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

Stat Sheet Week Ending May 22nd 2010

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-427.0-4.0%-235.0-2.3%
S&P-53.0-4.7%-30.0-2.7%
NAS-118.0-5.0%-40.0-1.8%

In this Issue---
Big Dipper System---
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A special note for team members that were looking for target prices on the several Big Dipper stocks we have going. With the huge decline on Thursday, we decided to lower the target prices on those stocks, and an alert was sent. For those that didn't get a chance to see the changes, you might have purchased some on Friday, when the original target prices were hit. If so, you did very well, as the market had a late recovery and the prices showed some nice profits. None of the stocks hit the new, lower prices, tho. In case you were fortunate enough to buy and see the profits, we would think about selling on Monday. Taking profits in these markets is becoming difficult, so when the opportunity comes up, it is something to consider.

Options---
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Option time values have increased dramatically lately, due to the huge increase in the Volatility Index (VIX). What that means to our programs is that buying options is more risky and writing/selling options against a stock that you own returns a greater amount of money. If the option was $3.00 last week, it could be $4.50 this week, all things being equal--same stock price, same exercise price, and with a consideration of the number of days left until expiration. Also, this would be for June options, not May, which expired Friday, May 21. So if the market looks to be running down again next week, covering your stock positions by writing Calls on them is a great way to round up some income.

Momentum Plays---
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This wild market is wreaking havoc in the Strategy - not in the way of losses as our pre-market indicators are keeping us out of the plays. But we are not getting many plays. The one play we did have this week produced a small loss. Maybe it is just as well that we are off plays until things settle down. Still, we will consider any potential play especially if it is going in the direction of the market. It is hard to say what the market will do next week but we think the down and the volatility will continue as the economic news around the world is not good and it is going to take some time to get it back on track. We may be in for a rough ride for awhile. Hopefully some kind of good news comes out that will improve things sooner. The thing we fear is many American companies are posting really good results but if everything else is collapsing around the world, eventually it will take its toll on business in general. You can bet that after this last couple of weeks, people are tightening their belts another notch and that's not good for the economy.

Indicator Play---
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The extreme (and we mean REAL extreme) volatility lately has put a continued crimp in our entry into Indicator plays. The traders on the floor even say that the normal moves and strategies they use are out the window. The rules and reactions have changed. Therefore we again have backed off making a play and have saved a lot of money by doing so.

The Economy, The Markets & Commentary---
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Last week we saw the major averages again move from negative into positive territory for the year. This week we returned to showing a net loss for the averages when compared to the beginning of the year. In fact, we saw the S+P 500 go lower than the crazy day a bit ago when the Dow dropped over 1,000 points from its daily high, and did so in minutes, and then recovered in minutes. Program trading seemed to be the cause and it was done on other than the regular exchanges (NYSE or NASDAQ). I don't think they ever were able to pin down exactly what happened then. Friday, the S+P did manage to recover on the late rally, but it is still showing a loss for the year. The point is--those stocks did "legitimately" drop below that "mystery" point. As we said a short time ago, the "experts" can go with the wind of the daily moves and decide if we have left positive and entered negative territory, and then reverse themselves the next day, but we have taken the position lately that we definitely are seeing a reversal of momentum and are now showing negative momentum.

A very bad thing has developed as a result of this quick drop in the market. Investors that had just been thinking of re-entering the market or did recently re-enter have become very disillusioned and quite a few have not only sold recent purchases, but have sold many long term holdings. That discouragement leaves a long lasting impression and we venture to say that it will be a very long time before they are even remotely interested in coming back into the market.

Earnings reports continue to be net positive, but they are being almost totally ignored. These are reports of earnings increases of 20-40%, too, which is nothing to sneeze at. It appears that the European financial situation is what is the greatest concern at this time. It seems to be felt that if they can't solve the problem, it will expand globally, and many people that sold out are fearful that another financial crisis in the US and elsewhere could be right around the corner. It could be that they will solve the problem before it expands further, but uncertainty it is not what the market likes to see.

The Volatility Index continues its extreme move. Last week we mentioned that it (VIX) closed at 31.87. This week it went as high as 48.20 on Friday, before the rally brought it down to over 40. That kind of movement can drive the most experienced traders crazy, and I think it has--and that includes us. For crying out loud, on Friday, the Dow rallied over 150 points in the last 20 minutes. Yes, with 20 minutes to go, the Dow was showing a loss for the day and then this sudden rally brought it up to close with a daily gain of 125 points. Program trading, the reason suspected of the 1,000 point drop last week, is again being accused of this fast and furious gain at the end of the trading day. How can an investor make plans when things like this are happening. Even with that big gain in 20 minutes, the weekly figures show a substantial loss in the Dow of over 400 points for the week, as you can see in the stats above.

We continue to get mind-boggling information from the government and the media. Discussions are going around about some deflation and what a bad thing it is. They are living in a different world than my neighbors and I live in. They say there is some deflation, and no inflation, yet the monthly Consumer report came out saying that consumer prices fell for the first time in 13 months. Doesn't that mean that for the previous 12 months prices were rising? And--they had the nerve to say that gasoline prices were lower in April. Everywhere I know, gas prices went up in April. In fact, oil prices have dropped over 20% and a report said wholesale gasoline prices have dropped 50 cents per gallon. I yelled at the TV screen when the reporter then said that consumer gas prices have already dropped 5 cents a gallon. A drop of 50 cents wholesale and a drop of 5 cents retail is supposed to be a good thing? What kind of people do they have doing the reporting? It's the same story, over and over again in the gas area. When oil prices rise, the gas prices go up quickly. When oil drops the gas prices drop very slowly, with the excuse that the higher price gas has to work its way thru the pipeline. Funny it doesn't seem to have work slowly thru the pipeline when oil goes up. Face it friends, we are never going to win this battle. The big boys got big doing it that way and things are not going to change.

Note on the political front. The recent elections seem to show that voters are fed up with incumbents, no matter the party. These results are very encouraging, especially when compared to recent past elections. The last major election here in southern California resulted in every single incumbent being reelected. The only real contests happened when the incumbent retired and both parties had fresh faces. It will be very interesting to see what happens in November, in the bigger elections. My hope is that the voters sweep out these people that have put us in this position, and let's see what newcomers can do. Another "yell at the TV" moment came when our high ranking Mr. Barney Frank stated exactly the opposite of what his position was on mortgage lending back in the heyday of billions being made by the greedy politicians and investment bankers. That is completely contrary to what you can see and hear from him if you search YouTube. And nobody challenges him to much of a degree. My partner, Tony P., has a great idea. Make these politicians face the public where we get to grill them about what they have done, and not let them get away without answering the questions. It seems most reporters in the Media are more interested in looking at the next question to ask, rather than listen to the doublespeak that comes out of these politicians, where the question is totally glossed over without a real answer. Is there any job that has a lower reputation than a politician? I can't think of any. There are stronger words than "disgusting" but that will do for now when giving an opinion about the quality of representation we have today.

Stay tuned.....these are very interesting times..............

Today's Thought---
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I predict future happiness for Americans if they can prevent the governmnet from wasting the labors of the people
under the pretense of taking care of them...........Thomas Jefferson


Mike

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