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Author: Mike Celeste Editor: Tony Ponzo January Circulation:

Stat Sheet Week Ending January 31st 2009

ChangesWeeklyDecemberYear to Date
IndexesPointsPercentPointsPercentPointsPercent
Dow-77.0-1.0%-775.0-8.8%-775.0-8.8%
S&P-6.0-1.0%+77.0-8.5%-77.0-8.5%
NAS-1.00.0%-101.0-6.4%-101.0-6.4%

Highlight of this past week: While the market indexes keep dropping, the SplitMaster strategies keep churning out the profits. Between our Indicator Strategy and our Momentum Strategy, we had 9 wins and 0 losses this week. The Momentum Strategy now sits on over a 73% profit margin for January 2009.

In this Issue---
Options---
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Continue our lesson from last week on writing Calls or Puts, we did some more writing of Feb. options this past week, and so far they are doing very well. By going pretty far away from the current stock price and getting options that are all time value, with no intrinsic value, it often results in a quick drop in the price. A good rule of thumb I use is to try for 1% based on the strike price. So for example if you have a strike of $15, you go for .15 profit. Sometimes they move fast in your favor and you get more than that. An example of this is this week, Tony wrote the 15 Call on DRYS for .60 when the stock was around $11. This stock has terrific time premium in the option at this time so you can really take advantage of those high premiums. The next day the stock had some bad news and dropped in price and Tony was able to buy back the Calls for .10 making a .50 profit overnight. Nice play. You don't always get that lucky but the odds of that time premium dropping over time is definitely an advantage.

But If I made at least 1% per trade you could say you made 1 percent for the month. Then if you did that every month you would have 12% per year, if successful. Not a bad return in today's environment. Remember that 80-90% of options expire worthless, so if you are writing the options you are winning that percent. On the other hand, some people do win with options, and we like to think that our winning option record for the Indicator and Momentum trading systems puts us in that small percentage that do win. We like being on both sides of a winning situation.

 Momentum Plays- Another Fun Week & a Couple of Lessons--
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While the stock market keeps getting hammered with the DOW dropping 771 point or nearly 9% in January alone, the SplitMaster Momentum strategy keeps on cranking out the wins. We sure are having a lot of fun with this strategy. We had 7 new plays this week and all were winners. That puts this strategy for the month of January at 18 plays - 15 wins and 3 losses. That equals a win rate of about 83% and profit margin of over 73%. Momentum Past Results

It's no wonder we have been gaining a substantial amount of new members this month. I'd like to go over a few points about the strategy for those new team members. This can also be a refresher for our veteran team members. One comment about the following points - we are assuming you are knowledgeable concerning options and shorting stocks. If you are not that knowledgeable about certain items, learn as much as you can by watching, asking questions and paper trade those kind of trades until you are comfortable.

1. The postings we give are meant to be a set of guidelines by which members can make an informed decision as to when to, or whether or not to, enter a specific play. Members don't have to make every play we do. They can limit it to the ones they feel good about. The postings are also to let members know what we at SplitMaster are doing with our own trades. Members should understand that at times things move fast and there is only so much information we can post before entering a play. So the bottom line is, while we think we are pretty good at delivering information to members about a potential play, the final decision to make the trade is up to the individual team member.

2. Sometimes we give a price that we at SplitMaster are trying to enter a trade on. This too is just a guideline and members should not necessarily focus on getting the exact price we post. Things often move fast and it may not be possible to get that exact price. We ourselves may not get the price posted and may have to adjust. You need to be flexible and if the price of a play has changed .05 or .10 you don't want to miss the play. This can go in your favor too in which the price becomes cheaper to go in. Here again, you need to use your own judgment on certain matters. If you can comfortably get the price we post then by all means, go for it. Of course if things move so fast that suddenly you are looking at an entry price that is .30, .40 etc higher, you will want to pass. But keep watching as often, a trade will take a fast dip allowing you to get the better price.

3. We mentioned this in previous newsletters but I'll bring it up again. The number of shares or option contracts we post on the Momentum Past Results page on the site are really just a reference point to formulate results. While we post 7 or 8 contracts on options or 500 shares on stock, this is not necessarily the amount we at SplitMaster trade and is not intended to suggest a number you should trade at. Each team member should play within his/her comfort level and never trade more than you can easily afford. Some team members trade only 1 or 2 contracts per trade and are happy with that while others trade 20, 30 or even 50 contracts or more per trade because that is their comfort level.

4. We often talk about using stop losses. This is to protect you from losing too much when a play goes against you. Stop losses are a matter of individual tolerance however, so the amount of the stop loss you place should be something that makes you comfortable. Some members use tight stops and some use more liberal stops. A tight stop loss on a trade we are trying to make a .30 profit on would be .30 on the stop. A more liberal stop would be .50 or .60. On a play we are trying to get $1 profit the stop might be more liberal such as .80 to $1. But here again it is what your tolerance level is. Some members don't use them at all. Rather they watch the play and make a decision as to when to exit a bad play and execute a sell at that point. There are pros and cons about using the stop loss. The pro is, of course, if a play really goes bad, you are out with a loss that is acceptable to you. You stop the loss before it gets out of hand. The con is, a trade goes down, gets stopped out only to turn around and go back up. This is why some members prefer to keep an eye on it and judge the action to make the exit determination. But that can back fire too if a trade is really moving fast which they sometimes do. Whatever the case, we usually post the point that we here at SplitMaster exit a play.

5. On the profit end, this is an individual member's decision as well. We will post what profit we are targeting for the conservative level, but more aggressive members may want to go for more and that is their decision. For example, we may say that on a SPY option play, we are targeting a 10% profit. So if the option was entered for $3, we would want a .30 profit. But if the trade is moving in a strong manner, many of the more experienced members will let it ride and get out at some higher profit point. New members should play it conservatively until they really get the hang of the strategy.

6. Finally, some of the new members are asking about the W play. In the Momentum strategy we have a set of signals we get from various sources, one of which is from our proprietary software. One of the main signals we us is called the Williams thus the W play. When these signals align in a certain manner, they will indicate if a stock has hit a top or a bottom and is likely to reverse. Thus we have the W up play or the W down play. For W up plays members can buy the stock or buy the Call if the stock has an active Call close to the money. On W down plays members can short the stock or play the related Put that we post. We have a general rule on this play that says, if for example we have a W up play and it is trading at the open in a range that is $.50 or less (up or down) from the previous close, go in at open or shortly after the open. The same rule applies for W down plays. If it is trading over that point we will post comments on the Active page as to what we are thinking about the play.

That's it for today. If this seems like a lot to remember, don't worry as we always remind members about these various points and the postings we make each morning will be a guideline as I mentioned before.

Indicators---
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It turned out to be a great month for the Indicator plays. We had 2 plays this past week, and both were winners. For the month of January we ended up with a perfect record of 7 wins and no losses for this program. Yes, we know we won't win every single play, but we have been refining our criteria over time and it has paid off. Every once in a while (fortunately, it is only once in a while) we get what turns out to be a false signal and a play ends up losing. However, over the time since we started there are very few of these, and our net profits put us in a category that we feel is hard to beat. The beauty of our system is that we have plays for both up and down markets. In this current environment I have to admit that the down plays seem to be more attractive, especially after a nice run up in the indexes. Warning: If you are not a current subscriber to this particular system, our lowest priced one, be aware that I am pushing my partners hard to raise the subscription price. Note that our policy is that if we raise our price, all current subscribers continue to pay the same rate as when they first signed up, as long as they are a continuous member.

Also, a word of sincere advice. If you are a team member, we give fairly strict guidelines for following our programs. For instance, there are times when our research has shown that it is better to wait up to 15 minutes after the open before entering a play, instead of getting in on the open. The logic is that overnight orders affect the opening prices and it takes some minutes to get back to normal. In addition, if dealing in options, we often see that if we are buying options, they are a bit overpriced at the open. Now, if we are writing options, this is good, but if we are buying options, it is better to wait until the correct value is established. We use the CBOE Option Calculator to check on an option's value
at the current price and with "x" days until option expiration.

 Feedback---
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We continue to get nice feedback, especially from new customers, and they are catching on to using the systems. Here's a note from Tom--"I am a new subscriber this month and have been making money. However, there are a few things I would like to get clarification on....." Tom then asked his questions and we were happy to respond. We want our team members to know that we are always striving to respond to all types of questions. The more we hear from our team members, the more we can apply better applications and helpful comments.

 The Economy, The Markets & Commentary---
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Now that we have the Inauguration behind us, we see that the really hard part of the job has started for our leaders. They say they don't want to make the same mistakes that were made by the initial bailout, but they are doing one thing that is exactly the same. They are trying to rush through a stimulus package without most people knowing what is really in it, and what are the exact details. That won't work--a definite prediction from this end. Spending over 900 BILLION is even said to be too little to do the job properly. The bipartisanship seems to be fading away and with all this coming up, it may be a short honeymoon for a union of the White House and Congress. There have also been articles about the original bailout package results being almost impossible to track down. Too many variables, etc. That will get them off the hook, too. The Stimulus Plan will also be virtually impossible to gauge results on. One thing is for certain, tho---we taxpayers will have to pay for it.

The large number of layoffs continue and it seems all sectors are affected. Currently labor is the last to suffer, normally, and will be the last to recover, too. Again, with all the jobs being created, we have the difficulty in moving a laid off teacher into a bridge repair job--and vice versa. And, as mentioned before, the laid off person may have to move to get a new job, has a house that is very difficult to sell in this real estate market, and can't afford to get new quarters until his house is sold. It's not as easy as just saying "We are going to create 2 million jobs."

When is bad news going to be bad news and when is good news going to be good news? This keeps coming up and it seems that we have heard so much bad news that when we get bad news, BUT, it is better than expected, we get a rally in the markets. This could well be an opportunity to take advantage and get some Put options, as bad is bad, no matter how severe the degree. Bad means that it is worse than before---We want to see good news and that will spur a genuine rally. However, we need continuing good news, too. This is going to be a long road downhill before we level out and start our climb back up. Prepare yourself accordingly and you will come out all right in the long run. Everyone has different needs, so each person needs to adjust to their particular environment. We are going to make it out of this--when? we don't know, but make it we will. That is another definite prediction.

Today's Thought---
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Live as if you were to die tomorrow. Learn as if you were to live forever...........Mahatma Gandhi....Indian spiritual and political leader (I really like this one)

Mike

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