The reason we use the word "extraordinary" is because we all know that the Dow dropped 224 points Friday--so making profits on 4 calls really seemed exceptional. To catch the market on upturns during a day like Friday was something to watch. We say "watch" because Bernie's trading habits are visible with some of the tools we use. Level II provides real time listings of stocks and options as they take place and it leaves a running history of the price of the trades, the size of the trades and the time of the trades. Now Bernie doesn't do things exactly the same all the time, but he does often go for the 30 cents profit that we also go for. We have to say that unless Bernie can read the future, there is some luck in his trading. Now let me make this clear--Bernie is an exceptional trader and we are very happy we turned him onto the SPX plays--and he uses charting to help him make even more decisions than we send signals for. Anyway, when we see an entry point in the option and a minute or two later the same number of options go at 30 cents more, we say to each other, "That must be Bernie". Some times we send an email to him when we see the beginning of the trade in the SPX strike price we recommend. Most times he confirms that he is the one getting into the position. That way we can tell if he makes a profit or loss later on. The luck hit us smack in the face during one of the trades. Bernie got his order in before us, which is fine, and we added our options on top of his order. Wouldn't you know, his options were sold to him while our order remained open. Then a minute or so later, we saw the 30 cent profit trade go by and Bernie confirmed it was him. Now that's pretty lucky--we never did get into that trade. This next "Bernie story" happened the latter part of the day, Friday. His last play was in a put that he paid 2.90 for and the market had a rally up and the put price went down to 1.25 bid. I can also tell you this about Bernie. It seems he is fearless and experienced enough to hang to his belief and has often doubled down--and doubled again, if necessary. Well Bernie held on to his put and the market collapsed at the end of Friday's session, dropping 162 points in the last 35 minutes of trading. His puts were closed out at 3.60, making him his last profit of the 6 for that day, a nice 70 cent profit on his original purchase. However, we don't want to make Bernie the guru with all knowledge and knowing exactly when to get in or out. He reports often that he left large profits on the table by getting out too soon, but at the end of the week he is sitting with an extremely good looking balance sheet for his trading. Big, BIG congrats to Bernie--a natural for the SPX system.

We mention all this about Bernie, because it could be you, too. We know it makes us more determined than ever to do better, for our team members and for ourselves. If someone can't give us motivation with these results, then we should be doing something else--and speaking for one, I don't want to do something else.

 The Economy, The Markets & Commentary---
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It appears that this past week saw the see-saw feelings about the economy swing definitely in one direction---and it wasn't to the good side, either. The severe drop in the markets this week resulted in the Dow dropping 361 points one day and ending the week with another big loss of 224 points. What caused this? It's pretty simple, really. FEAR caused the drops. We have warned about the mortgage fiasco for almost 2 years now, and pointed out that it can affect the economy, because housing is such a single large part of the economy. A number of factors are coming to light, and the truth will be known at some point. The "experts" had the financial people convinced that the worst was over in this area. The problem is, these "analysts" have continued to say the worst is over. Not true--not true by a long shot. Yes, at some point the worst will be over, and someone will get a lot of credit for predicting when it would happen. People forget easily and they will forget how many times that "expert" was wrong. I can predict things, too. I predict there will be a hurricane that will hit and do a lot of damage during the season. That certainly doesn't make me an "expert" in the prediction of hurricanes. These people have misled us for so long it is really pitiful. It hurts to watch our Congressional leaders demanding explanations of how this happened to get to this point and how can we stop it from happening again. Where were these "leaders" (party doesn't make a difference, they are all the same) when housing prices were rising so fast it defied reasoning? It was really very simple--The creditors were allowed to make 100% loans, or close to that percent to people that didn't have to prove they were qualified to get the loan---it was called qualifying by stated income. People just lied and stated what their income was, without any proof required. Where were these government leaders then? Why weren't they demanding reasons why someone could get these loans, many backed by government funds? It does not take a rocket scientist to understand that you can't continue to make these loans without dire consequences down the line--when the "teaser" rates expired, etc. And the sad part is that we have the larger portion of these adjustable loans still coming up for adjustment--so the foreclosure rate can and should easily escalate---unless some sort of "bail-out" program is offered. We think that will happen and all of us taxpayers will help to pay for that. The big banks and financial institutions that made billions by bundling these loans up and selling them contributed huge sums to the politicians, who made no attempt to even question what they were doing. Now comes stories of deceptions and stronger descriptions of what has happened and continues to happen. This past week we saw the tech sector get nailed and tech was the leading sector for quite a while this year. The trickle down of the credit crunch is starting to show its face. Tech furnishes a lot to financial servers and when the servers are going under, the tech orders start to fall off. We feel the deception continued recently when we pointed out that the big outfits were reporting that they were taking huge charges in the 3rd quarter so they could get all this in the past and then return to normal profits in the 4th quarter. Now we are seeing that one after another, these same outfits are warning that they are going to have to take additional charges in the 4th quarter. And so it goes. If there is no way to determine how much something you own is worth (and they can't, as they can't sell these "assets" for there aren't any buyers), then you can't determine your financial balance sheet.

The problem goes on to the point where credibility about the credit problem is just about gone. When credibility is gone, fear steps in and we have seen that. The US consumer confidence report came in on Friday and it was the lowest in 2 years. A surprise? Hardly, given the facts and circumstances. And when fear rules, good reasoning goes right out the window. We might point out that it works the other way, too. When good reasoning goes out because of extreme optimism, we see prices on stocks and many other things run up to unsustainable levels and then we see "the bubble burst". It's happened in many areas over the years--the tech bubble finally burst, the housing market bubble burst, and many other sectors, too, even the tulip market long ago. Gold and silver are running wild to the upside--they have seen their bubble burst and it take years and sometimes decades to get back to those same high levels.

So we think fear has stepped in and unfortunately it will take down stock prices of good companies along with poorly managed companies. Another repeat point, tho---there will be great opportunities for some to take advantage of bargains--and don't ever, ever forget that old saying--"Cash is King" for it is so true. Those that have cash will be able to snap up bargains. How did Warren Buffet get to be one of the richest people in the world? By saving cash and buying when something was a real bargain. And he is still doing it that way. It is not a bad idea to try to follow in the footsteps of a real leader like Mr. Buffet.

We just want to point out a couple of statistical numbers as a result of this past week's action. The Dow is now up 4.7% for the entire year--having lost almost half of its yearly gain in just this 1 week; the loss for the week being 4.1%, as shown in our stats above. The S+P lost more than 1/2 its yearly gain, dropping 3.7% and now showing just a 2.5% gain for the year. Nas had led the major indicators with a yearly gain of over 16% and this week it dropped to 8.8% for the year. So, at this point, going into the middle of the 11th month of the year, we see that it would have been better to have money in a CD, safe, and insured to protect it. We don't know how the year will end, but we can predict it will be up or down from here (sorry, couldn't resist that one). Most years, on average, it has been far better to be invested, of course, so we don't want to deter people from investing in the stock market. It certainly is a fascinating area to be interested in and you sure get lots of bang for your buck.

Today's Thought---
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One step (of 10) to Happiness--Count your blessings--at least five--at the end of each day.


Mike

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