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Author: Mike Celeste Editor: Tony Ponzo October Circulation: 6765

Stat Sheet Week Ending October 25th 2008

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-473.0-5.3%-4,886.0-36.8%
S&P-64.0-6.8%-591.0-40.3%
NAS-159.0-9.3%-1,553.0-41.4%

Highlight of this past week: With yet another record breaking down week in the markets, SplitMaster pulls off two wins - a SPY option play and an Earnings play.

In this Issue---
SplitMaster Basic System---
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Yes, we have some pretty big losses in stocks still being held in the Basic system. Based on feedback and our own analysis, it is time for some decision making. Therefore, we are saying that we feel that the stocks in the Basic seem to be good stocks and at this point, being so far down, we are going to hold them for a while--and beyond their original sell dates. Thanks to those members who have emailed us their opinion on these plays. Everyone so far is for holding the plays for now. If you have not sent your thoughts on the matter but would like to, just send an email to staff@splitmaster.com.

Big Dipper System---
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The same decision making process goes for the Big Dipper plays. Actually we had 2 of them approach workable points in their price levels, but not quite enough to get back to even. During these times, getting close to break-even is a nice thing to see.

 Momentum Plays---
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You can image that with this terrible market we would not get many plays if at all. However, we did manage to get off one play and it was a win. The stock was AMZN and it was a small win but win none the less and as we always say, we'll take it.

Three Indicators---
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Well, we can see that we second-guessed ourselves on Friday. We had an Indicator signal for an up move at the close of Thursday's markets. When we saw that the pre-market index levels were down to the limit, (something we have never seen) and with the hammering from the media about how low they could go when the market finally opened, it appeared that there might be a melt-down in the works. Therefore, we cancelled our Indicator play before the market opened. Naturally, if we bought SPY calls on the open there would have been some nice profits. The SPY went from an open of 84.00 to a high of 90.87.

The Economy, The Markets & Commentary---
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We made the right decision on the SPY play, as CNBC reporters were giving some very scary statements about what was happening and what could happen if the market opened to some collapsing prices.

We are continuing to go thru some historical times in the financial markets. The Dow has closed with triple digit changes for 7 straight days and 19 out of the last 21 days. Nas has been down 4 straight days. All three of the major indexes (Dow, Nas and S&P) made new yearly closing lows on Friday. The closing lows were not intra-day lows, so there is some consolation that there was some sort of recovery off the very bottoms. It appears that almost everyone (can't think of anyone that isn't in this category) is totally confused about why this is happening at this time, in this way.

Two CEO's came on CNBC and Dow Chemical's leader said he felt his company's stock price was quote "ludicrously low at this point" unquote. (Stock symbol DOW) The dividend return is 7% or higher at this time, they haven't cut dividends for a whole lot of years and he said that he had no intention of cutting the dividend at any time in the foreseeable future. That is encouraging to hear.

CNBC seems to be doing its part to try to give some news using a positive spin. When they report earnings they will give the earnings and then compare them to the estimates for the quarter. All this week I noticed this and there was virtually no mention of this year's quarter compared to the previous year's quarter. For me, I want to compare apples to apples and would like to see the quarters matched. Of course, that is available to me online, so no big deal, but it is a different approach from the normal way of reporting earnings.

On Friday the VIX Index, which tracks the volatility in the market hit over 86. It was just a short time ago that an "expert" on CNBC said that the VIX had peaked and would not go higher. At that time is was 76+. Since then there have been a number of days when the VIX was higher than when he talked about it. So much for his credibility.

Volatility is the key word in the markets at this time. It is not an ugly word, either. When the market is volatile it can also be a trading delight. We've mentioned before that these are the times when you can buy both a call and a put option in something like the SPY and see a profit in each type of option before the day is over. Your timing needs to be right and you watch the support and resistance levels, along with keeping track of the momentum as the day goes along. Strange as it may seem, my personal trading has had the best profits in months, using this process. For myself, I feel more comfortable buying puts, as I feel the economy is not in good shape, at all. Therefore, I have been limiting myself to the puts and getting out then I think the run has ended--and don't reverse and get into calls. Sure, I've missed some much more favorable profits, but I'm happy. Some of the trades are for minutes, in and out.

OK, Mike, what about the insurance you mentioned a bit ago when you were talking about getting puts for insurance? That is true--no doubt about it. I'm the first to admit that my emotions did not allow me to hold those puts for longer than the 2nd day before I ran for the door to get out of the position and take my profits. It's also true that my profits would have been a lot higher--but my emotions didn't allow me to keep those puts. We are all human---but the main thing is that I found a way to use the volatility profitably. I tried to go with the flow--when the flow was downward because that is the major flow direction I see the market headed . Tony has been trading a recent splitter, DRYS, and doing very well buying puts, waiting for a rally and selling at profits and rebuying more puts at lower strike prices. That stock has a PE of less than 1, believe it or not--check it out. That means that the current stock price is less than the latest 12 months earnings. What's the catch? The catch is that their business is providing ships for bulk commodity users. The estimates for Dec. 09 are for about $9/share compared to over $13 for Dec. 08. Let's take a closer look at this---9/13 is 69% for 2009 compared to 2008. That's a drop of 31%. If you have a PE of 4 and they earn $9/share, that gives you a price of $36, more than double the current price. And a PE of 4 is "ludicrously" low during normal trading times. Maybe that is what Warren Buffet is referring to when he says he feels there are bargains out there at these prices.

A quick mention of oil prices--they have dropped under 65/barrel and the end is not in sight, it would seem. Gas prices are still not relative to the oil price, but they will eventually get there. You know how it is. The oil companies raise gas prices almost immediately when oil goes up, but they drag their feet big-time when oil prices drop. Again, more thanks to those of you out there that contributed to our campaign to get the speculators in oil out of the picture. I think we have pretty much done that--and at the same time--proven that the rise was due to speculators, not demand. Oh sure, some of the rise in oil was due to demand as we said before, but certainly not to a $145 + level and as things look now, maybe not even to the $64 level.

The fears are still far from being alleviated, so we continue to expect volatility and that which accompanies it--trading opportunities. Stay tuned.

PS--Hey, only 10 days to the US elections--finally, the campaigns will be over and we shall see how the people have reacted to all these promises, etc. For myself, I feel sorry for whoever wins, because of the economy that he will face. Let's hope the winner is up to the task, for all of our sakes.

 Today's Thought---
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October is one of those peculiarly dangerous months to speculate in the stock market. The other months are July, January, September, August, April, May, December, June, February, March and November.-----Mark Twain


Mike

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