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Author: Mike Celeste Editor: Tony Ponzo March Circulation: 7153

Stat Sheet Week Ending March 6th 2010

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+241.0+2.3%+138.0+1.3%
S&P+31.0+2.8%+23.0+2.1%
NAS+88.0+3.9%+57.0+2.5%
Highlight of this past week: Our second stock split play for this year, NETL, is quickly reaching its 10% profit goal. It could make it this week and if it does that would be over $9 of profit with two plays. Could the Basic strategy be back in the running? Maybe... Past Result

In this Issue---
Options---
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This is getting close to the time of the month when we need to pay special attention to the time value of options we are in or are considering. Time value includes weekends, so plan accordingly when calculating the value of an option. CBOE.com has an option calculator, as do most of the broker accounts that you have online. You can estimate the price down the road and then calculate the value of the Put or Call for that particular date. This can be a very valuable tool. Also, don't forget volatility--which is used in calculating the option value. It is an automatic figure, but you can change it to see what happens when the volatility of that option changes. We wrote some straddles/strangles this past week, using the daily time value (Theta) and it happened to be about 10 cents for the Call and the Put, or 20 cents total. That meant that if the stock opened up the next day at about the same price, the option values would drop 20 cents, and an order could be placed to buy back the straddle at a lower price.
The time value is important for both long and short positions in options, but remember that writing options is tricky and can hurt you big time if there is a gap up or down the next day depending on the direction you are looking for. You need to be very experienced in options in order to do this, but the time value importance is just as great if you are in a long option position. Every day there is some value lost as we get closer to expiration. Remember to keep it in the back of your mind.

Momentum Plays---
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We had a lackluster week in this strategy as we only had two plays and they were losses, though small losses. The main problem this week was lack of plays. There weren't that many good earnings plays - the kind that have a history of moving big after the announcement. And no other particular story stocks such as stock getting two or three upgrades that were on the move. At least we did not find any in time to call a play. Now this is the time of year that earnings plays start to slow down. But we will still get some good ones here and there and we'll be looking for them this week as usual.

Indicators---
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We learned an important lesson many, many years ago, and we keep repeating it here, every once in a while. Right now it is vividly shown to be true. Our normal signals for the Indicator play have to be counter-balanced with the strength of the market. Not losing is very close to a profit goal when investing. Because of the very strong momentum in the markets, we have held off on entering Indicator plays when the signal says to buy a Put because the signal points to a down market the next day. We passed on several Indicator plays and they would all have lost. So, we didn't lose and we saved ourselves that experience. We have another signal for Monday, team members, but we will be extra cautious about considering a play. We will advise with our pre-market notice, followed by another notice after the market opens.

The Economy, The Markets & Commentary---
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We don't have any question about the direction of the market at this time. The momentum pendulum is still swinging higher and higher to the up side of the market. The "experts" on TV have proclaimed that the bottom has been met in unemployment and the economic news is showing a net to the positive. There are some things that really puzzle me, tho. The retail sales reports of this past week have been extremely good. The puzzle is that employment is still going down, but at a lesser rate. Credit use has gone up, attributed mostly to car buying, but still up, when it had been down for a number of months. My question is--How can there be more unemployed, yet spending is going up? You just can't avoid it and disregard those strong retail sales. The housing market is still deep in the doldrums and foreclosures are still a major consideration. It is true that many banks are avoiding official foreclosures and letting people stay in the houses, even tho they are paying nothing on the mortgage.
The banks seem to be leaning more to short sales than foreclosures. This way they have someone keeping up the property, which the banks would have to do themselves by hiring maintenance, etc. Vandalism is practically avoided by having someone live in the house. All that would be an extra cost to the banks, so they turn more to short sales. Taking less for the house is better than paying out more via foreclosure and all that comes with foreclosure.

Special note---The Volatility Index, VIX, sends signals at certain points. When the VIX is at a high range, watch out for a correction, and when it is at a relatively low rate, watch for up moves in the market. Right now, the VIX is testing a low that goes back to 2007. It closed Friday at 17.32. Another reason to watch and see if this strong up momentum can continue.

No, we don't fight the "tape" when it gets to a stage like this. In reverse, there are times when you can't fight the down momentum, too, but right now we have very strong optimism about the economy. We have pushed paying for the deficits to the background at this moment. Usually, the stock market reverses directions when it has gone in one direction 3 days in a row. We have now seen our 6th straight day of up for the Nasdaq.

In February, we also had 6 straight up days. That is very unusual so see 2 stretches like that in such a short period. Going back a little further, we did predict a down market after the 10th day of January, and we did get a pretty strong down correction starting with that 10th trading day of January. At that time, the good news was overpowered by the down momentum. Now it is the other way, but we are also getting more positive news than negative, when looking at the immediate future. That means we are not thinking about the longer term ramifications of the deficit and the rising costs that face us every day---inflation that we are constantly told doesn't exist. At the same time we are being told no inflation, we hear about the tax increases already in place and tax increases proposed. We hear about 39% increases in health insurance for private parties, and wait a minute---didn't we see hearings start in Congress to investigate the validity of those price increases? Somehow that doesn't seem to connect to inflation in their book. Here in California we have 12.5% unemployment, but other parts of the country have less. One "expert analyst" says the employment picture is really a lot better than it might appear. He said that 60% of the unemployed are being hired to new jobs at a fast rate. Of course specifics were not mentioned as to where and in what job sectors. Also California lost out on $700 million in stimulus money for education, and layoff notices are going out fast and furious in the education area. These notices are not exact layoffs, but a notice that unless there is a budget change, the lay-off notices will go into effect. Colleges saw protestors out in force this week, as classes are eliminated and huge tuition fee increases go into force. Maybe it is just California that is in this mess, but I see my old home state of NY isn't doing much better---altho I do see states that have been fiscally responsible and are in a pretty good position, like Texas. Gasoline demand remains low, but we are at a yearly high because of speculation about the future demand. There always seem to be too much emphasis on expectations than results, but in the end, results will rule out as being the most important. If results are bad, the markets will drop a lot faster than they went up on expectations.

Did you notice that Wells Fargo bank made a change in their executive compensation? The bank repaid the TARP money and is no longer restricted in any way as to how much compensation they can pay. Promptly the pay was raised more than double for these top executives. And it should be noted that the lower pay was still many millions of dollars. I just wonder if these people don't have any consciences at all?? How much do they need? I can understand that raises should be expected (provided the present pay is not way out of line) when positive goal results are met, but it is a proven fact that the ratio between the top level and the average worker had expanded tremendously, and in the US, we see it way above executive pay in other nations. I'd like to think that even if I could be in a position to get that kind of pay, that I would not accept it. There have been cases where some top level people have taken $1 in salary because they don't need the money, and have put the betterment of the company above what they could get. They believe they can do a good job, save workers from being laid off, and increase profits or eliminate losses. Those are the kind of people that I admire. Of course, that is not to say that you, as an executive, can't produce those good goals and still need to be paid properly. I just don't think there are enough of the good people compared to the bad, greedy people (and especially including politicians). There is no doubt in my mind that the greedy caused the financial collapse that we had and the world-wide problems that still need to be solved. You know, I say it enough times--you can't have 100% loans to people that don't have to show they can afford to pay the mortgage. Simple, simple, simple. But it is also simple to say that when you do allow that, many people in the private and public sectors got obscenely rich. It was allowed, and no one has to answer for it.

Hey, we're in a positive mode in the market, let's enjoy it while we can. Nothing goes up, or down, forever. Right now, we are still going up and you know what I say next-----------

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

Today's Thought---
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However good or bad a situation is, it will change.

Mike

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