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Author: Mike Celeste Editor: Tony Ponzo January Circulation: 13763

Stat Sheet Week Ending January 21st 2006

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-293.0-2.7%-51.0-0.5%
S&P-27.0-2.1%+13.0+1.0%
NAS-69.0-3.0%+43.0+2.0%
Splitmaster Strategies
Basic...............+3.2%
Big Dipper..............0.0%
Option Calls..............+74.0%
Option Puts..............+81.0%

Highlight of this past week
THOR - CALLs (Jan. 20) Profit 100%; PSYS-CALLs (Jan.55) Profit 67%; PUTs (Jan. 55) Profit 93%

In this Issue---Testimonial---
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Hi Mike, Happy New Year. Well, I have completed my last trade for 2005, what a year! I ended up with 209% return. Thank you.
Sincerely,
Leece

SplitMaster Basic System---
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While we still have 2 more plays to close out in January, we are currently showing a monthly net profit of 3.18% at this point. The major indexes were leading us, but have dropped this past week, (to say the least). PZZA and LKQX are set to close out at the open on Monday, and even with the horrendous results of Friday, both of those stocks should close out at a profit. That is satisfying to us---but what have we done for you lately, you might ask?? We just have to wait and see.

Big Dipper System---
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PTC is set to close this coming week, and is still showing a profit at this point. A lot can happen between now and next Friday, but the stock has held in there and in fact, just missed the Target Sell Price by 2 cents a while back. Some of you may have sold at that point.

Options---
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All of our options have closed for the month, so what you see above is the final figure for this category. The CALLS ended with a 74% gain for the month, while the written PUTS closed with a percentage gain of 81% .

S+P 500 Options---
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We closed out the Jan. PUTS and they were worthless, so it was all profit, and when the Nas was down 3 days out of 4 (and that 4th day was less than 1 point up), we entered new PUT positions. Everything was fine until the blowout on Friday and while we were suspicious (See Chart Indicator comments below), we did make the move. Others that follow the S+P 500 have indicated that we may be in for a downturn--some say it will be very steep, but don't know over what time frame. We are looking for the SP to hold over 1200 for the options period ending Feb. 16. We can't guarantee it, but our past record shows all wins and no losses--altho we are currently showing a loss in the Puts that were sold last Wed. There was a profit in one until Friday, when the bottom dropped out and the SP dove 24 points. Seeing that Dow drop over 200 points on Friday sure takes the bottom out of your stomach, doesn't it? We just have to be patient and see what awaits next week.

The Quest---
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A day of reckoning--no doubt about it. Yep, Jan. 20 saw us take our first major hit in our quest to double. While we are still ahead, we dropped over $1,000 of our profits when the Jan. CALLS were closed out. We're licking our wounds and sitting it out for a while. I used some PP plays in this and maybe should stick to splitters. Time will tell.

Chart Indicator---
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The Indicator has dropped under the Positive/Negative Line. Here's a repeat of what we said last week--"The S+P 500 made new highs this past week, and we have started wondering if it is topping out. If it is topping out, new entries by selling PUTS for other months indeed needs good timing. It appears that our Chart Indicator is getting quite a bit above the moving averages that we use to determine where the CI stands. As in most things, when the pendulum swings too far one way, it changes directions and swings the opposite way. We have seen that happen at other times, when looking at these figures. Our moving averages, by the way, are our own criteria, not the usual 50 day, or 200 day Moving Averages. ----End quote. It looks like our interpretation was pretty much right on. We need confirmation, which will take a couple of days, but we are over 20 points below the line, so it would take a strong rally to keep the CI positive. (I consider it negative.)

Stock Split Comments---
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A number of team members have been asking about the lack of splitters during this time frame. We will have closed out 7 splitters in January, which is fairly normal. That means the plays were started in December and the announcements of these qualifying splitters was probably in November to early December. We went back and checked our records to see how many splitters close out each month for the past year, and also the earlier years. This is one of the leaner times, we found out, and it was suggested by Ace Student, Jonathan, that the reason might be that most companies are fully occupied with closing out the books for 2005, getting out annual reports, and also setting up for 2006. We partners thought it over, and it sounded like very good logic, backed up by the figures for previous years. There has been a little more activity in the split announcement field, and we do have some Buy Dates still coming in Jan. and also some in Feb. Last year we remember pleas by some of the team members to somehow cut back on the number of splitters that came up for Buy Date--but we couldn't,-- and we just repeat--we go by our criteria and what the computer spits out. We are confident that the number of splitters will again increase.

Pattern Play System---
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The results for the latter part of January did not meet our expectations, and we ran into some problems about overlapping CALL option expiration dates and Sell Dates. The reason for the overlapping and need for rolling over Jan. CALLS into Feb. CALLS was that at the time the play was initiated, there were no Feb. CALLS. That continues to be a problem for those that needed March CALLS. Some companies have March CALLS available, and they all will next week (if they have options), but not enough. We don't understand why they can't have all March CALLS available at this time of month--before expiration day. Well, they don't and we just have to work around it. Having said that, we are going to have to simplify this process by targeting plays that will not have a need for rolling over.

Tip of the Week---
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Let's say it again--in a slightly different way. We said last week, with our several forms of warning, that not losing is good. Put in different words--Preservation of capital is just as important as making profits. There are times to preserve and there are times to be aggressive. Looks so far like my Dad had some pretty good feelings about the market and all without computers--just experience. Another thought from the Jan. 6, 2006 newsletter Tip--" It's that month again--January--and each year we like to tell you about my Dad's old theory about January. He felt you should sell by the 10th day of January, and over the years, I have seen that be a pretty good decision." Now I'm talking more about how that effects the overall market and general investing and not necessarly how it pertains to specific strategies such as SplitMaster.

--OK, so what happened this year? Jan. 10th was 1 day before the closing high for the indexes, thus far into the year. We all know now what has happened since. Major decline to the point where we are at the Mid-November price range for the Dow--and that November period was a great time for the markets. So having a lack of new split picks this time of year works out pretty good. The drop in the market should now give room for some up movement in the new split picks that will start to come. Only time will tell.

The Economy---
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One of the reasons given for Friday's precipitous decline was that a higher percentage than normal of the earnings reported by S+P 500 companies did not make expected earnings. It was also pointed out that a relative few of the SP 500 companies have reported--by far, most of them will be reporting this coming week and thereafter. Remember when I talked about getting on the Internet and searching "Stock Market 2005 Predictions" and "Stock Market 2006 Predictions"--and other years, too? The majority of predictions for 2006 that I saw were very positive--as they usually are at this time. Now, all of a sudden, there is a fear that over a few weeks time, they are running in the other direction. Another reason I like to point out how fickle it is to make predictions like that--but they do have followers, and that is the key. Many investors, including institutions, get caught up in the emotion of the market (boy, what a powerful term that is). Just like the herd that follows its leader, no matter which direction the leader goes.

The oil dragon has lifted its ugly head again, and if you weren't able to join that energy group (buying stock in those companies is about the only way I know), you have been hit hard in the pocketbook once again. Last week we pointed out that the media was giving the reason of increasing demand, while we pointed out that the weekly gasoline figures had showed a lower demand. Now they are touting Iran, something in Nigeria, etc.---and the weekly inventory report showed again that inventory increased.in both oil and gasoline, while demand dropped--again. Folks, it is my sincere belief that we are being had. And--more price increases in gasoline are expected this coming week, if not this weekend.

Real estate also continues to tail off. New starts fell off dramatically. Here in Southern California, the inventory of houses for sale has gone up further, and it is taking longer to sell homes. The "experts" keep telling us they can't build enough new homes for all the people that need houses. Fine, I'll go along with that. However, I need things and if I can't afford them, I don't get them--the same applies for housing. Another factor rearing its head---fraud. There has been so much fraud in mortgages that it is finally getting the attention of various enforcement agencies. That, in turn, will scare potential loan applicants from lying about their income, etc.--and that will mean fewer mortgages. This past week several very large mortgage loan companies announced some pretty major layoffs. Soft landing? I continue to say it won't be--if you consider "soft" to be a leveling out of home prices--I feel strongly prices will come down, and foreclosures will increase. I hope I'm wrong--I'm a homeowner, too, and like to see the value of my home stay high--even if it is just on paper, it feels good.

Today's Thought---
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Don't think about the stock market this weekend....m. celeste

Mike

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