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Author: Mike Celeste Editor: Tony Ponzo April Circulation:

Stat Sheet Week Ending April 18th 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+50.0+0.6%-646.0-7.4%
S&P+14.0+1.6%-33.0-3.7%
NAS+24.0+0.1%+95.0+6.0%

Highlight of this past week: The Indicator Strategy has another two wins this week and sits on a 93% win rate for 2009 and the Momentum Strategy still shows over a 235% profit for the year.

In this Issue---
Options---
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Options expired on Friday and we had some Covered Calls go worthless, for a total profit, and we had some go a bit over the strike price, so we pretty much gained on those, too. Now we can again write some Calls or Puts on those we are interested in. Don't forget, you can write them on stocks you own outside of our strategies. For instance, I made a nice profit on some IBM April 105 Calls and kept the stock as it was not called out. And now I wrote the May 110's. Picking a strike price quite a ways away from the current price usually works out very well if you pick up the Call with a high enough price to make it worthwhile. I also bought back some CTSH April 22.50 Calls for less then I sold them for, making a profit and re-wrote the May 25's. The stock jumped nicely this month and the stock is working its way up in price, so I can write the higher strike.

On Friday we also wrote some options that were expiring the same day, and the price was all time value, so when it dropped as the day went on, we bought it back 20 cents cheaper, for a .20 profit.

Remember, although writing options (naked or to open) can be a rewarding trade it comes with risks and traders should have a full knowlege and understanding of those risks before making any option trade.

 Momentum Plays---
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This was kind of a lackluster week which fortunately does not happen often. Lackluster means we basically broke even for the week with 5 wins and 5 losses. It was just one of those weeks in which a number of unexpected things got in the way of our play such as news of a downgrade coming out right in the middle of an up play. But, we still sit on over a 235% profit for the year so I guess we can't complain too much. Learn more

We had a question come up about where to place stop losses on a play. One member put too close of a stop on an earnings play that stopped him almost immediately as it was only a .10 stop. The stock option went down right to the stop then immediately turned around to make a very nice profit. Stop losses are an inividual choice and it really depends on a person's level of comfort as to where a stop should be. But generally, we at SplitMaster put our stops based on the profit target we are going for. For example, if we are making a SPY option play and have decided we are going for a fast profit of say .10, we will generally put our stop at .12 to .15. Remember, SPY options under $3 generally trade with a .01 spread between bid and ask. So if we entered an option at say 2.00 we would put our profit target to get out at 2.10 and a stop at 1.88 to 1.85. If we are doing an earnings play and looking for .30 or .40 profit, we will put our stop at say .30 to .40. Options on stock, as opposed to the SPY, have larger bid/ask spreads that can be .10 or more so you don't want to put on a .10 stop because you can get stopped out on the spread alone. On buying the stock itself such as a W play, we might be looking for $1 profit. In that case we may put our stop at .50 to .60. Again this is an individual choice. You have to do what makes you comfortable. More conservative members will put on closer stops while more aggressive members will put on further out stop prices or no stop at all. They just pick their outs based on what they feel is the time to get out. But, only the most experienced players should do that.

Indicators---
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On Monday and Tuesday we had a win each day for the Indicator strategy. Friday was a rather odd day for this play. Since it was expiration day we picked both April and May options. The April options made it very easily, and the May option was either a winner (if bought for 1 cent less than our posted entry price--and we say "around") or missed by 1 cent. Because of the 2 different strike months on the options, we didn't count it as an official win. We don't want to pick an official winner after the fact. Learn more

Feedback---
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Here is the email we chose for this week's feedback pick. It was by one of our newer members.

Hi all,
I have just closed my 4th indicator play so far with only one of them a (minor) loss and the rest nice wins at about 10%
each win (not incl. commissions). My average position has gained 5.5% which includes all plays and includes commissions. Each of them was held less than a day. I'm very happy and hopeful for the future.
Thanks,
Noam

 The Economy, The Markets & Commentary---
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Don't fight the momentum. Boy, we keep saying it and it keeps proving to be true. That pendulum hasn't stopped swinging in one direction and we saw the markets make another weekly gain. That is 6 weeks in a row. If we can stretch it into a 7th straight winning week, it will tie the longest weekly run of winners since 2007. What appears to be keeping the momentum going is earnings. While they are decidedly down compared to last year's quarter, they are decidedly up from the estimates. In fact, they are so far above the "expert analyst's" estimates, there has been some mention of suspecting how that happened. There are a number of financial people that can't wait to get into the details. In the meantime, above expectations by good margins is good to hear, even tho the "experts" are continuing to show that they don't have any credibility when they are so far off. How can an investor plan some investments based on the predictions of these highly overpaid people? Again, tho, we stress we like the fact that the error in estimates is to the good side. Some cynics might say that the estimates were purposely on the low side---which drove stocks down so the pro vultures could pick them up, and then when the actual earnings came in much higher and stocks moved up for 6 straight weeks, the stock prices moved way up and the pro's cleaned up. I'm just saying that a cynic could say that, I'm not saying it as fact. Whatever, the higher prices are a welcome sight.

We do want to mention one index specifically. Nasdaq is up 6% for the year, and has been higher for the year for about the last 3 weeks. It would appear that tech stocks are leading that advance. The financials have done very nicely, along with some specific real estate sector funds.

There are also some sectors of the economy that seem to have bottomed out. They have run flat for 3 months straight, and while still low, they are not getting any worse. That is definitely a good sign. We are still a long way from returning to "normal" levels, and won't until employment starts to pick up. That sector always lags, as we have often said, so it will be a long time before employment improves.

One thing that continues to bother me--a lot--is the talk of no inflation. I don't know about you, but everything around here is going up. Our taxes have increased and in May will increase a lot more, with our California vehicle registration fees about doubling. Sales tax is up, and in some cities more than others, with voters approving a tax increase--why, beats the heck out of me. Then there was a special mention of the deep drop in gasoline prices in March. That is an outright lie. The official oil site run by the government shows that nationwide there was a price increase of over 10 cents a gallon in March, with some areas even higher. Into April we have seen further gas price increases. And remember that oil is still about 1/3 what it was last year, and here that meant regular was 4.69, so 1/3 of that applied to today would make it about $1.55 per gallon--instead it is about $2.25 or higher for regular here in Southern California.

A bit ago, I remember reading that T. Boone Pickens was buying up water companies. Some people are brilliant, and we think he is one of them. Water does nothing but get more precious---by hook or by crook. We had a water raise last year, and now the Water District is raising rates 20% this year and 20% more next year---AND--calling for a 10% usage cutback, with fines if you don't do it--on top of the price increase. They are sneaky---first they request you voluntarily cut back 10%. Then, if you do, when it comes time for a required 10% cutback, they base your usage on the 10% less that you voluntarily cut. Now you have to cut back another 10%, as required. Because of the cutback and the fact that the water companies have fixed expenses, with 10% less water used, they have to raise the rates 20%. Mathematically it doesn't equate, but it never does--in our favor, anyway. We had a decent amount of rain and snow here in California this past season, but we get opposite reports about how much water is totally available, counting the snow pack and rain runoff. Of course, they are taking the worst report in order to justify the 20% price increase, with another 20% for next year---and have the gall to say that the days of "cheap" water are over. We have had so many price increases, I've lost track---It hasn't been cheap for about 30 years.

We notice that there are lots of "Tea Parties" springing up all over, in honor of the Boston Tea Party. We don't know if there will be a beneficial result, but we like the effort. The opportunistic vultures will be making enormous profits from the government programs, but maybe we common folk will get some benefits from work on infrastructure and things like that.

We are still too new into this stimulus game to know if all these programs are going to work, and for right now we remain in the HOPE mode. It's a lot better than the DESPAIR mode, isn't it?

 Today's Thought---
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Most people spend their lives looking, but not truly seeing.........Joe Navarro, former FBI agent.


Mike

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