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Author: Mike Celeste Editor: Tony Ponzo March Circulation:

Stat Sheet Week Ending March 21st 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+54.0+0.7%-1,498.0-17.1%
S&P+12.0+1.6%-134.0-14.8%
NAS+25.0+1.7%-120.0-7.6%

Highlight of this past week: The Indicator Strategy keeps raking in the wins. It stands at 21 winds and 2 losses year to date.

In this Issue---
Options---
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Friday was option expiration day and here is what we had for the month re our writing of options. The GE $5 Puts expired worthless, so we made 100% on 20 contracts.

The IBM $95 written Calls expired worthless, and we added another 100% winner (altho it was a rather close call for a while---The stock hit 95 on Friday before backing off to close at 92.51. We are now trying to write the $100 or 105 Calls for April.

We had closed out our CTSH $20 Calls earlier, writing them for 75 cents and closing them out at 25 cents, showing a 50 cent profit. The reason for the early closeout was that the strike price was fairly close to our entry price. A good decision, as it turned out, as the stock closed above the $20 strike price. We are now trying to write the $22.50 April Call, but missed it on Friday, when the stock dropped. We will try again next week.

A current splitter, MYGN, expired worthless, for yet another 100% win. This one was entered during this past week, as it has shown excellent resistance to falling. We wrote the March 75 Put when the stock was a bit above 80, with only a few days to go until expiration. We will look at the April options, hoping for another entry point.

Remember that 80-90% of options expire worthless---and that usually applies to those options whose strike prices are quite a ways away from the current price. People like to hit home runs and by the cheap options. We like to take advantage of that thinking and be on the winning side, by writing/selling the options to open the play.

Writing options, as we always point out, can be risky and traders should make sure they completely understand the pros and cons of such trading before executing any such plays.

 Momentum Plays---
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It was a tough week in the Momentum Strategy this week with 2 wins and three losses. We haven't had that kind of loss rate since February of 2008 - over a year ago. But the difference between February of 2008 and this week was the losses were much much smaller this week. This is definitely due to adjustments we have made in the past to improve the system. So that still leaves us with over a 200% profit margin for this year and those kind of returns are very hard to find any place else. Learn More We still believe that what has thrown us off is the fact that the complexion of the market has changed from down to up and the rhythm of these plays is different. We keep expecting things to go back to the down momentum. They did yesterday but now the question becomes, is this just profit taking in a rallying market or are we now back to our usual down bear market? Off course we will only know after we see what happens this coming week.

Whatever the reason, we want to be able to adjust to any environment so, as our member are aware, we took Thursday and Friday off this week to study the action and make whatever adjustments are necessary to combat any difficulties we may find. Our long term members know that we occasionally go through this process and it has always resulted in improved trading. This adjusting was only for our SR SPY plays. We are still moving ahead as usual with any Earnings plays or W plays. We just didn't have any of those that qualified for Thursday or Friday. And this is also not to be confused with SPY plays from the Indicator Strategy which has continued to produce fantastic results. Moving on, here is what we basically did over the last two trading days for the SR SPY plays in the Momentum Strategy.

After studying the action on Thursday morning we started making a lot of trades with just a few option contracts for each trade. Over the two days we made 11 of these small trades. We won on 9 and lost on 2. We didn't make a lot of adjustments but what we did do was tighten the parameters. Since this was option expiration week, the options were at their cheapest and gave the best Delta due to the fact that time premiums were almost gone. So we made a target of 10% (of the option price) for the profit but also put a stop loss target of 10%. That means if the option cost $1.00 we were looking for a .10 profit and put a .10 stop loss on it. On a couple of plays the option ran quickly in our favor so we let it ride just a bit and made a bigger profit of about .15. But we never let the stop loss go beyond our target. The bottom line is, we are either right about our support and resistance points or we are wrong. If we are correct a quick profit is made, if we are wrong, a quick but very small loss is made. What this allowed us to do was make more plays and if we are right more than we are wrong, we come out with a profitable day. Well, we were right quite a bit more than we were wrong as stated above. For the two days, each day would have profited us about $450 if we were playing 10 contracts or $900 for each day if we were trading 20 contracts. That's a pretty good day's work we'd say.

Monday is the beginning of a new expiration month so the options will be at their most expensive this month due to high time premium with their lowest Deltas. So we want to test this out to see what our targets would be with the higher priced options. Right now we are thinking it would be based on a price amount of about .10 to .15 or 5% of the option price. We'll know more about that after doing more testing on Monday.

Indicators---
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This strategy is continuing to show rather incredible results. But--there is something wrong here. The wrong part is that if someone wants to follow this strategy alone, it is our cheapest strategy to subscribe to. Hey, it had 2 plays this past week and both were winners. How do we determine if it is a winning play? It has to make 10% for the day's trade, or much more potentially, for aggressive players. We, ourselves, do both. When the stock is running in our direction, we try to run with it and go for an amount over 10%. We now have 21 winners and 2 losers for 2009 to date. The current $19.95 subscription price is too low---no question about it. So, the price is going up for new subscribers after April 1. Any one in before that will continue to receive it at that low, low $19.95 price--as long as they are continuous subscribers. And--on top of all that--we have one free week with the initial subscription plus a full 30 day money back guarantee if you are not satisfied for any reason . Learn More

We have to throw in this mention about what happened on Friday. The decision for a play is determined at the close of trading the day before--so it was based on Thursday's close. One of the criteria for a play is a number of 90 or 10on the W. If the number is above 90 it is a down play or under 10, it is an up play. Thursday's closing number was 89.5. We didn't make it an official play, but advised subscribers how close it was and to watch it, looking for a down move in the market, or picking a Put to watch. Here is what happened. Since it was expiration day, we play cheap options on the Spy. The 79 Put opened at 73 cents. During the day it reached a high of $2.45 and closed at $2.20. How's that for a home run? Yes, the home runs do come along, not every time, but enough to decide to eat out that night, let me tell you. Check out the prices for that option on Yahoo Finance, for the Spy, if you don't believe it. New question---Do we now lower our criteria to over 89 for that play? In reality, we need more data, more samples of 89-90. But, it could mean we get into a play with less contracts, -Something to think about.

We like to think that many of our team member subscribers are smarter than we are and that some of them made that play. We have seen it before, based on the nice email letters that we receive. And if any members did make the play, let us know. We'd love to hear from you.

Feedback---
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Out of the email responses we receive this week, here is one that we thought was the most appropriate for this week's newsletter:

I've been a member for at least two years and have traded every strategy you have offered. I have to say though that I am having the most fun and success with your Indicator and Momentum Strategies. I know that we had a rough week but I look forward to the weeks ahead. Thank you for your efforts. I'm really enjoying making the trades. -- Forrest

 The Economy, The Markets & Commentary---
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On a national level, this past week's headlines dwelled on the AIG bonuses. There is an outrage from all parts of this country, and it seems to me to be rather late in coming. However, better late than never. Congress is trying to do something constructive about it. First of all, we said from the very beginning of these bailout and stimulus packages that you can't put together a package involving 800 billion dollars for just one of them--and watching the others go even higher, now exceeding a trillion dollars---and do it properly in a matter of days or a few weeks. On top of the speed of doing it, we never got the details, again as we pointed out from the very beginning. Now, as the details emerge, we see error upon error in how the package was put together. The bonus contracts we allowed to be in the package--and the recipients were the very people that created the problem. On top of that they were supposed to go to key people as retention bonuses---done to keep good people working for the company. How could they be the good people if they are the same ones that caused the problem? It turns out that a number of those "key" people have already left the company, bonus in hand. To make matters worse, the current thinking is that this problem is so complicated that we need these "key" people to unwind the toxic assets (don't you just love the word "toxic" as it applies---whoever came up with that word hit it right on the button) because they are the "best" qualified to know how to do it. Sure, that is like paying a reward to the bank robber that makes a complicated robbery, if he will tell how he did it. Of course, this sort of thinking has happened many times before. We had a case of a young genius that figured out a way to scam people in a carpet cleaning business that appealed to commercial customers. He was finally caught---and is now being paid handsomely as a consultant to report on other scams, figuring that he is smart enough to figure them out and catch bad people before they do too much damage. Then, there are the ex-drug dealers, supposedly having gone straight, that are paid to lecture on the bad results from using drugs. Look, I don't need to jump off a cliff to know that it is likely to kill me if I do. We have many excellently trained people to do these things, catching bad guys, knowing the dangers (many aspects) of using or dealing in drugs---and this type of person never scammed someone or took drugs. Just look around and see what happens to people that do these things: you don't need a master's degree to understand. And, while you are at it, look at what happens to the victims, too---and their families.

We are losing it here in this country. I was looking at some old newspapers, reading stories from my home area that dealt with people I knew. The paper reported the names and addresses, including street numbers, for speeders that were caught and the $10 fines they had to pay. That is laughable today. It used to be news, tho. We were concerned about speeding. Today we have raised our standards of what constitutes news. It used to be that thousands in theft was newsworthy, then it became tens of thousands, and moved up to millions. Lately we have entered the world of billions of dollars that have been scammed or stolen and now newsworthy. Why stop there, these people said---so, we are now talking trillions. We have lost the level it takes to make us outraged enough to do something about it. And what do we do? We scream at our legislators to do something about it. In the bonus case, they are trying to put an income tax of 90-100% on those bonuses. That was an answer to the fact that contracts couldn't be broken---and what a joke that is. First of all, in bankruptcy, contracts are broken--ask the people involved. Then, in my own personal experience, I have told government agencies that the law says I can get information from them under public record laws. They tell me I am correct, but they won't give it unless they are sued and lose. They know that most people can't afford to take on the government and sue, due mainly to the costs involved. It seems to me that there are many aspects of the contracts that could be challenged. Let's see if the tax deal works.

We continue to lose it when holding our government representatives accountable. This financial condition we are in had two groups involved---the givers and the takers. The givers were the government officials that allowed it to happen, and actually kept making it worse---led by our great Barney Frank, who is now too belligerent in the hearings about this. He is shown on YouTube saying that we should leave Freddie Mac and Fannie May alone, when warned of the impending disaster---in fact, he wanted more low income people to buy houses. Yes, 100% loans to people that didn't have to prove their income---give them more loans. This is how politicians work---and we, the people, allow it to happen. Where is the oversight? Nowhere is where it is. Another case is the Bernie Madoff case--you know, the one where he "made-off" with over 50 billion dollars. (Our partner, Pat, came up with that--"made-off" for Madoff). The SEC is supposed to protect us---and it was years of criminal action before something was done--after repeated warnings, too. We also have a report on the FDA, which is supposed to protect us in food and drugs. The report gave example after example of dangerous situations that they didn't do anything about--like the peanut butter factory and the salmonella--the FDA should have done their job properly. And our politicians. Here in southern California, in the last election in November, not one single incumbent was defeated---not one single one. We, the people, let this happen to us. We, the people, continue to pay the price for this. Aren't we just as much to blame? We seem to have lost control---it no longer seems to be the world of Lincoln. You know--Government of the people, by the people and for the people. We have the power to fire these people during an election and to send a message to government but we usually don't -- why? On CNBC's Fast Money show, Jeff Macke made a statement that says it well. He said the government is run mostly by a bunch of crooks and no one knows what to do about it.

Stay tuned---

 Today's Thought---
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The trouble with practical jokes is that very often they get elected. - Will Rogers


Mike

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