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Author: Mike Celeste Editor: Tony Ponzo May Circulation: 8033

Stat Sheet Week Ending May 15th 2010

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+240.0+2.3%+192.0+1.8%
S&P+27.0+2.4%+23.0+2.0%
NAS+81.0+3.6%+78.0+3.4%

Highlight of this past week: Finally - stocks splits are back on the rise and this is good news! (See Basic Strategy below) SplitMaster now has 6 stock split picks in the works - the most we have had at one time in two years.

In this Issue---
SplitMaster Basic System---
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We have finally seen some loosening up of split announcements. There have been 6 new announcements since 4/29, with two coming on the same day, in fact. This supports the theory that companies split their stocks when business is good. Earnings have been coming out on the positive side, and we have been expecting the split announcements to increase---a welcome sign. For all you members who used to follow the Basic Strategy but have been inactive for the past two years because of lack of plays, start following our action again. You might find it is time to get back in. And, we can set you up on auto-trade as well. The Basic Strategy is what auto-trading was designed for. It is the perfect and easy strategy to auto-trade. If you have any questions about it, email us at ContactUs

Options---
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This might be the time to consider a tie-in between buying a splitter and selling a Call (Covered Calls). The reason is that the time values are increasing due to the big move up in volatility. We are counting on the history of splitters to show that they will retain their stock price better than the average stock, even in a downward moving market. Here is another strategy. Say you buy a stock that is splitting on June 10th. The stock cost you $49.00. You then check out the June 45 Call and see that it is trading for $5.50. That means you have $1.50 of time premium $4 of intrinsic value ($49 - 45 =$4) for a total of $5.50. That $5.50 goes immediately into your account as a credit. Now let's say on expiration day the stock is up to $51.00. What happens? You get the stock called out at $45 meaning that on the stock itself you lose $4 because remember, you bought it for $49. But you initially collected $5.50 for the Call you wrote giving you a net profit of $1.50. Now let's say the stock goes down to $45.10 on expiration date. You have the same scenario as you lose $4 dollars on the stock for being called out but keep the $5.50 from the Call. Even if the stock drops to $43.50 you would break even. So with this strategy, the stock can go up indefinitely and you make $1.50 or it could drop $5.50 and you still do not lose money. That gives you a pretty good range to be safe and the odds of making a profit. Now if it goes down below the $43.50, you keep the $5.50 and you can still keep the stock and write a July Call to cover using the same principle collecting more premium again. It starts to be like a really good monthly dividend. Plus, if news came out that gives you reason to believe the stock is going down further, you could always take some of the premium you collected from the Calls and buy a protective Put and possibly make profit on that too. So this is a pretty safe strategy with one (sort of) downside. If the stock takes off and say goes up to $55.00 by the date you want to sell, you will leave a lot of profit on the table. But you would still make your $1.50 profit. You have to weigh the possible bigger profit against the probable $1.50 profit. And that is always the opinion of each individual trader.

Momentum Plays---
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We had another light week of trading in this strategy. Again we had quite a few possible plays but they mostly became No Plays as the expected momentum fizzled out right at the open of trading. Again the good news is, our pre-market indicators are giving us the signals as whether or not to trade the stock and they have been right on target for us. So even though we had to pass on several plays, we either saved ourselves some losses or saved our energy in making a play that stayed flat. We did have two actual trades this week and one was a small win and one was a small loss. The loss was based on an overnight strangle that we only do once in awhile and the stock just did not have enough movement in it to produce a profit for a strangle as it has done historically. We'll be looking for more action this coming week.

The Economy, The Markets & Commentary---
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Boy, that VIX is still way up there. The volatility is driving even the most experienced trader to pull out his/her hair, if any is left. The market swings during the day make it tough to call plays, too. Last week the VIX was above 40. This week it dropped as low as 24.30 and then ran right back up to close at 31.67. You have to go back to 2009 to see it above 31 prior to this recent move. The sudden swings in the market are moving the VIX all over the place. Remember just a few weeks ago when we were seeing that steady, almost unrelenting move to the upside? That's when the VIX was down around 17. That was a long move and as we always say, the down moves are faster than the up moves--but try and catch them, that's the problem. Go to a daily chart for the Dow and see that long steady up move from Feb. 2010, followed by the sudden and deep down action of recent days.

We've had triple digit daily moves in the Dow for the last 11 out of 14 trading days. And, during the day, the moves are up and down, besides. Last week we saw the major averages drop to a loss for the year. Thanks to the huge 405 Dow move up on Monday, we have a net gain after this week's action and that puts us back in the profit column for the year. Since Thursday and Friday were triple digit down moves, we saw negativity climb back to the forefront when discussed by our "experts". Did you ever see a more consistent bunch that went whichever way the wind blew for a day? Last week it was doom and gloom and when Monday brought that 405 point move up, we instantly heard them touting positive thoughts, confirmed by more on Wed., when the Dow went up another 149 points. Then came Thursday and Friday, with down moves of 114 and 163, respectively. Doom and gloom was back. There was a small ray of sunshine in the last 35 minutes of trading on Friday, when the market rallied about 100 points up from the low point and then settled up about 85 points from the low, at the close.

We have conflicting points to keep watching. The negative is the financial condition of many countries, which is far from being settled, while the positive is our economy, with slight improvements in some key areas, along with the decidedly positive earnings reports that are coming out. As we mentioned earlier, many more splitters have been announced and we feel that is definitely a positive indicator of the state of business for the companies that are splitting. Those that have been announcing splits do have good results in their last earnings statements. One splitter, BIDU, had a split ratio of 10-1, which is almost unheard of, outside of Warren Buffett's company. It currently is showing a very nice profit from its technical computer generated buy date, even tho it has come down off the high; still up about 33 pre-split points since that buy date, after being up as many as 115 pre-split points. SplitMaster did not go into this one however, as the split came very fast after the announcement - too fast for us to pick a good buy date and the stock was trading at about $700 which makes it hard for most members to trade it with any reasonable volume of shares. And the options were way - way overpriced.

The financial condition is very tenuous, and that is definitely a scary situation. This extreme volatility in the market is also scaring some investors away--ones that have stayed out until they could see positive stability in the market. Now that stability has been challenged, it could well drive the smaller investor to again be on the sidelines. Leaning to the conservative side gets no objection from us on this end.

Stay tuned, these are interesting times-------

Today's Thought---
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Where did the term come from?---The term 'The Big Apple' was coined by touring jazz musicians of the 1930's who used the slang expression 'apple' for any town or city. Therefore, to play New York City is to play the big time--The Big Apple..........


Mike

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