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Author: Mike Celeste Editor: Tony Ponzo January Circulation:

Stat Sheet Week Ending January 24th 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-203.0-2.5%-698.0-7.9%
S&P-18.0-2.1%-71.0-7.9%
NAS-52.0-3.4%-100.0-6.3%

Highlight of this past week: The Indicator Strategy keeps winning and still has a 100% win rate for 2009. The Momentum Strategy keeps slugging our profits as well.

In this Issue---
Options - Another lesson---
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We told you that we would be discussing ideas pertaining to the writing of options (selling naked). We also told you, in previous newsletters, how the process of selling options to open work. These are strategies that are not necessarily part of a SplitMaster strategy but from our discussion of option trading techniques, we hope you will enjoy the lessons and maybe take advantage of the techniques in some of your own trading. Remember though, these are more advanced option ideas and while the odds are good on these plays, there is risk so you need to be knowledgeable in the use of options and how to get out of a trade that is not doing well. We discuss the risk aspects in last weeks newsletter.

The following idea is a method to bring in extra income by writing options. This strategy can possibly bring in a pretty easy 1% per month, if used astutely. For example, this past week the Feb. 7.50 Puts in GE were selling up to 33 cents each. If you set 1% of the strike price for your goal, that would be 7.5 cents or $7.50 per contract. The stock was selling around $13. If you wrote it at 30 cents you would have seen the price drop to under 10 cents later in the week. There was a profit of somewhere near 20 cents, or over 3% of the strike price in just a day or so. Remember, an advantage of this trade is the daily dwindling time premium. You want the premium to drop so you can buy back the option to close at a lower price to create profit. You can use the Option Calculator on CBOE.com and it will tell you what the option should be worth under different scenarios. The stock dropped to close at 12.05 on Friday, yet the Put closed at .11 bid, (the dwindling time premium) with a low on Friday of 5 cents. You do have to be careful in your selection of stocks and options. A former splitter, DRYS, was also checked into, but was discarded because the stock is too volatile. CTSH is another former splitter that we wrote Calls on. The Feb. 22.50 Calls were written 1 week ago at 90 cents, when the stock was 20.36. The stock has not been to 22 since last October and had come up from lower levels. We wrote that Call at 90 cents. The stock closed this week at 18.94 and the Call closed at 30 cents bid. Since we were looking for that 1% profit of the stock price, or 23 cents, for the month, you can see that we have already gone past the goal. If writing a Put, we look for the stock to be near a bottom and if writing a Call, we like to see it near a top. Another way to state this is if a stock has been dropping and is close to a support level that you have noted on a chart, the writing of the Put would be the play. Or if a stock has been going up and hits a resistance point, the writing of a Call would be the play.

 Momentum Plays---
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The activity in this strategy is kicking up now just as we thought. With the action in earnings announcements getting heavy and with the market starting to swing more, we are getting more W plays and more SR plays. So all of our plays are heating up and we believe it will increase from here. During the holidays and for a couple of weeks after, there is much less volume because a lot of traders are gone. But now, it seems that they are back and the market is moving again.

The good news is we had six plays this week. The not so good news is we did have two losers. But we did have 4 nice wins. That puts us behind in our usual 80% track record just a bit. However, our profit for the week is still well ahead. We are still looking at about a 75% win rate and over a 26% profit margin for just this month alone. Momentum Past Results Again we have to say, where are you going to find that kind of success in this market?

We look forward to this coming week and hope you members do to.

The Indicator Strategy---
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This strategy is doing great as well. This train just keeps rolling along and we want to be on it for the great ride it is providing. This past week we had 2 more wins for this system, making it 5 wins and no losses for January. So our 100% win rate holds. Nothing is perfect, and we don't know how much longer we can go before we get a loss, but we'll take it while it's there. This system is providing us with excellent signals and we are putting great faith in it. Since the cost ($19.95 per month) for this service is our lowest of our different systems, we can't guarantee how much longer we can provide it at such a reasonable price. See how to subscribe
The Economy, The Markets & Commentary---
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The new Obama era has started and it was certainly exciting to watch the ceremonies on TV. It was also nice to note that the pilot of the Miracle on the Hudson was a late addition (with his wife) to attend. We don't know if our email to the White House had any bearing on the invitation, but you never can tell---They were there and that is the most important thing. We think that everyone hopes that the new President can turn things around as said promised in his campaign. He started out with a bang, issuing some executive orders that backed up the campaign talk. Of course, it is early on and there is lots more to come, but it seems that we are at least pointed in the right direction. Now, if we can get this doggone economy ship righted and on course for calmer waters we will all be better off. In the meantime, the storms are tossing our ship around. The captain has us in his hands and we rely on him to get us out of this mess. It won't be easy and it won't be quick, but it will certainly be interesting. His Chief of Staff is supposed to be a real hard nose, and my guess is that is what it is going to take to get some programs thru Congress, and that includes fighting within his own party. The "Old Boy Network" hasn't been broken yet by those that came in with reform attempts, and that is what it is going to take to get new ideas from thoughts to actions.

Did you see what the CEO of the poor brokerage firm had his company pay for remodeling his office when he came in? CNBC broke the story (Charlie Gasporino) and it is another case of excess run amok. We average people can't imagine the spending habits of these people, who are using stockholder funds and think nothing of spending more for remodeling his office than the new president is going to spend to do over the White House. The bailout money continues to be used in ways that we don't really approve of, and that's why we have been shouting from the rooftops that we need details--because it is our money that is being handed out by the hundreds of billions.

While talking about spending, there was a report out that the cost of the Inauguration was going to be over $170 million this time. Pres. Bush spent something like $40 million and back in 1965 Pres. Johnson spent $1.5 million. Now that's inflation. True, most of the cost is borne by private donations, but that is one whale of an amount to be spent to make us feel good about our government. For example, out of Pres. Bush's $40 million in 2001, only $1 million was paid by taxpayers. It does create jobs, too, so we can't forget about that angle. We are supposed to see change, and that is a change, but what if that same amount of money was used for some social service program on a one time basis instead. That would also create jobs and maybe some people would think we got more bang for our buck. Just a thought. A last thought--I wonder who makes the private donations and what is expected in return? I did see a report where actor/director Ron Howard donated $50K.

Back to reality---we continue to pray that oil stops going down in price if it means gas at the pump goes up. Since last week we have had 2 more raises in our gasoline prices here in California. It is now approaching 40 cents up from the price just a few weeks ago. The "experts" keep saying how much the consumers are saving by the drop in oil prices. That was then and this is now and the "experts" don't want to talk about the billions more we are paying. I believe that every 1 cent up or down amounts to over $1 billion dollars.

The markets had another losing week in the major indexes, but we did seem to test the lower levels and bounce back some. We didn't test the real bottom, but it did test the Dow under 8,000 and manage to rally on Friday from the lows and close above 8,000. We look forward to seeing what the coming days and weeks bring us. We have positioned ourselves to have investment programs that aim for profits whether the market goes up or down, With stock splits having seemingly been abandoned because of the rough economy, we feel that day trading is where we should be and our results thus far back that up. We like to go with the flow and the uncertainty out there seems to tell us that these are the tools to use. Stay tuned................

 Today's Thought---
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What we think determines what happens to us, so if we want to change our lives,
we need to stretch our minds.........Wayne Dyer, author.

Mike

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