SplitMaster.com:: Newsletter
Home :: Strategies :: Membership :: Past Results
Author: Mike Celeste Editor: Tony Ponzo January Circulation:

Stat Sheet Week Ending January 9th 2010

ChangesWeeklyDecember4th QuarterYear to Date
IndexesPointsPercentPointsPercentPointsPercentPointsPercent
Dow+190.0+1.8%+83.0+0.8%+702.0+7.2%+190.0+1.8%
S&P+29.0+2.6%+18.0+1.6%+57.0+5.4%+29.0+2.6%
NAS+48.0+2.1%+124.0+5.8%+147.0+6.9%+48.0+2.1%
HAPPY NEW YEAR - HERE IS TO A SUCCESSFUL 2010

AUTO TRADING REMINDER: Remember, auto trading for the Momentum Strategy and all of our strategies is here! Trade Wall Street Financial has been auto trading the Momentum strategy for several weeks with great results. We want to congratulate all of our members who have recently started an auto trading account and we want to welcome all of our new members as well. For those of you who have been thinking of starting an auto trade account, email us at contact us and we will be happy to give you information on how to get started.

In this Issue---
SplitMaster Basic System---
***********************************************
For the year 2009 SplitMaster closed out with a loss for the first time in its history. The results showed that by holding past the original computer sell date we, for the most part, took on additional losses that were not able to be recovered. An analysis showed that we had a very small number of stock splits to work with, also. There were just 6 stock splits announced in 2009 that met our criteria. Many times in the past we would get 6 stock splits announced in a week. This is just another example of just how severe this recession has been. So many companies have suffered such blows to their stock price, that there was just no reason to split their stocks. After two years, we only now have started to see some companies announcing splits. See comments below re Markets, etc. for more details regarding this.

Big Dipper System---
**************************************
The Big Dipper also suffered from a lack of stock split announcements during 2009. For the year we closed out just 3 plays, with 1 winner and 2 losers; all carried forward from prior to 2009. Again, see comments below regarding the significance of stock splits in this economy.

Options---
*******************************
As mentioned in earlier letters, we are testing out an addition to our Option Strategy, as applied to Day Trading. We are encouraged by results so far. There's good news and not as good news in this area. The good news is that we see substantially more profit, but the not-so-good is that we also see more losses in this test. However---the net result thus far definitely shows that the net between the wins and losses is also considerably higher. We will have the Basic play (on the conservative side) and the new section will be called the Aggressive play. That will be for members that are willing to shoot for higher profits, and expecting to see a longer time from buy to sell points during that one trading day. In the Basic we like to get in and out as soon as possible. The Aggressive will take longer, but the hopes are for larger profits. This Aggressive strategy should be coming up shortly.

We are also working on refining other strategies that use options and hope to have more news on those as time goes on and we build our data base. The more numbers in our data base, the more accurate we feel the results will be.

SPECIAL NOTE ON OPTIONS: If you haven't already heard, the option codes are going to be changing starting in February. Instead of having a 3 to 5 digit code as we currently have, the new codes are basically going to be the description of the option. For example instead of an IBM 130 Jan. Call being IBMAF, the actual code will be - IBM Jan 17 2010 130 Call. This is going to cause some confusion at first and we are not sure we really like this new layout. We don't understand why this change is being made. But, we are working on a form that will make this easier and quicker for us to post. The question is though, how fast is it going to be to make trades on this new option system? We'll keep you posted and give more information on this in the next few weeks.

Momentum Plays---
************************************************
In these past three weeks, during the holidays and the first week of the new year, the action has been very low in this strategy. That, as we have been saying is due to the low trading volume in the market and also from the small number of plays to follow. Most traders are thinking of time off instead of trading. And that's OK as we all need time off. Next year, we may just take the last two weeks off of the year as well.

Starting the first week of the year, it was actually more active than we anticipated in terms of number of plays. As the members know, in starting off the year, we at SplitMaster were a little more cautious than usual and as a result missed three or four plays that would have otherwise been very profitable. We'll start adjusting for that this coming week and look forward to getting back to normal conditions. Now, we still think it will be a little light this coming week especailly concerning earnings plays but next week things should really start to heat up.

In the option section above and in prior emails, we have been talking a little about possibly introducing a more aggressive type of play. We'll have more on this in a week or two but what we plan to have is the usual conservative play that we are now calling the Basic play (not to be confused with the Basic Stragegy). It will have the same information for example - buying XYZ Jan 50 Call for 2.30 or better. That will remain the same for the Basic play and the aggressive play. In other words, entry prices will be the same on both versions. But the sells well look like this. Basic play - selling the XYZ Jan 50 Call for 2.70 or better with a stop at 2.00. Alternative Aggressive Play Selling the XYZ Jan 50 Call at 3.00 or better with a stop at 1.80. This will be a choice for the members as to play the Basic play or the Aggressive play. Members on auto trading will have to instruct their brokers on which play they want to follow - Basic or Aggressive. There is nothing to do at this point though. We'll give more details in the coming weeks as stated above.

Indicators---
****************************
The Indicator play continued to show very good results all thru the year, ending up with a 79% win rate. We feel we were able to add to the reliability of this strategy as the year wore on. There were times when we received signals for a play, but because of the outside forces, including political and special times of the year that affects markets, we were able to avoid losses. This year has started out slowly, with one loss, officially, but we did have members that were aggressive and took our signals to make plays that ended up being winners. That also shows the investment sophistication of some of our team members. Some members also combine our signals with other indicators that they feel comfortable with. Team members should note that we have a signal for Monday, 1/11, so be on the lookout for our suggested action on the Momentum page, shortly after the market open.

The Economy, The Markets & Commentary---
*************************************************
Lots has happened since our last newsletter prior to Christmas. We asked if we were going to get a Santa rally, or did we already have one? The answer came loud and clear---we were going to get one. The markets started going up on 12/18 and had 6 consecutive up days from then on. The year ended with a down day on 12/31, but the rally brought December to a nice gain and we know that the Dow had the best year since 2003. That was welcome news for investors, who had gone thru some severe down markets recently. See the stats above to get an idea of what happened for December 2009, the last Quarter and the total year 2009. Note that the S+P 500 and the Nas did quite a bit better than the Dow for the 1st week of this new year.

Now we are into January and two of the most popular theories for the markets center on January. We call it the January First 5 Days and the other one is the January Barometer. The theory is that the net for the first five days in January gives an indication of how the market will end the year. The January Barometer is a longer test that points to the same thing. If the 1st five days are up, we look for an up year--and--if the whole month is a net gainer, we also look for an up year. These are pretty accurate over the years. Of course, we look the opposite way, too--but let's think positive. We don't have to go back any further than 2009 to see a contrary result for this. Jan. 2009 was a bad month, and by mid-March, we all thought the roof not only was going to fall, it had already fallen. Then, almost miraculously, we saw the turn in the markets and the lows had been seen for 2009 and it was steadily up overall, from there on to the end of the year. We now have the first 5 days of Jan. 2010 on the books and what do we see? The year started off with a bang to the upside, with the Dow going up 156 points. The rest of the week showed only a few more points added on by Friday, when a last minute rally brought the Dow from a very flat, negative day, to a positive gain for the day. At any rate, we had a good 5 day net, and that points to a good year. We will have to wait a little bit to see how January ends up as a total month.

This is also the time of the year when I reach back and test ol' Dad's theory of selling after the 10th day of Jan. and buying back later. With that in mind, if the results hit the "norm" for this thought, we would expect to see a retraction downward coming into the markets for a while, starting this coming week. It might not happen, or it could be a short drop followed by another move up. Let's see how it turns out. The reasoning for this is that there is a lot of optimism built up around the holidays from Thanksgiving to New Year's. Dad always said that there is more up moves or rising prices on expectations than actual results, be it stocks or real estate (like when Atlantic City was first granted the rights to establish gambling casinos--real estate prices were sky high on the news, but fell substantially when it came time for the actual building of the casinos), gold, etc. That drives the markets. At some point, tho, reality sets in and we have to see more than expectations, we need earnings. Earnings come and that determines jobs, consumer confidence, or lack of, and the dominoes are set up to fall or continue on a run.

Lately the markets have been in that optimistic mood. Just take a look at the employment report this past Friday, and you can see what we mean. Job losses were 10 times worse than expected. Repeat--that is 10 times worse than expected. What then happened to the markets? No negative affect on the markets. The "analysts" said that the negative was balanced by the adjustment to the November figures, which actually showed a net to the side of more new jobs. They very nicely didn't dwell on the adjustment to the October report, which was worse than previously reported. The net of October and November was a wash, so we were left with December showing losses 10 times worse than expected and yet ignored by the market. Perhaps the market also dwelt on the retail reports that came out much better than expected. That could have helped tip things to the positive side. There is definitely reports on both sides of the ledger - some positive and some negative. Does this signal a real turning point in the economy or just confusion? It is hard to say but we sure would like it to be the former. We always talk about the swinging pendulum in the markets. One thing for sure is the pendulum swings from one extreme to another. We don't know where the most extreme points are, but we do know that at some point, there will be a reversal of that momentum direction and we will go the other way. In other words, at some point, positive news will bring positive results in the markets and at some point negative news will bring negative results to the markets.

Right now we are on the positive side of the pendulum and Washington is greasing the wheels with programs and money that is keeping the economy from falling. Whether we will see a jobs recovery soon is yet to be determined. Now some of those "experts" are pointing out, quite correctly, that jobs lag, and they lag in both directions. Job losses occur later in a downturn, and new jobs occur later in a recovery period. By pointing out the lag time, these "experts" are saying that we should disregard job reports, or at least not give them much weight. I feel the opposite---whether there is a lag time or not, we need confirmation of a recovery by seeing job increases.

Many "experts" talk about the market being 6 months ahead of the economy, but we don't see these people going back and looking to see what actually did happen to the economy 6 months later. If we take a look at the March 2009 lows, for example, we would expect the economy to be at its lowest point in Sept. 2009. By Sept., however, we didn't see the lows in the economy. Even today, we don't know if we have seen the lows in the economy, but we think we have. Many of those "experts" have said that the recession is over and had been over for a while. Even the negative thinkers don't use the word "depression" any more. We have to keep in mind that Washington is still running Wall St., and Main St. is still waiting for the benefits to show more than superficial results for them. Note that big bonuses are back for the financial institutions.

This week we saw an update on consumer spending, and it showed that for the 10th month, consumers borrowed less, falling by the largest amount on record. Question--Are consumers borrowing less because they want to pay off debt and save more, or are they borrowing less because they can't afford to borrow, due to job losses or threatened job losses?

Back to expectations---Investor expectations are reportedly leaning toward stronger sales and outlooks for the rest of the year 2010. OK, we have the expectations. Now we will wait to see the actual results. If the results mirror expectations we could see another positive year in the markets. If we don't, be careful. Also, there is always the possibility of decently improving earnings followed by selling on the good news, which could result in a slide in the markets--at least for a time. It is always very difficult to predict what the markets will do. It is much easier, it seems to us, to look at what to expect from the economy. With all the government programs going on, we have to be wary about what happens when they stop. That is a major, major consideration. Interest rates are especially of concern. As we projected the impossibility of a positive coming from mortgages that were 100% of the sales price, with no proof of income, we could also see what was going to happen to interest rates and bonds. With the Fed loaning to banks at 0 interest, and long term bonds being 2%, we said that it was a very bad investment to buy those bonds. Now those bonds are paying around 4% and if you bought those bonds back then, at 2%, the price has to fall to a point that yields 4%--and that is about 1/2. At some point interest rates are going to go up. The reports point to inflation as being the watch point for a rise in interest rates.

Rick Santelli on CNBC is about the only one besides us that points to the real inflation situation. We are seeing all sorts of increases. We just saw a report saying Time Warner is raising cable rates up to 16%. If that isn't inflation, I don't know what is. Commodities are going up and that results in price increases. Look what has happened to gold and silver. With jewelry being a large user of these items, we see those prices increasing. Bad for jewelry selling companies---in reality we see people bringing in gold and silver jewelry to sell for meltdown prices, not buying new jewelry. Gas prices are on the rise again--even tho use is still down, and far higher than at this time last year. Car prices, both new and used, are up. We have an SUV that we keep track of as we have had thoughts about selling---The Blue Book price has gone up over the period of about a year, instead of down. All of our utilities are showing cost increases.

Taxes--don't even think about any direction but up for taxes. Most states have added a whole slew of new taxes or tax increases---and STILL can't really balance their budgets, with more negative figures expected for 2010. No, government officials can give all the speeches they want about the improvements already, but we haven't seen meaningful results yet, and that is what is going to convince me. Granted, there are positive points of light coming from some companies---it is always a fact that someone always makes more in a down time---Auctions for real estate increase during crashes in that sector, for example, so those companies in that business will do better. We need to see real results, not speeches promising them. Most people know that a politician's words are taken with a grain of salt--or at least they should know that. We hope that the results come through. And what happened to the promise of transparency in government? The House and Senate passed Health Insurance bills--behind closed doors. Now they have to get together and hammer out more modifications--and we don't expect we will know what is going on until after it is passed. In addition, Treasury Secretary Geithner is reportedly going to be grilled this month by Congress about the suppression of details on deals that funneled billions to investment banks while he was president of the Federal Reserve Bank of New York. Yes, we have transparency---we can just about see through our wallets at this stage of the economy, they are so thin.

Another indication about whether the economy is really improving comes back to one of our favorite statements--Companies split their stocks when the companies are doing well--plain and simple. Since we had only 6 stock splits of any merit for the whole year, and we haven't seen even one new one in quite a while, we remain cautious about the economy. As we said earlier, when the economy was running at full blast, we would often see 6 stock splits announced in 1 week, not 6 for the entire year. Let me throw out a question. If stock splits are NOT an indication of how a company is doing, how do you explain the extreme drop in stock split announcements? Really--let us know, if you have an explanation other than the condition of the company.

OK--The newsletter has gone on as a long one, but it is the beginning of the year, and we wanted to tie in last year to the year ahead.

Stay tuned, these are interesting times............................

Today's Thought---
*****************
Make peace with your past so it won't mess up the present.


Mike

Published by Splitmaster.com, LLC.
P.O. Box 960 San Dimas CA 91773
Copyright © 2006 All Rights Reserved.
Privacy Policy

To unsubscribe from our newsletter or edit your delivery address go to our Newsletter Page. To edit membership information login to the Splitmaster.com members page. For inquiries regarding this or any other Splitmaster.com Information Delivery System publication contact us at staff@splitmaster.com.