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Author: Mike Celeste Editor: Tony Ponzo October Circulation:

Stat Sheet Week Ending October 31st 2009

ChangesWeeklySeptemberYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow-259.0-2.6%-13.00.0%+937.0+10.6%
S&P-44.0-4.0%-22.0-2.1%+133.0+14.7%
NAS-109.0-5.0%-77.0-3.6%+468.0+30.0%

Highlight of this past week: Even though we had our ups and downs in October, the
Momentum Strategy finishes the month with a 441% profit for the year and the Indicators still stand at an 81% win rate. That's hard to find any place else!

Special Note: We would like to welcome all of our new members from the month of October. They have caught on very fast and some are already reporting great results!

In this Issue---
Options---
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With the down market this week, we again have potential opportunities to write some Puts. Our new splitter, coming up EBIX, dropped very low compared to its recent price and held above a support point. If you wrote the Puts on Wednesday you would have done pretty well in just one day, being able to buy them back for cheap if you wanted to. Remember, if you have a stock you would like to buy at a lower price, wait until the stock drops, then write the Put with a lower strike price. That way, if the stock drops lower by expiration day, you can get a good deal, and if it doesn't get that low, you get to keep the money from writing the Put. Also--this is for experienced traders and you need approval from your broker. Before attempting any such play, make sure you have a strong understanding of the potential risks and consult your financial advisor.


Momentum Plays---
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What a month for this strategy! First we had 29 plays which is the most number of plays in one month for all of 2009. We had some runs in which we really brought in the profits then other runs in which we lost. In the end we had about a break even month not counting the cost of commission. So that is a lot of work just to break even but we can't complain too much as we still sit on a 441.13% profit rate for the year. But we definitely look forward to the new month coming in and if our cycle follows the normal pattern, we can expect a win trend to kick in soon.

In looking at some of our friendly competitors we see that they had rough months as well. Some of them were much worse than break even. We were trying to figure out why that might be, especially with strategies that take advantage of up or down markets. About the best we can come up with is the market seems to be shifting its momentum to a more negative trend and the volatility is on the rise. During a transition it is often hard to read the market and individual stocks thus profits become harder to achieve. Once this transition period is over, whether we land in a negative mode or a positive mode, it becomes easier to produce the profits. So we at SplitMaster don't care whether the market is going up or going down. We do very well in either. It's just the transition periods that make things a little harder. Now, let me clarify that sentence. If we had a choice, of course we personally would rather see the market positive as it is best for the economy. But the Momentum strategy can take advantage of either direction.

And once again this week, even with this market direction uncertainty, we see a lot of our members doing creative trading with our plays that gave them a profitable advantage and we love to see it.

If you are not already aboard with this strategy, why not check it out at Momentum Strategy

Indicators---
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Our conservative approach to the Indicator play--where certain levels of the NASDAQ tell us that historically, the Spy moves in the opposite direction--has continued to pay off for us. We had only one active play and it was a winner, so we continue to show 81% winners in this strategy. We did not act on signals for another day and it turned out to be the right move. Not losing continues to be good, even tho we know we will have some losses---we just want to limit them to as few as possible.

Check out this very affordable strategy at Indicators

The Economy, The Markets & Commentary---
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We have talked about the Dow 10,000 and now that it was reached, what comes next. We felt it would be hit and it was, but we admitted we didn't know what was to follow. Apparently the market still hasn't made up its mind as to which way it is going to go. A number of earnings were good, in fact, the majority beat estimates. However, beating estimates is not the same as comparing earnings now to earnings from last year. I feel the analysts have purposely underestimated earnings in order to make the earnings look better. Sinister thoughts could be said to center around the belief that the big boys bought up stocks at lower prices and want the estimates to be low, so the stock price could move up higher when the earnings are released. Another thought about earnings is that the next go around could not be as rosy because much of the improved earnings came from cost cutting and if there isn't more room to cut costs, then the same revenue would not look that good when turned into the bottom line. There are also some companies that are not doing as well as expected and the market is punishing them pretty severely. When a stock drops 20% in a day, that is severe. It could take an awfully long time to recover that 20%, as credibility has been hurt. Now to be fair, there also were quite a few companies that reported not only beating estimates, but doing better on a year over year basis and guiding higher for the next quarter. And some of those companies were high profile companies such as AAPL and AMZN.

October is supposed to be one of the better months of the year, even tho we have had some mean crashes in October. The first half of the month was very rosy, with the Dow hitting that magical 10,000 level, but the second half of the month saw the markets battling to keep it at the 10,000 mark---and it turned out that the Bears won the battle, at least for October. The Dow fell over 300 points from Oct. 15 to the end of the month. Glee and Gloom seemed to take turns playing with our emotions. November and December are even better months for the Dow, historically, but historically is made up of many years. Now we are talking about one specific year, and we re-iterate that we don't have a clue as to what the short term might bring. Long term I continue to state that a recovery will be years in the making--quite a few years, and right now we would have to say that whatever Washington does will drive the market. Washington's policies (Administration and Congress, with some input from the Supreme Court) are supporting any kind of recovery, but if the money stops coming, it can get painful. It happened when the clunker program ended and car sales again skidded. Now we have to see what happens in real estate, when or if credits show their effect. Of course, we can expect that the rich will get richer, and be the first ones to get the most benefits, but it does trickle down to the consumer level at some point. The questions are how long will the benefits last and what happens when they expire???

What else have we seen lately? How about a return to higher volatility? We saw triple digit figures in the Dow for 4 of the 5 days this past week. Three of the four days were down triple digits, but the plus and minus alternated each day of the week. One time there is fear for the economy, then another report comes out and there is encouragement for the economy. The very next day a negative sign comes up and we go down 245 points, like on Friday, right after going up 200 points on Thursday. That is one of the main reasons we don't like long term investments, and that is one reason we are over 400% ahead this year by doing day trading. Actually, we aren't in it for a day, but only the smallest part of a day that we can and still come out with profits. One of our recent plays showed a profit in a bit over 1 minute. Granted that was unusual, but it shows that it can be done. We like to be done with more than one play in about 1 1/2 hours. Our attention span to investing is in minutes instead of years.

All eyes will continue to be on Washington this coming week, as hearings continue on various economic points. The dollar and its connection to oil has many people concentrating on the effects oil has on the markets. There are lots of points made on both sides, but it continues to baffle me that the market goes up when oil goes up. Oil increases mean added expense for almost all companies except the oil companies, and added expenses means less profits. At some point I think the logic of that will sink in.

Inflation continues to be of no concern to the "experts". Everyone I talk to, either in business or from a consumer viewpoint says that inflation is hitting them, and hitting them hard. We have mentioned the double digit increases proposed for electricity and gas, and now this week we received notice of a double digit increase for water---with the warning that next year they want another double digit increase. We feel we get lied to about drought conditions so we cut back on use, followed by the price increase because they aren't selling as much water. Hey, T. Boone Pickens didn't get to be a billionaire in the energy business without knowing what he was doing. Remember, we pointed out that for the last several years he has been buying up water companies. Water lagged the other energies, but is rapidly catching up, and T. Boone is raking it in. His huge push for natural gas is going to pay off exceptionally well at some point in the future, as we have more than 100 years of use in our reserves, and it is a clean energy.

Stay tuned............interesting times.

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

Mike

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