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Author: Mike Celeste Editor: Tony Ponzo January Circulation:

Stat Sheet Week Ending January 12th 2008

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-194.0-1.5%-659.0-5.0%
S&P-11.0-0.7%-67.0-4.6%
NAS-65.0-2.6%-212.0-8.0%

Highlight of this past week: MHS- closed out early with a nice 6.03 point gain.

In this Issue--- SplitMaster Basic System---
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This is the time of the new year when we look back to see what the complete year before did. We are happy to say that our winning streak since 1975 has remained, with the final results showing a gain of 33.95 percent. We note that this figure is a bit difficult to calculate exactly, but we are consistent with it through all the years. As usual, we handily beat the major indexes. For the year, the Dow ended up 6.4%, the Nas was up 9.7% and the S+P was up 3.5%.

On the other hand, in the past years we have seen this number much higher. 2007 was definitely a difficult year in the overall market and 2008 has started off with just as much difficulty. Even so, our first close out for the year, MHS, is an impressive winner. Sooner or later the market will start getting better news and it will start to perform much better. And there are a lot of highly oversold stocks out there at this time that will eventually make for some great buying opportunities. When that time comes, we believe the SplitMaster Basic strategy will really soar. Whatever the market conditions may be though, rest assured that we are always working on improving our systems and will continue doing so in 2008

 Big Dipper System---
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This system was a disappointment, even tho it did end up ahead for the year, gaining 4.5%. Usually the Big Dipper is our big winner, but the severity of the volatility this past year took down some good plays. 2008 started out with some great gains in the Big Dipper, but they were wiped out in the first 10 days of trading. That volatility will cause us to be tighter on our in's and out's.

 Options---
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Options is another area we are not satisfied with, outside of the tremendous results in our Momentum and SPX options. We are excited about another test system in options that has shown some remarkable results, but with limited data at this point. We're sure that if the past test results hold up, our team members will be more than satisfied.

 Momentum Plays- A Great 2007--
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Although the information that follows in this section is a bit technical and is geared toward our experienced day trading members, it has a lot interesting information and I encourage everyone to read it. Past Momentum Plays Our tech people are working on a new past results page that will recap the result and give percentage totals for the Momentum Strategy. It will be out some time this month but in looking at a preview of this new page, we are very pleased with the results. We've discussed the totals in prior newsletters before but this is the first time we have taken a look at the overall totals for the year. To start with, we pretty much maintained a winning rate of 85% or more throughout the year. Some months dipped below, but overall, it held. Second, the year shows a very impressive overall gain of 620% when using options. Some of our members play the stocks so their percent gains will not be this high although their dollar amounts will be higher. We use options here at SplitMaster so that is what we post.

Now there are different ways to calculate results, depending on an individuals investment approach but here is what we basically do. Keep in mind that the Momentum strategy is a one day play. In many cases it lasts only a few minutes. And we almost never have two plays going at once. This means, when using options, you can use the same base money over and over to make the plays. So we calculate the average investment for the month, year etc. and divide that into the overall profits made to come up with a percentage gain. Another way to think of this is, if one started out with an account of $3,000 and the average play was say $2,750, that person could make the trades. At the end of the year if they had made $12,000 in profit, that is a 400% profit. Their account would now have $15,000 in it. So while there are no calculations we can use that will be exact for each person's situation, this is a very close representation of the terrific gains we made in the Momentum strategy using options.

For sure we had some stressful plays and some big losers. When that happens, it makes for a bad day but as we see, it is important to jump back on the horse and keep going. You can't argue with a 620% profit for the year.

On to 2008. In case you haven't noticed, SplitMaster is a service that is always brainstorming and coming up with new ideas. We have been testing a new play with some pretty impressive results. We are not ready to introduce the play yet as it needs more testing but we will tell you a little about it today. It is still a play based on the momentum of a stock that is announcing its earnings. But we started to ask ourselves, how can we take the average profit of .30 to .40 and increase it to $1 or maybe more. Further, how can we make it so the play can be made in a more relaxed manner. Then we thought, what if there was a way to pre-determine the direction a stock will take after it announces. In other words, if a stock was announcing tomorrow, and from our studies and recorded data of past plays, we picked stocks that have a history of gapping big, and we somehow had a heads up which direction the stock would move, we could then buy the stock/option, the day before toward the close of the market and sell it shortly after the open and after it announced. The idea is, if the stock is a big mover, and we picked the correct direction, we would wake up in the morning to some pretty nice gains. Well, we think we have found an answer. In our tests, does it always work? Of course not and when that happens the losses can be big. So we have to pick less expensive options to limit the loss. But --- it has worked enough to get us very excited and overall, so far, the gains way out pace the losses. You might ask, how do we determine the direction before the announcement. I won't get into that much today as it is fairly complicated and requires the tools to read the information. But based on the information we can view, it appears to be a pretty strong indicator of the direction the stock may take. So far, we have found that this is only reliable on stocks that are about to announcing though, so we have not been able to apply it to other situations.

Anyway, we're excited and we'll keep testing and keep you posted!

Three Indicators---
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Everything sailed right along in our Indicator system, right thru the end of 2007. However, the first 10 days of Jan. have thrown the indicators out the window, and we are having to use a much shorter time frame to determine plays. For instance, we have already seen a new record in the number of days that Nas has gone in one direction---eight straight days down, during these first days of January, 2008. Having said that, and emphasizing that we are using a shorter time frame, we have seen opportunities and tried to act on them. Being short term and sometimes in minutes, we had bids in at the right price, but the market maker didn't give us cooperation--but we remain convinced that we are using good indicators.

 New SPX System---
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We couldn't ask for much more in a system than we obtained in the SPX plays. We showed 36 wins and only 2 losses. While we know this is an extraordinary number of winners by percentage, we think we can do extremely well in this program---no guarantees of the future, as so much depends on the market maker, who seems to be reluctant to do his part, many times. The difficulty in this system is sitting by the computer to get the right timing in for the buy and sell points. We have made some alterations and hope to make this an easier play--again, if the market maker cooperates.

While we are happy with the SPX results, we are hoping that our new development can take over, and make even higher profits, with less stress and time at the computer. Doggone it, the data just isn't large enough yet, but so far it is tantalizing us with some brilliant results. Definitely keep tuned!

 The Economy, The Markets & Commentary---
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What the heck is going on here? We had a decent 2007 as a total year, and we see where we need to make improvements and we saw where the national problem was in the economy a long time ago. The credit area is tearing down the confidence, but we have been predicting this for about the last 2 years. We think it bears repeating that you can't expect to give 100% loans on a mortgage to someone that doesn't have to prove he makes enough income to pay for it---and that's exactly what the greedy big boys did to us. They used "stated income" to give loans, instead of "proof of income" to qualify someone for a loan. Sure, when the money is easy to get, give it to anyone, then sell the package to investors that put faith in the credibility of the lender. The rubber band can stretch out only so far---the pendulum can swing only so far, and then the rubber band snaps and the pendulum swings back the other way, just as far in the opposite direction as it went the other way. We had some team members make good money shorting the home builders, and there was even more to be made. There were bankruptcies and there will undoubtedly be more to come. Major, major investment houses have had to raise money to avoid collapse--and we are not done yet.

Look for problems to come in other areas of credit. Credit card companies are being squeezed now, especially if they also had sections that issued home equity loans. Capital One fits that category and already has been shown to be having problems. As one of our astute team members pointed out, watch out for car loans going bad---and there are a lot more car loans than home mortgages. No folks, we haven't seen the bottom of this problem and it is going to hurt even more.

One concern that we have, personally, deals in the area of money market accounts that are held at our stock brokers. There is a rumble that some of those can be ready to cause problems. They are not FDIC insured, either, so make sure you check and see how well you are protected if you have a money market account.

The Fed has promised to be ready to offer assistance to shore up credit, but it can get to be a massive consideration. Just look back, those of you that are old enough to remember, and see what happened during the savings and loan crisis of the mid 1980's. Rules were changed whereby loans were able to be easily made to members on the boards of these institutions. Same old story--make it easy to get money and you create loans that are easy to go bad. Builders got on the board, had loans made to them for housing and there was too much construction for the demand---and then the roof fell in. That is very similar to this situation, but nobody has pointed out the similarities. Then it took the Feds to bail out the banks so there wasn't a monetary collapse. I believe it was somewhere around 500 Billion Dollars. You know, someone sent me an email showing how much a billion of this and that are. It said a billion minutes ago we were in biblical times. That's just minutes. And our government is spending a billion dollars approximately every 8 hours.

We had an old time-tested theory that if the market did well the first 10 days of Jan. then it was time to sell and come back at a later day. This year, that was washed down the sink with the dirty dish water. The S+P is now lower than it was at the end of Dec. 2006---that's over 1 year ago. In other words, 2007 didn't return anything but dividends for the whole year, up to this date. The Dow has been down in triple digits 5 of the last 6 days. Nas was down one day 98 points, which is equivalent to about 500 Dow points. CNBC stated that the year is starting out as the worst in half a century. That's pretty amazing when considering all the years in between and the events that have happened.

The economy in general is considered to be sliding more towards a recession. Unemployment, job creation, consumer confidence and retail sales all are heading in the wrong direction. And that's on top of the credit situation, which by itself may be worse than we are being told.

OK--enough of the negative. There are positive points to bring up. We always point out that what is bad for one sector is good for another. Please keep that in mind, because it is so very true. Maybe there aren't a lot of companies standing to make big increases in income, but there are enough of them so we can take advantage of their prosperity. They will be the companies that will be splitting their stocks in the coming months. They are out there. And--there will be tremendous opportunities to get real stock bargains. Whenever emotion is almost the total driving force in the stock market, we know extremes will be the result. Emotion is what is driving the markets the most at this point. We don't think we have seen the towel thrown in yet, but there is usually some point when investors say that they have taken enough, and just dump what they have left. Don't be fooled by that, especially if you have enough money to ride this out. Our country can overcome corruption, greed and bad management---you know why? Because we have the brains to overcome it, that's why. We have creative people that continually come up with new ideas and new products to make this a much better world to live in. And as a nation, we have the will. That's what makes us the USA. Where the bottom is, we don't know--but we have faith that history will continue to be repeated and we will get up off the floor and achieve even better lives for everyone.

 Today's Thought---
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I wish you enough..........Bob Perks ("Enough" as you define it....Mike)


Mike

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