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Author: Mike Celeste Editor: Tony Ponzo March Circulation:

Stat Sheet Week Ending March 14th 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+597.0+9.0%-1,552.0-17.7%
S&P+74.0+10.8%-146.0-16.2%
NAS+138.0+10.7%-145.0-9.2%

Highlight of this past week: Indicator Strategy has another great week and is now running at a 90% win rate.

In this Issue---
Options---
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The written options continue to work their way through to expiration, after some were bought back at nice profits. Our GE Put at a $5.00 strike price is down to 1 cents, but there doesn't seem to be a reason to pay a commission to close it out, so we are holding it to expire at zero on expiration date this coming Friday. Our CTSH written Call was bought back at a profit before this big rally, and it is now above the strike price we had, so we are keeping our eye on the $22.50 strike Call instead of the $20 that we had. The IBM written March 95 Call is doing fine, even tho IBM had a nice week. It had a weekly low of 83.02 and closed around 90.30. Since the market has been up 4 straight days, we are still holding it at its current option price of 30 cents, while we wrote it at 65 cents when the stock was 87.40. Note that the current price of the stock is almost 3 points higher than when we wrote it, but the Call is more than 1/2 less than it was. That's the time value that wore off. There was one that we missed, and we are kicking ourselves about it. MYGN had a very nice 65 Put available at around $1.60 when the stock hit our target price of 75.25. Since it is now over 82, we see the Put is down to 10 cents, bid, and we don't see a reason to close it (if we had it, doggone it.). This would be a good time to look at some Calls to write, since the market has been up 4 straight days. It's good to write the Calls when the markets are very strong, and write Puts when the markets have fallen. As we always say tho, while writing options to open (naked) is a good strategy that puts the odds in your favor, you have to really understand what it is you are doing and you have to have exit plans - exit when it hits your profit goal and also exit if it goes against you. You always want to establish what the maximum loss is you can tolerate if a play goes against you. More on that below. The main point here is, do not attempt these plays until you are confident you understand well what the pros and cons are. Consult your financial advisor, read up on the subject and ask us questions if you are not sure of certain aspects on this type of trading.

 Momentum Plays - A Slow Week---
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This strategy has been doing fantastic for so many months that when we got this lackluster week, it took us by surprise. We only had three plays - one win and two small losses. The other thing that took us by surprise this week was the terrific up market. We expected one good up day as the market had been down for so long it was time. But we did not think it would be a four day rally and a significant rally as well. The other surprise was that the market rally was due to good news such as Citigroup saying they had two months of profit. And the good news kept coming - what a pleasant surprise! However, those surprises are what threw us off and made for our first down week in many months. So now we have to watch this market closely. Is it going to go back to its down mode or do we continue the rally? We can work with either direction. It is the changing direction on a dime that makes it a little tougher. And really the only play that is tough to make during a shift in the market direction is the SPY because it is totally based on what the market is doing. Earnings plays will work no matter what (unless of course it is just a bad play). And talking about Earnings plays, we should have had two great Earnings play wins this week which would have made it another winning week. However, both plays saw their options not trading at the open and thus by the time they did start to trade, the move we were looking for was over with. That's OK. It is the nature of the beast that every now and then we have weeks like this. And the overall loss we had for the week was pretty small. The profit margin for the year still stands at over 204% and you just can't complain about that. There'll be much more winning to come! Past Results

LessonWe have been going over certain lessons that members can employ in their trades if they choose. In the nightly recaps we have been giving one lesson a night. We missed the lesson on Thursday because our time got too short so we promised to talk about it in today's newsletter. The lesson is on Stop losses. Stop losses are tools a trader can use to limit a loss in a play that is going wrong. We at SplitMaster are convinced this is one key in being successful overall in trading, especially in Day Trading and especially in a severe bear market like we are in now. In any plan one does, whether it be trading or in business, one should have exit strategies. You have a target profit point and a target loss point. If you buy an option for example at 2.40 a share ($240 a contract) you might say when the option hits 3.00 or a .60 profit, I'm going out. But you should also have the down side which would say something like, if the option goes against me, when it hits 2.00, I'll get out and cut my losses. Each member has to determine their exit points based on their own level of tolerance and aggressiveness. We at SplitMaster post what we are doing with our trades but those are only guidelines. Some members prefer to risk more while others prefer being more conservative.

There is one con against stop losses. Sometimes your trade will go down and get stopped out only to turn around and go back to a winning position. That is a disappointment for sure but, more often than not, a play will continue sliding and if you had no stop loss employed, that .40 loss for example could turn into a $1.40 loss and more. In our opinion the possibility of the play turning back in your favor once it has fallen to a certain point, is not worth the risk.

Finally, there are three types of stop losses a trader can employ:

1. A mental stop loss: this is one in which a trader puts an out figure in their head and then orders a sell when it hits that number. The con against that is you have to constantly watch the trade and often, the trader will not be strict and miss the out losing even more. Emotion gets in the way.

2. A stop limit order: this is one in which you actually put a stop loss order in for the position to be sold at a specific price such as 2.00. The con against that is, the order is not actually executed until the position is traded at that price. If the play is moving fast, it could go right pass that 2.00 trigger and never be executed. Next thing you know the position is another dollar down. It is great if your trigger is hit and most of the time it happens that way but it can be missed and that is why we do not like stop limit orders.

3. Stop market order: this is one in which you put a stop loss order in for your position and when it either hits that target or goes passed the target your order is executed and you get the next trade at market. That means you might get less than your order or you could get more depending on what the next trade does. But at least with a stop market you are out of a losing trade one way or the other.

That is it for today. All brokers have their own way to process stop losses so you should talk to your broker or go on line to their site and study how they work.

Indicators---
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March started out with our first 2 losses in this strategy, but since then it has come back very strong with 3 straight wins. In fact, this week we had 2 plays and both were very big winners, going up over 50% on the selected strike prices--and then closing out the position. Friday, for example, had a nice drop in the Spy during a fairly short time span, and the Put went up over 50% from the open, so it was closed out. Good thing, as the market came back and closed with another winning day. We are especially careful when the market is strong in one direction and we are playing the opposite way. When the profit is at a minimum of 10% (and sometimes even lower, depending on how the market is looking) we start to look for an exit point. Aggressive players often stay in and find their own comfort level, looking for higher gains and often get those higher gains.

Our fee on this strategy which is only 19.95 a month, is going up in April so if you are at all interested - Learn More Today!

Feedback---
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We usually pick one email a week to show in this section but we had quite a few emails this week and two really stand out in our minds, so here they are.

By the way, I have been extremely happy with the service, especially in your responsiveness to my questions and comments (Mike's too). Further, I really like the Momentum's relatively conservative nature in day trading. Most people view day trading as extremely risky, but your momentum strategy is actually fairly conservative, and risk adverse. Quite the oxymoron - conservative day trading. Maybe you should use that as a moniker: Conservative, Day Trading

Rob
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Also, I'm enjoying the service - no trades for me yet, but I have the laptop on all the time and I'm impressed with your dedication and techniques. I feel safe in you hands.

Regards
Rosemayre

 The Economy, The Markets & Commentary---
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It is actually funny to watch CNBC and see how the "expert analysts" are quick to change directions with a change in the investing winds. A week ago we heard very discouraging outlooks. This week we have a terrific rally and you would think the recession is over when you listen to them. While we were very glad to see the strong up move, we have to look back no further than the end of Dec. 2008 to see a similar rally, when the Dow jumped 184, 108 and 258 points, ending on 1/2/09. That was then followed shortly by drops of 245, 143, 125 points. Let's see if this rally can hold. It's amazing the difference 1 week can make in these markets.

We take a look at the economic news this past week and there are some interesting developments----

Rays of Sunshine---

Emotions are changing. Fear is being displaced, at least for the time being, by optimism.
General Motors announced that they won't need the 2 billion additional bailout for March that they requested about 2 weeks ago. They credit this to their cost-cutting steps.
Several large banks reported that they are profitable for Jan. and Feb.
Some banks plan on returning bailout money.
Mortgage rates took another drop.
Some change in the "mark to market" rules is expected, which would ease requirements for banks.
Bernard Madoff sent off to jail.
Retail sales showing improvement.
Savings rate makes a big jump. Not too long ago we didn't have any savings to report.
Largest traditional grocery chain, Kroger, reports an 8% rise in profit for its latest quarter. Sure, lower commodity prices haven't lowered relative grocery items.

Dark Clouds---

Joblessness reaches a record high. Note--Jobs lag the general economy, both going up and going down.
Steep drop in property taxes to hit hard. With home valuations falling so steeply, the tax income is going to hurt---a lot.
Sales tax income drops.
Credit card debt continues to be huge. That needs to be whittled down before we can start charging on credit, for many people.
Businesses continue to report that credit is hard to get, even if qualified.
Household net worth continues to decline; The 4th quarter drop of 9% is the largest in more than half a century of record-keeping--and that's the 6th straight quarterly drop.
New taxes and "fees", along with utility rate increases threaten to wipe out any gain from a federal tax reduction---which contributed to the decline in household net worth.
Business inventories fell in January, but sales dropped even more. We want inventories to fall more so that they have to be replaced, which will spur the economy.
Obama administration wants to cut the mortgage interest rate deduction--not for everyone, but only for households earning $250,000 or more. Powerful fight beginning.

Scam of the week---(We're featuring a new one each week---older ones, like Madoff and Stanford of the Stanford Group, continue to be big news, but these are new revelations.)
A money manager accused of spending millions on himself, etc. He agrees to turn over Diversified Lending Group, Inc. and Applied Equities, Inc. to a court-appointed receiver.

Interesting note---
We have long stated that you can't have a piece of paper that is 1/2 red and 1/2 blue and call it a blue colored paper. It is bi-colored. That also applies to a person that is 1/2 white and 1/2 black. You can't call that person a black person--nor a white person. That person is bi-racial. Of course I am referring to Pres. Obama. He is bi-racial. And--this week it was reported that his white side has been traced back to Ireland, to the small town of Moneygall, population 298. Over there they have the O'Brian family, the O'Malley family and now they lay claim to the O'Bama family. True story--- The trade of that relative was a cobbler. So now the shoe is on another foot, so to speak. This discovery was made less than 2 years ago, but it is the first we have heard of it.

OK--time to go. The college basketball team that I played on (many, many years ago) is on ESPN TV, playing a championship game where the winner goes to the NCAA tournament--and we've never been there before. (Binghamton State--NY)

Stay tuned-----------

 Today's Thought---
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For every achievement there is a price.
For every goal there is an opponent.
For every victory there is a problem.
For every triumph there is sacrifice.
,,,,,,,William Henry Ward, as quoted by team member, Fidel

Mike

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