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Author: Mike Celeste Editor: Tony Ponzo March Circulation:

Stat Sheet Week Ending March 28th 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+498.0+6.8%-1,000.0-11.4%
S&P+47.0+6.1%-87.0-9.6%
NAS+88.0+6.0%-32.0-2.0%

Highlight of this past week: We continue to have a great year with both day trading strategies, the Indicator and the Momentum Strategy, as they rack up more wins for the week of 03/23/2009 through 03/27/2009.

In this Issue---
Options---
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We want to talk a little bit more about option writing. We have mentioned that it is a nice income producing strategy, using several different reasons for doing so. We have some old splitters that are below our buy price, so by writing calls (Covered Calls) we can either bring in income or have the stock called away from us at a higher price. ILMN was a stock that hit the option Call price we wanted to write, the April 40 strike price. Keep in mind that while we wrote it for $1.20, we had the split and ended with twice as many shares based on a 2-1 split ratio---so, you are getting $2.40 based on the pre-split price.

Last week we mentioned that a current splitter, MYGN, had some interesting Puts that we were going to look at on Monday. The theory here is that splitters should go up in price and if that happens and a Put has been written, the Put price would go down. If the stock goes down and does manage to get Put to us, we would buy it at that particular strike price but we would get a further price break because we deduct the premium we had been paid for selling it. Note: When writing a Put, if the stock goes down and starts trading below the strike and you decide you do not want the stock after all, you can always buy back the Put you wrote to close and there will no longer be any obligation to buy the stock. You can do this up to expiration date if the stock has not already been put to you. But a stock is almost never put to you prior to expiration date. Buying back a Put to close in this situation though will most likely result in a loss. We picked the April 75 Put on Monday. It opened at $2.70 and closed at $2.25 by the end of that same day. The stock split on 3/26, so the strike price was cut to 37.50, and the written price price goes to $1.35 (1/2 of $2.70). The closing price of 2.25, adjusted for the split was 1.13. The stock did what splitters are supposed to do and jumped nicely this week. That Put closed on Friday at about 35 cents, or 70 cents pre-split. That means there is a $2.00 profit if the Put were bought back to close. Not a bad gain for the week.

For income purposes we can also write the Calls and Puts. Here we are aiming at a 1% return for the month--and that is based on 30 days, which it hardly ever comes to--maybe 2-3 weeks of holding, in reality. A repeat play is on for CTSH, having written the April 22.50 Call. That was written for 70 cents on Thursday. On Friday the Call dropped to 30 cents. Calculating 1% of 22.50, we see that would be about 23 cents. We now have 40 cents profit in it (.70 - .30) if we buy back the Call. We did buy it back early last month, and it worked out fine, as the stock moved up after we bought it back. Now we got in at the next higher strike price, since the stock went up. Last time we wrote the 20 Call and this time we wrote the 22.50 call. We made more than our 1% last month, and are currently making more than 1% for this month, plus we are using that higher strike price. If we can average 1% a month, we all realize that the annual income is 12%.

Since we have some IBMin the family, we wrote the 95 Call two months ago for the Feb. 100, then the March 95, and now the April 105. The first two months expired at nice 100% profits--as they expired worthless. Our April 105 Calls were written this week at 65 cents and closed the week at 45 cents, so they are at a profit at this point. I have to say that the stock jumped up nicely and the Call more than doubled the price I wrote, but by the end of the week the stock gave up gains and the Call declined below my writing price. Now this one is not shooting for 1%, as that would be in the amount of $1.05, and since I wrote it at 65 cents there isn't enough in the option to get 1%. This happens to be a stock we have held for many years and we want more income out of it. Remember this---if we write it and the option expires worthless, we keep that money--plus--any dividend paid by the company. IBM does pay a dividend, so we received that and the premium for the written Call.

NOTE: Although writing Calls and Puts as described above provide good odds for success, any option trading comes with risk and you should be fully aware of the those risks before attemping any such trade. Also before entering any such trade, you should always plan an exit strategy for both the winning side and the losing side. Always know the maximum loss you would be willing to take if a trade goes against you.

 Momentum Plays---
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We had a very good week with 5 wins and two losses for a total of 7 trades. Those five wins produced a very nice net profit as well. So we are back into our normal swing of winning and now sit on a profit margin of over 235% for the year. See Past Results

We had quite a few new members join this week and we want to welcome them to the team. For you new members, we use certain buzz words and phrases during our trading period each day. We may say something like "wait for the retraction before going in" or 'don't forget your stop losses at a point you are comfortable with" or " we are entering such and such play at about 2.30" etc. Most of these terms are self explanatory and we have gone into explanations in many of our newsletters about these words and phrases. But please do not hesitate to email us if you have questions. If you would like to read some of our past newsletters, login into the site. Once on the general member page, look on the right side of the page where it says Member Features. Under this title you will see a link that says Newsletter Archive. Click on that link and you will see our prior newsletters.

Lesson:We use the word "about" when we are entering or exiting a trade. We might say, we are entering the April 35 Call on XYZ now for about 2.30. We say about because prices change fast and by the time you read our posting and put your order in, things often change. We ourselves often do not get the "about" price and have to go for a slightly different price. Sometimes it is a better price and sometimes it is not as good. But we say "about" so you do not miss a play because we don't want you missing the play due to it not trading exactly at that "about" price when you put in your order. Generally, on a SPY play you would want to pass if the trade is .05 or more in the wrong direction by the time you place your order. If it is in the direction of a better price you would still want to go for it. On an Earnings play or a W play, you could enter a play up to .10 in the wrong direction. After that, pass. Of course the final decision to make a play is always up to each member and the amount of profit goal is up to each member as well. You can choose to follow what we are doing or go for slightly different profit goals. It is all up to each member's level of aggressiveness.

One more thing, on exiting a SPY play, we sometimes use a market order rather than a limit order. We don't do this on Earnings plays or W plays since the bid/ask spreads are too big. But since the SPY usually has bid/ask spreads of only .01 on the options we trade, when we are ready to exit we send in that market order and we are assured of getting executed within a penny or two of the price we see on the streamer at the time. Sometimes it is a penny or two better and sometimes it is a penny or two less. We are not saying everyone should do this. We are just telling you what we do and if you like the idea it is your choice. That's it for this week's lesson.

Even though this winning strategy is a day trading system, it is a rather conservative strategy as one member pointed out to us. It is also a strategy that usually only takes two hours or less each morning. For newsletter readers who are not Momentum Strategy members yet, but are interested in learning more, click on this link: Learn More

Indicators---
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The Indicator play had 3 signals this week, which is unusual as we average about 7-8 per month. There were two clear winners and the other one ended up rather unusual. It was unusual in that if you used a tight stop loss you probably took a loss in the play, but if your stop was a little more liberal or don't use stops and held onto it, there was a profit around the last 15 minutes of the day. In all fairness we decided to call it a non-play, and neither a winner nor a loser. Having said that, the two clear winners added to the rest of the month and year-to-date show 25 wins and 2 losses for this strategy. That's a 92% win rate!! It is also probably our easiest strategy to play with the least amount of time invested - two or less hours a week. On top of all that it is our lowest cost strategy--- but--- the price is being raised in April. If you are interested in the Indicator Strategy there is still a short amount of time to inquire. Learn More

Feedback---
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Out of the member feedback emails we received this week, we are posting the following email sent by a new member:

Wow, I took a look at the chart. You guys are good (I should say experienced). I would have missed the move if you hadn't pointed it out to me. I didn't realize how close to the open you guys act. I guess I have a lot to learn. Thanks. Rachid

The Economy, The Markets & Commentary---
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We were in doom and gloom thoughts just a short time ago and now we have seen 3 straight weeks of higher index prices. And that has not happened in a long - long time since 1982 according to CNBC . This is very confusing to the professional traders as well as everyone else. There is no question that the economic news has improved. Improved meaning things haven't gotten worse, and some are showing real improvement. An example of that would be the housing sector, for the most part, that is. We have seen an increase in sales of both new and resale properties, and in some cases in numbers well over 50% over the prior year period. Granted, the price of homes is still dropping, but at least they are selling. Most of the sales seem to be former foreclosures, but they are selling. There apparently is a long list of homes that will be added to inventory, but it is a step in the right direction. Don't look for employment to improve any time soon, as this category lags in the recovery period. It is also a laggard at the beginning of a recession period, in that companies don't start laying off people until well into a recession. The difficulty is getting the companies into a position of improved health so they can hire back employees.

There is some talk about the markets getting ahead of themselves, what with almost a 500 point up move in the Dow on Monday, followed by 2 additional days this week where there was a rise. Investors seem to want to grab onto good thoughts and are tired of all the negative news. This administration sure has had its people in the public news since they came in. It is difficult to keep up with all the hearings, proposals, and interviews being given. It seems there still is so much unknown about what is really happening and what really happened in the recent past, since all these billions were made available. We toss around the word trillions like nothing, and hope somebody knows what they are doing. One thing that burns me up is the continued statements coming out that the financial area is still an unknown because the derivatives that were created were so complex that we need the people that caused this problem to stick around because they are the only ones that know how to unravel them. Baloney !! A proper analyst goes into the books and starts at the beginning and gets the paper trail of the beginning and tracks them to the end. Personally, in our other work by Tony C., there is a great deal of evidence that the law of recording paperwork for mortgages was not done. We have easily proven that. You are required to record certain documents and when that isn't done, it isn't legally binding.

We often talk about the fact that during bad times for most, it means that there are good times for others. A couple of examples of that involve ocean vessels that carry goods around the world and airplanes. With the economy slowing down so much these vessels and aircraft are empty and not needed. They have to be stored somewhere until the economy improves enough to fill them with goods and passengers. The cost of storing ships can be very expensive, but it has to be done and it is cheaper than alternatives. Sometimes older ships are cut up for scrap metal, so that is a good business for those that are in this business. Ship storage is based on the tonnage of the ship and the fee is so much a ton. These ships are massive and it is very profitable for those places that have the facilities and personnel that can handle this situation. Bad for some, but boom times for others.

We feel it is too soon in the game to come to any conclusions about an end to this recession by the end of 2009. There's nothing like a strong rally to get investors thinking that the good times are coming soon. Even the President keeps saying we need to be patient and that it is going to take time to work our way thru this. He says he believes his people have come up with the proper programs to do the job, but since we haven't seen situations like this before, the solutions can't really be judged easily, that's for sure. We remain guarded about how fast we recover, and think a conservative approach is the best way to proceed. In the meantime, we will continue to put our faith in day trading, riding the momentum as it moves both up and down, aiming at profits at both ends.

Scam of the week---(and there are many to choose from.)
The Los Angeles Times reported this week that California is seeking to recover hundreds of millions of dollars, possible approaching a billion dollars, from private medical laboratories accused of bilking the state Medi-Cal program by drastically overcharging for various tests, according to the California Attorney General. Just think--another billion dollar scam. Medi-Cal is paying out all this money (our tax money) that won't be used for legitimate care of poor people. Someone apparently is getting rich off the state, while there are attempts to cut benefits for poor and needy people. To those needy people $25 less is a huge amount. That means doing without other essentials. It sickens me that there are people out there with absolutely no consideration for the welfare of people that are in unfortunate situations. Yes, there are people getting benefits that they are not really entitled to, but it pales when compared to the gross amounts of money taken out of the system by a very few people, and doing it illegally. We hope the prosecution is effective in cutting down on this sort of thing---if proven to be true. Being a betting man (some call me an investor, too) and with years of personal experience dealing with fraud, it never dampens my feelings about it.

Let's think of better times and better people. Too much negativity is bad for your health. Stay tuned---and let us know about some good things, too--we like to hear from you.

 Today's Thought---
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Grandpa started walking five miles a day when he was 75......
Now he's 90 years old, and we don't know where he is........

Mike

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