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Author: Mike Celeste Editor: Tony Ponzo April Circulation: 6805

Stat Sheet Week Ending April 12th 2008

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-284.0-2.3%-940.0-7.1%
S&P0.0-2.7%-135.0-9.2%
NAS-81.0-3.4%-362.0-13.7%

Highlight of this past week: FAST: makes a FAST profit--a few minutes.

In this Issue---
SplitMaster Basic System---
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Just when things were going good, up comes the Friday dive and we have to wait it out--but we are in good stocks, and recovery will come with patience.

 Big Dipper System---
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We were just about ready to take a nice profit in our Big Dipper play, and the market got hit. We are still at a profit, but a good chunk of it was taken away. However, we might be able to get in at least one more dipper if this keeps up.

 Options---
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Writing options, both calls and puts continue to show very nice returns. That high volatility keeps the option prices with more-than-average time premium, and that's what we are shooting for. Example--We have written both a call and a put on GFIG and both are showing good profits.

 Momentum Plays - Earnings season begins--
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Some exciting earnings plays are starting to show up now and will begin increasing as the weeks go by. Yesterday (Friday), we had our first earnings momentum play of the new season. It was a very nice win. Past Momentum Plays Some members held in just a bit longer and received even better profits as the stock kept going up. The play only took about 5 minutes. That's what we like to see.

We went on to do a live test on an SPY option play. Unfortunately, the play lost but is was a small loss and we had a net win between the two plays. This play is most likely going to replace the SPX play. So far we like it a lot. The shortcoming of the play is it is a very slow mover in relation to the S&P movement so we are only shooting for a .20 profit. The up side is, it is slow to lose value as well so we can hold on to the play much longer if it goes in the wrong direction. We talked yesterday about the new strategy of putting in conditional orders to get out of the play too. This is a really nice tool and you should check with your broker to see if it available. The conditional order allows a trader to put in a target sell price and at the same time put in a stop loss limit price. With our broker, the stop loss limit does not show up until it gets within a few pennies of the stop price. This way your stop loss will not be prematurely taken.

Here's an example. Let's say you buy an April 135 PUT on the SPY for 2.71. Now you want to sell it for 2.91 for a .20 profit. At the same time, you decide that if the play goes against you, a loss of .20 would be the most you would accept. You put in a sell order at 2.91 then put in a stop loss limit at 2.51. At our broker, this is one order with two conditions. When one condition is met, the other condition is canceled automatically. This strategy really takes the stress out of the play because you know that the worst thing that can happen is you lose .20 which is acceptable to you. As long as the direction you choose is correct more often than not, you are going to come out ahead. This is much better than having a play get completely away from you and potentially lose dollars. To be fair, there are of course times when the play will hit your stop loss limit only to then turn back and go for what could have been a profit. But there is no telling when and which ones will do that so for a much more relaxed trade, we like this strategy. It is up to each member as to whether or not to use this strategy and what parameters to use. Once a trader becomes confident with this strategy, the number of options and number of plays can be increased to make the size of your desired profit.

Here is one more part of this conditional order strategy that can be employed. Since the SPY play is slower moving, we may have time to adjust the conditional order if it appears to be strongly moving in the desired direction. For example, if we are in a play at 2.71 and the option has moved nicely up to say 2.84 and appears to be continuing its momentum, you could change the conditional order to sell at 3.01 for a .30 profit and have the stop loss limit changed to 2.75. So now the worst that can happen is you would make a .04 profit. The only problem with this kind of change though, is at our broker, we have to cancel the original order and build a new one. Check with your broker as they may allow you to simply change the prices for a quick replacement of the original order.

This strategy, at times, may not work as well on a regular stock earnings play as sometimes the movement in the stock is too fast for the conditional order to be created. We'll have to see how that goes. On regular earnings plays, our goals will be higher than the .20 range.


Range Trading---
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There seems to really be tools for stocks that trade within a range. We tested the SPY and the DIA, which are based on the S&P 500 and the Dow. Then we tested stocks that we felt were overbought (oversold coming up shortly, probably). We had 11 wins in a row, and then a loss. In addition we have been sending team members a list of stocks before the market opens, looking for drops, and each day they were net winners. So, there is a great variety of ways to play the market at SplitMaster.com, gearing for up or down markets. We have the Momentum Play based on earnings releases, the SPY options (calls and/or puts), shorting of stocks, going long on splitters and big dippers (when they dip far enough), and plays on overbought or oversold stocks as they appear to get out of certain ranges. Right now the Momentum Play and the SPY plays are doing very well.

Feedback---
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SM--OK, we're in and out of the spy sfbpg put again--in at 2.05 and out at 2.20 in about 5 minutes.--mc
Bernie--"I see what you mean. and the volume is really big. does this follow Dow or S&P? It worked"

 The Economy, The Markets & Commentary---
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On Friday we saw what happens when a bellwether stock--GE--misses earnings estimates badly and had given no warning. Because GE is so well regarded and because the company is in such a variety of sectors, this was a hard blow on the markets. The markets had been in one of their contrarian time-frames. The market wanted to hold or go up, but the GE news was too strong to ignore. The feeling was that if GE is having problems, then other companies that are not as well operated might be reporting negative numbers. Because of our varying strategies at SplitMaster.com we were able to take advantage of the situation. Our overall feeling was that the very short term could well be down and the put on the SPY was used, entering the play Thursday. While this was a test, it was an actual play--and the open on Friday provided an excellent return.

Now that the financial sector has been sort of protected by the Fed, it is clear that the economy in general is going to be the main consideration in which way this market is going to go. There are a number of companies that have reported good gains in earnings, and then there are the others. Three airlines filed bankruptcy last week, mostly the victims of extremely high fuel costs. UPS and FedEx are having troubles with high delivery costs because of fuel prices. Our honorable representatives in Washington continue to do nothing to help us, including the 3 Senators that have all the answers while they are campaigning (and not doing the jobs in the Senate that they were elected to).

A possible scenario---
I remember in the not-too-distant past when we had a tremendous increase in electricity rates here in California, after the utility was deregulated. Deregulation was supposed to result in competitions and lower prices. What a joke that was. It turned out that there was a scam going on and went something like this. I buy electricity from you at a higher price than you paid--you sell it back to me for a higher price than you paid--I sell it again to you for a higher price than I paid, etc. OK, they found out how this worked and we thought it was retribution and price-cutting time. WRONG ! We customers got the electric prod shaft and the electric companies were awarded money. Our rates continue to go up, this time due to costs related to energy used to make electricity. Also, alternative sources and fuels are more expensive than sources now used to make electricity. A thought hit me (a bit late, I'll admit) that made me wonder if an oil scam is going on right now. There is plenty of oil, and everyone I know is cutting back on gas use--but the prices keep going up? Could it be that there is manipulation of the oil market like there was in the electricity market? As all these scams come to light, it seems easier to be cynical and distrusting of almost everything. One of the times we had a huge increase in oil prices, it was found out later that oil had been kept off the market, using several different methods--from capping wells to holding oil cargo ships at bay and not docking to unload, etc., etc. Think about this (this has stayed with me for a long time)--when the Vietnam War ended, a tremendous amount of oil products were not needed any more. What happened? The first real oil crisis hit. How can you stop using millions of barrels of oil and then having a shortage at the same time? Manipulation. We are mere pawns--have been and probably will continue to be--until our pain threshold gets to an unbearable level. It seems we are not there yet. Although it doesn't seem like it, the people have the ultimate power. We can choose to drastically cut back in our consumption and force the oil companies to cut prices. What is it going to take for the people to get to the point of using this power??

 Today's Thought---
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A man here in the LA area was going to work and saw a large bag in the middle of the street. He stopped and picked up the bag, found $140,000 in cash, in $20 bills in wads of $20,000. This man really needed money, was in debt, his landscaping business was struggling and he had taken in his mother to help her. He didn't hesitate one heartbeat, and he turned the money in to the police. It turned out that the money was lost by a Brinks armored car. Brinks was so appreciative of this incredible honesty that they gave him a whopping $2,000 reward (remember, on $140,000) His mother smiled and said "they should have given him 10%." ............As reported in the LA TImes, 4/10/08
(Today's Thought--What would you have done?)

Mike

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