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Author: Mike Celeste Editor: Tony Ponzo May Circulation:

Stat Sheet Week Ending May 1st 2011

ChangesWeeklyAprilYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow+305.0+2.4%+491.0+4.0%+1,233.0+10.0%
S&P+26.0+1.9%+37.0+2.8%+105.0+8.3%
NAS+54.0+1.9%+93.0+3.3%+221.0+8.3%

Highlight of this past week: AKAM, an earnings play in the Momentum Strategy brings in a big win for both the conservative and the aggressive members. AKAM

FREE STOCK PICKS! Have you been following our free stock picks?? If not, go take a look - it's FREE with no strings attached. Since we launched this free page about two weeks ago we have about an 80% win rate. All you have to do is go to the page each morning before the market opens and see what's posted. IT"S EASY! Go to our site at SplitMaster.com. Then look for the big blue box that says Free Picks and click on it. That's It! Check it out this week and tell us what you think.

FREE STOCK PICKS! We did great again in the FREE Picks for this week with 3 wins and 1 loss which is a 75% win rate. This free strategy is turning out to be a lot of fun. And we had several readers of our newsletter comment this week and a couple even added their own twists to the plays and did quite well. One newsletter member went through extra lengths to analyze the plays using three different scenarios. One scenario showed a 25% return for the month of April. Excellent! Thanks Kurt! We welcome other comments and suggestions. IT'S EASY to follow! Go to our site at SplitMaster.com. Then look for the Big Blue Box that says Free Picks and click on it. That's It! Check it out this week and tell us what you think!

In this Issue---
SplitMaster Basic System---
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Feast or Famine---Boy, we were slow in getting to this point, but the huge market increase has spurred the split announcements. On Monday and Tuesday we have a total of 5 new splitters that will be on the buy list. Is that too many at one time? We are going to look closely at these five and see if some or any of them might be deleted from the list, depending on a current analysis of them. Team members should expect an email telling you of our final findings.

Big Dipper System---
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Currently we don’t have any on the Dipper list that are close to the suggested Dipper buy price. That is good, in that it means that the Basic splitters are doing well, overall.

Options---
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We feel that at this present time, we should be very cautious about our option buying, at least the part that deals with the general market. Day trading is becoming especially difficult on the market indexes, due primarily to the emotion of the market. We will trade the indexes with extra caution this week.

Option Lesson of the week The market is in a definite Bull or up-trend. The question is, how long will it last? Although we are due for a down day or two, we think the general direction is going to be up for the next couple of weeks unless some kind of serious world news comes out concerning mother nature, politics or some monetary crisis. Any of that kind of news could send things into a tailspin. But no one can predict that kind of news. So during these times, a possible good strategy is to take advantage of time decay in options especially if you can find options that are trading with higher implied volatility when compared to their historical volatility. This makes the option overpriced. (Remember to use an options calculator to figure that out. We have explained how to use option calculators many times before in our lessons.) We can take advantage by selling an option to open, or what we call selling Naked. Since the market is in an up-trend, selling an overpriced Put on a stock or an index such as the SPY may be a way to round up some income. Let's say you keep track of XYZ stock and you believe it is going up over the next couple of weeks especially if the overall market continues its climb. This is a stock you would not mind owning. The stock is trading at about $35, so you look at a May-21 30 Put (expires 5-21) which is $5 down. You see that it is overpriced and selling for $1.25. You sell 5 contracts and collect $625 and you do not have to invest a penny.

Possible outcomes - 1. You were correct and the stock stays above $30 and the Put expires worthless. You get to keep the $625 with no further obligation.
2. The time decay drops in the Put and you see the Put is now only worth $.50. You decide $.75 is enough profit ($1.25-.50 =$ .75). So rather than waiting for expiration date, you buy back the Put for $.50 to close and keep the difference.
3. The stock drops to or below $30 and you get it put to you at $30 a share. You still keep the $625 which means you essentially bought the stock for $1.25 less a share, or $28.75. That should be OK because you liked the stock anyway and thought about buying it at $35.
3. The stock started to drop and you changed your mind about owning it. You put a buy stop on the option at $2.00 which means you could lose $.75 a share if it goes the wrong way and gets stopped. The buy stop serves as protection against a bigger loss.

While this play can be profitable, you should not attempt to make such a trade unless you have a full understanding of the type of option play you are making and understand well the possible outcomes and risks involved. If you are newer to option trading consult your broker or financial adviser before making such a trade. And always paper trade a new strategy several times before making an actual trade.

Momentum Plays---
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This was another week of hit and miss. We had some very nice wins but also some losses. While both the conservative and aggressive trades netted a profit for the week we see again that the aggressive trades were more profitable and produced a 25% winner on our earnings play AKAM.

Indicator Play---
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Just as in the Option section, we are becoming very demanding about what price level we want to enter our buy orders for this. Again, the emotion of the marketplace is such that we have to throw normal movements right out the window. Team members can expect to see lower entry points than has been normal.

The Economy, The Markets & Commentary---
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On Friday we got a chance to visit Fantasy Land, quit reality and sit back to enjoy royalty’s big show. Whatever you think of Great Britain, I think you have to agree that they know how to put on a show, especially a wedding. We were up at 3 am, Pacific Time, to watch and we did all of the above. Very enjoyable. Finally, we turned to CNBC and got back to the real world.

So let’s start out with a reality eye-opener. Visit this site National Debt to hear about what the national debt really means. Not the deficit, but the national debt. We’ll sum it up in case you don’t have time to watch it (it isn’t very long, only 3 minutes long). The deficit pales when placed on a priority list compared to the national debt. In 2010, $413 billion was paid in just interest on the debt. That amount is more than almost all the money spent at other Departments of the federal government—COMBINED !! (The different departments are given on the video.) Since 1988, we have spent over 8 TRILLION on interest payments, with much of it going to other countries (think China buying our bonds), making them more prosperous. In 2021, it is estimated that interest will be 1.1 TRILLION—per year. By 2046 (past my lifetime, thankfully), every single dime of federal revenue would go to paying the debt interest, according to calculations. That would mean there would not be $1 to spend on anything else. Pretty mindboggling, isn’t it? If we stopped spending on everything, and applied $100 million—per day—it would take 389 years to pay off the debt. Yes, don’t worry that much about the deficit, think more about the debt load.

Is anyone worried about negative things? It does not appear to be the case. This market just wants to go in one direction—up. Nasdaq has gone up 8 straight days, the Dow has gone up 8 of the last 9 days and the S+P 500 has gone up 9 of the last 11 days. Even CNBC has given quite a bit of time talking about how nothing seems to want to stop this market from going up. Earthquakes, tsunamis, tornadoes, lost production, lower earnings of some leaders, bad housing reports, extremely high gas and commodity prices, rapidly rising inflation—nothing is moving the market down. Good earnings seem to be the central point, and forget any company that disappoints. Yes, those particular companies go down on negative earnings, but it doesn’t affect the general market, say like Alcoa used to do, because they are the first to report earnings and they are in a sector that often gives indications of how the economy is doing. One “brilliant expert” was on CNBC saying that rising inflation is really good for the market. He said it means that companies will raise their prices and make more money. Don’t even ask if they can pass their rising costs fully on to their customers. Forget the fact that consumers have only so much money to spend, and every dollar increase in one product means that the consumer has $1 less to spend on something else. And, I don’t think that his savings can be dipped into for very long to make up for this very quick rise in his living expenses. As they say, “Forgeddabout it”—Soprano’s style. There is no question that emotion rules, big time, once again. When the market collapsed due to the crooked mortgage market swindles, fear was the controlling emotion. Now it is exactly the opposite. Optimism rules. Even the major confidence reports are showing surprising improvements---and that is something that I almost refuse to believe. How can consumer confidence be on the rise? Are there that many people that are blindly buying into this propaganda that our economy is quickly improving?

Remember a couple of weeks ago, we mentioned that the “experts” were worried that April was supposed to be a good month, but at mid-month it was showing a loss? We pointed out that March showed the same thing, and ended with a great up move, so it was way too soon to write off April. Sure enough (we have to blow our own horn, sorry about that), April stats, as you can see above, ended with the Dow being up 4% for the month of April, not down anything. Remember, that means that the Dow went up over 4% in just 2 weeks, as at mid-month is was showing a decline. I don’t know about you, but that is a heck of a ride up, as far as we’re concerned. Also, the Dow is leading the pack of indexes. It is up more than the S+P 500 and more than Nasdaq, for that period of time. That indicates to us that investors are intent on buying big cap stocks, probably feeling more safe with the strength of those companies.

What have our “great” leaders been up to? They still have to fight over extending the deficit limit, but that is a given, with compromises and favoritisms having to be thrown in. The lobbyists have to earn their pay, you must keep in mind.

Weather has played a big role in the last couple of weeks, most recently in Alabama, especially. More tragedy, and the President went to visit to pay his respects and promise help. Pretty soon the sympathy given for the deaths and total destruction of property that left people just about pennyless will be shifted to talking about how much the reconstruction of this area will help the economy. We also mentioned this a while back. Something positive is found in every tragedy—especially if you are not the one directly involved in the tragic part. Pretty sickening, it seems to me.

Just a brief mention of oil. It continues to go up in price, even tho the Saudi’s have cut back on production because there is an over supply of oil around the world. What a joke it is to listen to CNBC and hear these idiots say that skyrocketing demand in China and India is driving up the price of oil because these countries are buying all that can be produced. They are careful not to mention that the US demand is down. (When they do rarely talk about it, it's a total of about 5 seconds, if that). Then, if you do take the time to research the demand coming from China, etc., you will find that their demand is slowing, not gaining. We are being lied to, and because no one challenges these talking heads, it gets believed. Hey, I’ll challenge you, the readers---Prove me wrong and I will admit it—publically—but don’t put a spin on it like these “experts” do. We often mention spin—example—A report says a company tripled earnings. Analysis shows it is true, but earnings went from 1 cent to 3 cents, hardly anything to brag about. Or, in reverse—the report.comes out saying earnings dropped just 1 cent, instead of saying that the company earned only 1 cent the year before, and now they didn’t earn anything. The spin now, from the followers of the administration, is that our domestic oil production is the highest in about 20 years. Think about it. It has taken 20 years to get back to the level we had, way back then, and that means that our substantial increase in population has not been given any consideration. Maybe then it was 100 barrels of oil produced per person of population, but now it is only 70 barrels per person, due to the increase in population over the last 20 years. Give me a break, spinners.

Finally—How about the moves in gold and silver? WOW ! Silver got back to the price it was when the Hunt brothers tried to corner the market in early 1980. Yes, those prices then are lower, when adjusted for inflation. All the same, it has taken over 30 years to get back to those price levels on silver. There are many offers from dealers to buy scrap and unused gold and silver. We attended a couple of buying shows, and it was very educational. These dealers are something else, so be very careful if you decide to sell—anytime. You can check the spot prices of gold and silver on any number of websites. There are 31 grams in a troy ounce, which is used for gold and silver. The spot price is then adjusted up or down, depending on whether you are a buyer or a seller. The crafty part is that if you are a seller (which most average people are these days) is that they will tell you things that will deduct from the price value of the metal. For instance, they will say that 14 karat gold has to be reduced in value because pure gold is 24 karats. OK, that is understandable. Then they will say things like if it shows 14K on the jewelry, that isn’t pure 14K. The worth is really lower because pure 14 K should show "14Kp" (the “p” meaning pure). I never heard of that letter being on any 14K piece. Then comes another reduction, saying that because 14K has other metals, it is very costly to refine out the other minerals, so you have the pure gold left. Yes, there is a refinery process—but—we can give you sites that say they are smelters or refiners, and will pay 95% of the value of the pure gold in jewelry, etc. For instance, if gold is 1550 per ounce, and there are 31 grams in an ounce, that means that each gram is worth $50. But 14K gold is about 57% pure gold, so we have to deduct that—so each gram now shows a value of $28.50. If the smelter pays 95% of that, it comes to $28.07/gram that you could expect to receive from them. Now let’s get back to the dealer that talks about all the costs that result in the lowering of the value of your gold jewelry. They offer $19/gram, another offers $22/gram. That leaves either $9/gram or $6/gram profit for them, based on the smelter’s offer. We know someone that brought in 200 grams of gold jewelry—accepted the $19/gram from the dealer, who in that very short time of weighing, etc., made a bit over $9/gram, times 200, or $1,800 more than that customer could have gotten if they had figured it out. Bottom line, be careful and ask lots of questions, esp. if you are a seller. If you are a buyer, also be aware. We heard of stamping gold plated jewelry as 14K –or even taking a lead bar and dipping it in gold plating. Lead weighs a lot and the average buyer would not know the difference. Hey, it’s a tough world out there, so be careful. If you have any questions about this because you are thinking of being a seller or buyer, don’t hesitate to write to us and ask any questions. We can give you the site of the smelter that buys at the fore-mentioned prices, for example. We are here to help if we can.

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

Today's Chuckle ---
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Today’s Trivia---Did you know that the famous painting shows Mona Lisa with no eyebrows? Check it out—apparently that was common during that time period.


Mike

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