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Author: Mike Celeste Editor: Tony Ponzo July Circulation:

Stat Sheet Week Ending July 2nd 2011

ChangesWeeklyJune2nd QuarterYear to Date
IndexesPointsPercentPointsPercentPointsPercentPointsPercent
Dow+648.0+5.4%-156.0-1.2%-44.0-0.8%+1,005.0+8.7%
S&P+69.0+5.4%-24.0-1.8%-5.0-0.4%+81.0+6.4%
NAS+163.0+6.1%-61.0-2.2%+23.0+0.8%+163.0+6.1%
Happy 4th of July to everyone---

Highlight of this past week: The Free Day Trading Picks page we started just for fun back in April of this year is showing some pretty awesome results! Since the start we have a 76% win rate and the last 14 out of 16 picks have won! So what we started for fun has turned into a real winner. Each daily pick is posted 10 minutes or more before the open of the market. Check it out at - Free Day Trading Picks

Attention Members: Most of our Level 2 and 3 members have now requested a copy of our book Never Let Wall Street Steal Your Money Again!! For those Level 2 and 3 members who have not yet requested the book, there is still time to get your copy for FREE. There is no obligation. As a paying member, we would just like you to take a look at our creation and if you would like, send us a comment or two. But don't wait too long. The book will officially go on sale before the end of this month and the offer will end at that time!

In this Issue---

SplitMaster Basic System---
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New split announcements have dried up lately. Also, previous splitters, even with a great week, have not gone that well, outside of 1 or 2 out of about 8. It seems the announcements were timed at the height of the stock price for the companies involved, and it was difficult to keep the up momentum going for some stocks. But you never know with stock splits. Fortunately we passed on many of the new splitters because of the type of market we were in for over 6 weeks. So we only have two active picks in the Basic Strategy and 3 in the Big Dipper. Our active picks still have time before the posted sell date and they could take off before sell date as often happens. The market has been on a strong upward momentum for the last week or so and if that continues, it certainly helps.

Big Dipper System---
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We currently have 3 active Dippers going as mentioned above and 2 of those 3 are showing a profit, so this strategy is doing well.

Options---
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This week it turned out that there was only one type of option that brought in good results and that was a Call. The market action of this week, tho, did not give any indication of what was going to happen, with even the most experienced traders left fooled by the moves in the market. Looking back on the week, hind sight tells us the correction ended and the Bull momentum is back on track and in a big way. And the news was better than it has been in a while with even the housing market looking a bit rosier. So, does this Bull momentum continue or is this just a one week event? Well, no one can give that answer but it sure seems as though it will continue. For sure we are due for a day or two of some down momentum but barring any significant bad news, in the longer run, it looks to us as though the market will continue its march up. So here is an option strategy idea for those who beleive the market will continue up.

This Bull strategy is called a Debit Call Spread. We have presented this strategy in the past, but it is certainly worth going over whenever the situation calls for it. Let's say we think the market, in general, is going up over the next two weeks. We can enter this play on any stock we believe will go up with the market as long as that stock has options with fair amounts of volume. For purposes of our example today, I will use the SPY. The SPY is currently trading around 134.00. So in looking at the at -the-money July 16th 134 Call, I see that it last traded for $1.37. Then I see that the out-of-the-money 136 Call (two strikes higher) for the same expiration date last traded for $.53. That looks pretty good to me so I put in a combination order to buy the 134 Call for $1.37, and sell to open the 136 Call for $ .53 giving me a debit of $ .84 (per share or $84 per contract). This play limits my possible loss to my debit - which is $.84. But it has a possible maximum profit of $1.16. That maximum profit is the difference in strike prices minus the $.84 debit. ($2 difference in strikes minus $ .84 = $1.16 possible profit). In order for the maximum profit to be hit, the SPY has be at 136 or higher on expiration date. In order to lose the entire $ .84 the SPY has to be trading below 134 on expiration date, which means both options will expire worthless. The SPY ending between the two strikes will give varying results depending on exactly where the SPY ends. But -- if the SPY moves up decently within the next two weeks and I see a profit, I can close the trade out at any time. It might not be the maximum $1.16, but tracking the trade and calculating my position daily is important. So if I like what I see, I'll close the trade out by selling the 134 Call and buying back to close the 136 Call and take whatever profit I have. For example, let's say two days after I enter the trade, the SPY jumps up to 135.50. The 134 Call would be worth at least $1.50 in intrinsic value, plus, let's say $.50 in time value, for a total of $2.00. And then let's say the 136 Call is going for $ .75 - all time value. Starting with the $. 84 debit and adding back $2.00 for the sale of the 134 Call and subtracting $ .75, I get a profit of $.41 if I close it out. (-$.84 + $2.00 - $.75 = $ .41 profit) On ten contracts that is $410. Not the $1,160 profit I potentially could make if I wait until expiration date, but for two days, it is certainly worth considering. And remember, in this crazy market, a lot can happen to change the market momentum in two weeks, so taking a profit while it is available is never a bad thing.

Please note, this is in no way a recommendation from SplitMaster. The information presented here is only for educational purposes. 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 is not a traders market as we touched upon above. And this is certainly evidenced by the lack of plays we had this week in the Momentum Strategy. Even the stock channel mentioned that traders were having a very difficult time trying to time their plays. The entire week was one in which the indices were hitting resistance points, leveling off for only a minute, then plowing right over those points to make new highs. We tried to ascertain good support points to make Call plays but the SPY never really came back down enough to hit those support points. We were tempted to enter a few Put plays at resistance points but were able to evaluate the situation each time to not make the play. For the most part though, it was pretty easy to not play that Put. Once the market was trading for 20 minutes or so, the up momentum was obvious and not making a trade was the right decision.

Tough trading markets usually occur when the market is changing momentums. For over six weeks it was a down momentum but that has obviously changed this week. Now let's see if the market settles into a more predictable pattern this coming week so we can get some successful trades off.

Indicator Play---
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We could see early on this week that all bets were off as to the direction of the market. Therefore, we did not make the plays called for in our Indicator Strategy---Not losing is good.

The Economy, The Markets & Commentary---
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Mind blowing !! Incredible !! Amazing !! What other adjectives can we give the market action this week? Look at it this way. Last week Nasdaq went all the way down to the closing price of Dec. 31, 2010. This week it went all the way up to a gain of 6.1% at the close. So, all of the year 2011 gain was achieved in one week! Nasdaq went from below the 200 day moving average to well above the 20 day moving average—again, all this week. The leader actually was the Dow, which is up 8.7% for the year, vastly helped by the weekly gain of 5.4%. With this Dow action, it also showed that big caps have done the best so far this year. People want the feeling of security that a big cap can bring, with lots of cash, etc. There was no real rhyme or reason for the degree of the move up Every negative was brushed away, while any positive was an additional boost to prices. Earnings continued to come in positively, but there is the concern about what the next quarters will show.

One positive that stood out was the drop in oil prices, down to the low $90’s/barrel. The Greek crisis was avoided and oil shot back up some, but it is still substantially down from just a bit ago. So much for the “experts” that said it would never get to $90/barrel.

QE2 ended 6/30, and we have yet to see the results for interest rates. That will be a very important development as it rolls along. So many theories have been presented, and all sides believe that they are absolutely correct and the other side is absolutely wrong.

The US debt limit still has not been raised, and Washington again seems frozen—but, watch and see—things will get done at the last moment, probably with some give and take on other issues—as they always tie in other non-related issues to to the main consideration.

The US deficit is still being debated—again the usual big time talk and no action. As mentioned before, Congress talks about cutting spending, but raised the defense budget higher than the president requested. Another “expert” actually said that cutting spending will not result in less jobs. Now that is almost laughable.

Unemployment keeps rolling along above the 400,000 mark for the weekly reports. Counteracting that, manufacturing improved. It still baffles me that earnings can be so good, with so many people out of work, prices rising substantially (we call that inflation, the government does not), and wages not rising. Lots of cash of the big companies is being retained in foreign countries instead of bringing it back to the US, where it would face higher taxes. I can understand that, but what I can’t understand is, for example, the money being made in Europe. We continue to hear that Europe is not doing well economically, except for Germany, and Germany has to help bail out the Greece problem, so where is their economic expansion, really? By the way, the problem is not with the Greeks, per se, the problem is with the banks that made all those loans to Greece. We know that Greece can not meet their obligation on those loans (bonds), and if they don’t, it is the banks that is the worry. As usual, the main effort is to help the big banks. The poor Greek people have to pay the brunt of this forced austerity. That is not to say that a lot of it was not brought about by bad decisions, like retirement age, pensions, holidays, etc. Yes, that is unsustainable. But, for the Greek people to face large tax increases on top of job losses, where suddenly you are not bringing home any money to support your family—it is easier to see why there have been riots there. Of course, riots and mayhem is not only being carried out in Greece, but in many other places in the Mid-East. Our support of citizens in Libya is not being duplicated in Syria and the Egyptian people are far from satisfied with the new leadership. Yemen has its hands full, and other places, too.

Talking about the Mid-East---let’s return to Iraq for some comment. Did you read about the money that was sent to Iraq and can not be accounted for? How about this for mind-blowing! The US had frozen the assets of Iraq at the beginning of the war with them. Those assets included oil money and that sort of thing. It was always stated—early on—that our cost of the war was going to come from those assets and oil production. You know, it’s almost unbelievable, but this has been confirmed by many sources. Search the internet using the term “lost billions in Iraq” and you will see what I mean. About 12 BILLION dollars was sent to Iraq from the US. How was it sent, you may ask? It was sent in actual cash, and took about 20 big planeloads to get it over there. In this day and age of electronic transfer of funds, WHY was the decision made to send it in CASH? Now they can NOT account for 6.6 BILLION of that money—where it went, how it was spent, who spent it, how it was disbursed—questions like that. You try to tell the IRS that you lost a tremendous amount of money, but it was all in cash, and you can’t show where it went, who it went to, etc. Just try to get away with that one. My dear ol’ Dad had so many good sayings that have proved so very true over the years. The one that applies here is that whenever goods or money leave the United States, all accountability disappears. Remember that this is coming from a man that came here as in immigrant, didn’t get past 3rd grade in school, but worked to go to night school, start a business and invest in the American dream. He knew by experience, watching and noting what was going on. Billions sent out of the country in cash---by the US government. Good grief!! Doesn’t that speak well for the leadership that is in charge of this country? Or, perhaps they knew exactly what they were doing --- Hmmm...

On Friday, there was about 1/2 of the day spent on the developments in the sex charges against the internationally famous French banker. It was so clear that the media was just about ready to make him the victim instead of the perpetrator charged with the offense. If you watched all of the doings, you would at least have seen that both sides made statements, with the sex victim’s attorney explaining the credibility problem and pointed out that she gave the DA most of the information voluntarily, and that there was clear evidence of assault, with pictures backing that up. I don’t know what happened, but at least give the maid the chance to present her case. It appears that the DA is leaning towards a dismissal because of credibility. She lied about her asylum into the US. Gee, a person lied because they wanted to come to the US so badly. She didn’t report her income to the IRS properly—gee, someone lied on their income tax report. No one else has ever done that before, it would seem. Let’s ignore the fact that all the charges have forensic evidence, let’s ignore the fact that the banker admitted having sex with the maid; consensual he says, contrary to the evidence. Let’s ignore the fact that the banker is married. The victim’s lawyer is saying that high profile people get favorable treatment and it’s leading to dismissal. We don’t know yet, but the media seems to agree that we are going down that road. Don’t even let a jury decide if it was a crime or not. One “expert” reporter is just now saying that we should throw out the scientific evidence because of the serious credibility problems. Let’s suppose that someone lied about where their income came from and then they got murdered by the person that furnished the money. Because the dead person lied, we should not blame the person that killed them—an exaggeration, yes, but similar in theory. How does this relate to stocks and economy? It relates because it is this sort of action that we are being dealt, by our leaders in many areas. We are being told—flat out—that lying to the people is for their own good at times. So much for the promise of transparency in our government, which includes the judicial branch. If we are told that lying is sometimes good, why should we ever believe what is said. It compares to the campaign manager that said, when confronted with his elected official that did not do what he promised—“Everyone knows that campaign promises don’t mean anything.” And—they get away with it time and time again. Lying brought us the mortgage crisis that brought the world down to this level. One final comment about the French banker—he is coming across as more of a victim than the original victim, and he admitted to the illicit sex. Congressman Weiner, on the other hand, sent pictures out—did not engage in sex, as far as I’ve heard, but he was pushed to resign. OK, I’ll quit on this subject—the subject of being lied to, and who gets away with what, on a level that applies to all of us, because we are being told to believe our leaders and that all will be economically well—someday.

Just a quick note about financial situations at the state levels. Most states have a state constitutional requirement that they submit a balanced budget. Here in CA there was almost a miraculous action taken. The balanced budget was passed just before the deadline. Isn’t it great when the legislature is docked their pay if they don’t pass a balanced budget by a certain date? They did get hit with an average of about $5,000 each, which can’t be reclaimed, but that’s all they were hit for. The problem is that the “balanced” budget is based on proposed income, guestimates, really. They stretch credibility, but it was close enough that it could not be challenged by the state Controller. who did challenge the original “balanced” budget. When it comes to the end of the year, is this going to be another one of those lies for the good of the state? Now there is some talk about requiring the federal budget to be balanced—done thru a constitutional amendment. Good luck getting that thru! Remember when the Republicans took over control with Newt Gingrich leading the way in a provision that they were going to make term limits apply to themselves? Doggone, it seems that such a provision never made the light of day—what a surprise!

And so we move on and look forward to the markets of the coming week. How long can they sustain this upward momentum? I can tell you this. We have seen Nasdaq up 5 straight days—but the record since we have been tracking this is 12 straight days up.

Stay tuned, these are very interesting time, and lately getting more interesting all the time........................

Today's Chuckle for the 4th of July---
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What kind of tea did the American colonists thirst for?
Liberty

Mike

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