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Author: Mike Celeste Editor: Tony Ponzo February Circulation:

Stat Sheet Week Ending February 6th 2010

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-55.0-0.5%-416.0-4.0%
S&P-11.0-1.0%-49.0-4.4%
NAS-6.0-0.3%-128.0-5.6%

Highlight of this past week: JST makes a $4.10 Profit in just 4 days. Our highlight of the week comes from the stock split system - the Basic Strategy. It is nice to see as we have not had many stock splits in the last two years until now! Check it out at Past Results

In this Issue---
SplitMaster Basic System---
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We have had very few splitters announced, as we all know, but we did have one play going this past week. It didn't last long, tho, as the stock went from a buy at $39.37 to a sell of $43.47 in just 4 days. In view of the volatility in the market lately, and the down bias, we took the profit and ran. After It went a bit higher than our out point, it turned and went lower than our sell price, so we don't have any regrets about taking that quick profit. We like 'em that way.

Options---
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This may be a relatively small thing, but it can be very important when it comes to your total win amount in dollars. We all know that there are many different strike prices for options, at many different times. An option investor sets goals and a percent win could well be one of the goals. However, along with percent, it is usually better to add in dollar averaging. We have seen some low price options as your choice for plays and while our goal is around 10%, with aggressive players going for more, we have to watch how many dollars are involved. If we buy a $1.00 option and go for a 10% win, that amounts to 10 cents over our cost. (Usually less than 1 hour in and out.) If we go into an option that costs $1.50, a 10% win would be 15 cents. If you bought 10 options at the first price, $1.00, you would make $100 on a 10% move up. If you bought 10 contracts at $1.50 and made 10% you would make the same percent, but your dollar amount would be $150, or 50% more in dollars. Therefore, you might consider investing the same amount each time, not the same number of contracts. In other words, if you invest $1,500 for 10 contracts at $1.50, you are investing only $1,000 for the same number of contracts for a$1 option. You might want to invest $1,500 in the $1.00 contract, or get 15 contracts for the same dollar amount.
Just a thought, but we wanted to point it out.

Momentum Plays---
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It was a light week in this strategy with only two plays. We have been in the process of adjusting to a market that has gone from a positive momentum to a negative momentum. Because of this change in the market, our up plays have been affected in that they are not doing their typical patterns. So we are shifting to concentrating more on down plays. One problem is, many companies are reporting very good earnings so we are mostly getting signals on up plays. But they tend to peter out as we have been saying.

The other problem is, you never know when the momentum will change back up. We just don't know how long the down momentum will last. The DOW corrected by about 8% from its peak a few weeks ago to its low yesterday. That's a pretty good correction. Will this down momentum continue until we hit a correction of 10% or more? Or is it even a more fundamentally based Bear market. Our personal opinion was that it has more to go but ---yesterday's rather dramatic rally in the last hour and half of the market or so makes us wonder if the bottom has been hit. Only time will tell of course.

In the meantime we have continued our Straddle/Strangle testing. We at SplitMaster have been making live trades this last week and have won every time. We are still working on the best time and prices to go into these plays. Critical in these plays is picking the right stocks that move, the correct strike combination in relation to the stock price and momentum, and to make sure the volatility of the options are not such that it makes the price of the options too expensive. But that's our job to do. We are almost to the point where we are ready to ask a few members to beta test with us. We'll keep members posted. Learn More

Indicators---
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Our Indicator signals have been accurate, but our timing has been a little off and we missed a couple of winning plays. However, on Friday, our patience was rewarded. The signal was given for an up play and we were facing a down market. That's OK, as theoretically, if we start from a lower price than the day before, our entry price on the play will be lower. That is exactly what happened on Friday, and we got a nice quick win, with the two words "win" and "quick" being the key ingredients. That was our first actual play for February and raises our win percent up to 80% for the young year. Learn More

Feedback---
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We are again encouraged by the feedback from team members that are tracking our new strategy that is in the testing stage. They are enthusiastic about what they see, and that makes us happy that our members get to see how the logic of the play makes for some good moves. We will be giving out more information soon, so team members can follow even more closely. We have learned a lot more, and while it isn't a simple process, we remain very excited.

The Economy, The Markets & Commentary---
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This week was definitely a roller coaster, and one that tested even the strongest rider. Monday and Tuesday saw triple digit up moves on the Dow, which gave everyone the feeling that we were moving in the right direction. Something like 78% of the S+P 500 earnings' reports have beaten expectations. Yes, there is a question about the estimates. We don't know if they were purposely set low in order to make it look like a recovery and that results are better than reality. Whatever, the market went up nicely those two days. Wednesday was a bit indecisive and there was a small drop. On Thursday, the hammer fell hard on the market and we saw a crash of 268 points. All of a sudden there was a pretty good jolt of fear in the market, with the Dow moving under 10,000 for a short time before recovering to close just above 10,000 at 10,002. The roller coaster saved Friday for the stomach churning of the week, tho. The market was down ANOTHER 167 points with just about an hour to go until the close for the week. All of a sudden, investors/traders decided that enough was enough and we saw a rally that recovered all 167 points--but--then dipped to a loss of around 40, and with a grand flourish, bounced up from that to close with a gain of 10 for the day.

The "experts" went crazy all week. It's sickening to watch and listen to them go with whatever direction the wind is blowing at the time. They can always give you the reason for the action AFTER it has happened. Monday and Tuesday brought euphoria, then Thursday brought doom and gloom and after the close on Friday, it was declared that the worst is now over. "They" also stated that it is felt that we were expecting a correction, it was good for the market, and if you look at March of 2009, it would be a similar situation. Not a single one of the "experts" said exactly any trades they did during this week. And---no one questions them like they should be questioned--per CNBC questions as I heard them. The financial media lets these people go along like this, and I don't know why they think they are good journalists and interviewers. It must be that the media thinks they won't get these people back if they make them accountable for what they predict. Then, the worst times are when a prediction does become reality on those rare occasions. Now, that person is considered the guru of investing advice, and they can ride that prediction for years. Anyone can be a guru---all you have to do is to keep predicting something radical is going to happen, and at some point it will happen. Like, I can say that there is going to be a plane crash, and an earthquake, with severe flooding at some point---all of those will happen--at some point. Does that make me a guru? I think not, and it is a shame that some people like that are paid really big bucks to be right once in a great while. Why does CNBC need to put these people on anyway? Many of them are not only wrong, but their statements often appear to be laughable. I guess they have to fill the time, especially when there is not much other news. Now don't get us wrong, there are some people on the show that we enjoy listening to. But those are generally the ones who admit that they do not have a crystal ball and mostly just report on the day's action -such as Art Cashin.

Volatility was the word of the week in the markets. We think that the reason for much of this is uncertainty. The market does not like uncertainty and in combination with the time of year and the level of the market going into that 10th trading day of January, we saw the pendulum swing from optimism to uncertainty. The reasoning of the market is a delicate thing. When times are positive, the market ignores bad news. When the mood is negative or uncertain, the market ignores good news. Right now it has been having a tendency to ignore good news. The ties between Washington and Wall St., continue to be tighter and tighter. The administration is not looking too good and the polls are showing this. Do we have new policies that are idealistic, but impractical? Hey, the key word in the last election was "change"--but if you listen to campaign speeches, every campaigner is seeking change---that's why the candidate thinks you should vote for them. This time we got CHANGE in capital letters. Several people sent us the Debt Clock on our national debt, and it is scary, very scary, to watch how quickly that debt is building up. The real guilty parties in all this--and this is strictly my opinion--are the politicians that allowed the mortgage situation to almost completely destroy the financial system. No genius needed to be around to know that to allow 100% loans to people that didn't have to prove their income was a disaster in the making---and in the making for trillions of dollars. I keep saying it over and over, but I think it needs repeating and repeating, so that we MIGHT finally get some of these politicians out of there and put a new group in that is a little bit more inexperienced in how to stick it to the people. I blame the politicians and the governmental agencies that they look over, but I don't overlook the greed of the lenders that went along with these programs and took billions off the top for themselves. Campaign donations and lucrative jobs after serving in office are what the politicians seek, and they sought and they received. And--they will probably get even more donations now that the Supreme Court, in the narrowest of votes at 5-4, has declared that the sky is the limit for US Corporations to back an issue or a politician by way of advertising.

One of the latest jokes is again dealing with the 100 million in bonuses that are going to be paid out in just one circumstance. It is said that there is nothing that can be done to prevent it because the contracts for bonuses were in affect long before TARP money bailed them out. BALONEY to all of that talk. The company would have gone under if they weren't bailed out--bankruptcy would have been necessary. Keep in mind, tho, that there are two types of bankruptcy--one that dissolves the company, and one method that allows the continuation under a plan overseen by a trustee. Basically, you get to start over with no debt or very little debt obligations. A great example is the bankruptcy of General Motors. First, the "experts" on CNBC stated that bankruptcy would bring down the country as so many vendors and others would have to close up. Wrong. The bankruptcy was filed, the US bailed them out, and strict conditions were set for them to continue operating. One of the big adjustments was the stopping of the union contracts and wages were lowered. Yes, bankruptcy cancels out contracts and that could have been done when we plowed many billions into saving these bonus giving companies. There are solutions, but they are ignored.

Another solution that is ignored relates to oil contracts. Another repeat from this end---There finally was a voice of intelligence on CNBC. Not to the extent that I would have liked, but still a voice that was contrary to the blather that comes out about how we stand in the oil sector. This person said that there is only one major group that actually gets delivery of oil and that is the refiners, who turn oil into products that make so many things. The refiners make up a small part of the contract trading, tho. The rest of the contracts are from speculators, and that has been proven time and time again, but nothing is done about them. The sad thing is that it would be so easy to solve the problem. The margin required for an oil contract is around 5-7%, while stocks require a 50% margin. The stock margin used to be low and that is given as the major cause for the 1929 stock market crash. When margin is low, you can make lots of money real fast--if--the market goes in your direction. If the market does not go in your direction you will receive a margin call after a drop of a relatively small amount. A drop over 5-7% wipes out a speculator if he can't come up with more money. They are keeping the oil prices high. The person on CNBC said that there just isn't much more capacity to store oil, so that is a bubble that has to burst, but when is the question. He factually pointed out that the top two oil refiners saw big drops in earnings, mostly losing money on their refinery sector. Some refineries have been closed completely, and others have cut back on production quite severely. He pointed out that if those huge companies can't make money at $70/barrel, how can it be expected to see oil go over $100/barrel, as many have predicted. Rick Santelli, who I respect the most on CNBC, was the only one I have heard that mentioned the simple change in the margin requirement, and I heard it from him only once.

The health debate has faded back in the picture a little bit. It was desired that we would have one thrust upon us before the end of 2009, but the picture is getting pretty jumbled currently. This week we saw the report that showed a record amount of our total spending is on health care. Oh, wait a minute--we don't have inflation, we are told. The record cost must not apply to us. Maybe if we don’t count taxpayers as being charged that would be partly true. The government is spending a bigger and bigger share of health costs, thru Medicare, etc. And when the government spends that means the taxpayers are footing the bill.

Enough aggravation---let's enjoy Super Bowl weekend and get our minds off this stuff for a little while. Stay tuned, tho, these are interesting times.......

Today's Thought---
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In my many years I have come to a conclusion that one useless man is a shame, two is a law firm and 3 or more is a congressman..... John Adams



Mike

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