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Author: Mike Celeste Editor: Tony Ponzo February Circulation: 13836

Stat Sheet Week Ending February 18th 2006

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+196.0+1.8%+397.0+3.7%
S&P+24.0+1.9%+39.0+3.1%
NAS+20.0+1.0%+77.0+3.5%
Splitmaster Strategies
Basic...............+7.5%
Big Dipper..............+10.7%
Option Calls..............+56.0%
Option Puts..............+85.0%

Highlight of this past week
SPX showed a 100% profit (expired worthless) on the 2 written puts for February expiration.

In this Issue---Auto-Trading Reminder---
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Just a quick reminder that we are set-up to handle auto-trading, for those that are interested. And we have two brokers to choose from. For more information, email us at contact@splitmaster.com

Testimonial---
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We've heard from some big players, now read this---and keep in perspective that these results equate to a 50% gain in a very short time. No wonder Lea is excited. --- I have to tell you that it makes us feel really good to get this.
"Hi Mike,
I just made $200.00 on BTU. I sold the put for 4 and I bought it back for
2. I am excited Thanks Lea Keep up the good work."

SplitMaster Basic System---
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It took this long to get our first completed play in for February, but it was a winner, so it was worth waiting for. EME is a stock that went up quickly, but settled back for most of the entire holding period. That is a bit frustrating in more ways than one. To me, the most frustrating part about watching a splitter go up quickly and then settle back is that it tempts a person to not wait for the sell date on following splitters, but to get out with a short term profit. That can become a habit, and if you are very good at it, so be it--but it can be a dangerous game. That same thing goes for the temptation to sell at a loss before the sell date. Sometimes you cut losses and sometimes the stocks come back. We keep repeating that we run the systems over a 1 year period, and every year for 31 straight years, the splitters in the Basic have been profitable.

Big Dipper System---
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We are now up to five current Big Dippers in play, and four of them are profitable, with the 5th climbing back from a much lower position. We stress that the BD is a program that can be played all by itself, for those that prefer fewer plays during the year, and for those that play the Basic. The Basic and Big Dipper really go hand-in-hand for those that can plan and have the capital to do both systems. My personal investing thoughts go along those lines. It is sometimes hard to do, after seeing a stock drop, but after you have been with us for a while, you know that most bounce back. We can sometimes see reasons for drops in stock prices, such as downgrades, but many times it is in sympathy with another stock in the sector, and doesn't really have anything to do with this particular company---and it becomes a buying opportunity. In the past week or two, we saw the energy stocks get hit--but they got hit in January, and came back. They are still going to be making good profits, even if energy prices fall some. This week there were some dramatic upward moves. Again, this is where temptation comes into play---and if you are good enough at "cherry-picking", more power to you--but, be careful. That is not the system and when you "cherry-pick", you may not get good results. Some members are good at it though, but "cherry picking" is at their discretion.

We also have received questions about why some stocks are not on the Basic list, but they are on the Big Dipper potential hit list. If you look at the split ratios, you will see that 3-2 splitters are not on the Basic list. While there are some rare big winners on the 3-2 list, most of them---at this time---do not generate enough profit to warrant being added to the Basic plays. We are always monitoring them, and they have been on the Basic list before, but during this time, investors are not pushing them up enough to meet our criteria. However, when a 3-2 drops in price and hits the BD buy price, they often win and so we put them in the Big Dipper but here again, they have to meet our criteria first.

There has been some confusion about the timing on the Big Dipper plays. We post the targeted buy price. If the stock dips down to that certain level, don't wait until you receive an alert from us as we are not always able to send immediate alerts that the stock has dipped to the target price. We post that price so you can set your own program to either enter an order at the target buy price, good until cancelled---or set an alert thru your broker connection (or Yahoo, etc) to be warned when the stock approaches (you set the "near" price) the target buy price. We try to send an alert quickly, but even then, the price could change--one way or the other by the time you receive the alert, so don't totally rely on alerts.You can make arrangements thru your own alert system, or thru the auto-trade people, if you are working that program.

In some cases, our target sell price, after the dip price is hit, is lower than the buy price of that stock in the Basic System. Again, this is a different system. Many times the stock recovers and both systems make profits - the Basic and the Big Dipper. Not always, but it is nice to have a profit in at least one of the systems. In rare cases, both systems could end with a loss. However, we return to our statement--at the end of the year, past results in each system show profits--

Options---
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We all know that options have a great deal of leverage when compared to investing in just the stock. Of course that can mean that they drop a larger percentage when the market is going against us, as well as gain a larger percentage when the stock is rising. We saw a pretty good recovery period this past week in options. We also have to keep in mind that when the market maker drops the bid price below true value, we can short the stock, then exercise the CALL and cover the short, all in the same day. That way we capture the true value of the CALL. We saw that Friday on the CALL in the Pattern System on AEOS. While there was recovery in options this past week, we don't want to say we are out of the woods. AET is running an excellent profit at this point, and that will help overcome some losses in others--and that is the reason we feel it is imperative that we do not cherry-pick, but get some of everything in the system(s) you choose. The big winners have to make up for the losers--otherwise you stand a good chance of being part of that old story--buying the loser and missing the winner.

S+P 500 PUTS---
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This past week we saw the expiration of the 2 plays we had in this system. They both expired worthless, which means that we received our maximum profit and percent. Both made 100% and extended our record of never having lost in this system. Granted--it is not for everyone because it requires quite a bit of margin to make the play--$10-12,000 per contract. However, if marginable securities are sitting in a system, it has been a very nice way to bring in added income. We entered 2 new listings in the S & P 500 system this past week, and they are both currently showing profit.

Important Point about SPX plays---We have been listing 2 plays per monthly period. This is not to say that you should necessarily play both of them (if you are involved in this system), but we give a choice to pick from. If auto trading, you would need to indicate to your broker which you prefer. One returns a bit higher amount, but is a bit closer to the current S+P 500 price. As you can see, we like to be far away from that price when we make our entering order.

Chart Indicator---
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This week's upward move took us back to the neutral line, and the CI is just about confirmed as being in a Positive position again. That was heartening to see, even tho we ended the week with a loss in the indexes. All 3 of the indexes had 3 straight days up, Tues-Thurs, and it was a strong 3 day move. It would be nice to see a long string of days with the CI being positive.

Stock Split Comments---
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We know that the good luck and bad luck in investing usually averages out during the course of a year, but we have had some close calls with good luck recently, but just didn't get the roll of the dice, so to speak. Some of our splitters that had a target sell price went up and teased us by coming very close to the price, and then backing away. TIE did it twice, and also entered the Big Dipper, by dropping--coming back very near sell price, then dropping again, and coming close AGAIN. We find ourselves reaching to the monitor screen and wanting to physically push the price just that little bit higher. The options are where it really matters, too. In the Pattern/Play System, we closed out AEOS today, and it was one that was very close to our target sell price, early on, only to settle back and end up with a very small profit in the stock, and a loss in the CALL. EME was one that didn't get to be a BD play, but did run up quickly and then stayed in a tight range, below the high we saw early on, and closed Friday with a gain in the stock, but a loss in the CALL. The market maker was a problem in this option, also, from start to finish. As we say, options are volatile in percent calculating, and it hurts when you see a profit turn to a loss by sell date---but we keep faith in the system and stay away from the cherry-picking if our self-discipline hats are on--and they should be.

Pattern Play System---
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While we are seeing some improvement in this system this past week, it remains on our secondary list when choosing what systems to play. We have always felt good about one of the plays--HSY--but it just started to move into decent profit territory this past week. Again, to repeat, we saw several of them go to quick profits, only to fall back. We will continue to work on this system, but as we say--it is secondary to our real strength--the splitters and all that is associated with them--stock and options.

SplitMaster request---
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We wanted to thank all of you that answered our request for search words that you used to find us, or that you would use--it is very helpful to us.

The Economy---
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New housing starts were at the highest rate in over 30 years--because of the weather was the given reason. They expect Feb. to show a marked decline, as Jan. took a bunch of the starts from Feb. On the other hand, we will repeat what we think of the housing market. We notice in the news that many of the mortgage companies are closing offices and/or laying off quite a few people. Does that say that sales are leveling off, or are they declining? We know we live in an unusual area here in Southern California, but still--prices and sales are declining here, and we feel we set a trend, so it could well follow to other areas of the country. Don't get me wrong--there will always be a hot area and a cold area in some part of the country--but speaking in larger generalities, we feel a drop is coming that is more than a soft landing. Those adjustable mortgages are giving off some ominous signs about what is happening when the time period for adjustment is approaching--and the feeling is that many people won't be able to handle the increases in monthly payments.-----On the oil front, we are finally hearing what we have been preaching for quite a while. Increasing inventories are starting to be a drain on gas increases--and the price locally dropped about 4 cents. Both oil and gasoline supplies had another increase in inventory---at some point it has to be sold or you run out of storage places. The stock markets have reacted differently to the news--one day the stocks drop on lower oil prices and the next day or two they go up on the same type of news. It's just like the movement on inflation and interest rate news. The economy is said to be good and the markets drop, due to inflation fears--same with employment news--and in a day or so, the markets go up on the same type of news. You tell me how to plan, because I gave up long ago. I just know that stock splits have made money for 31 straight years (or more, with additional studies we don't have), so we will stick to that belief that even tho there aren't any guarantees, history repeats itself many times.

Today's Thought---
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The happiest of people don't necessarily have the best of everything; they just make the most of everything that comes along their way.

Mike

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