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Wednesday, September 20, 2006

Bears Getting Louder

We’re all expecting no action from the Fed today, but I’m very interested to see how the market reacts to the decision. I’m really hoping that after today those investors sitting on the sidelines will be persuaded to join the bulls and move the markets higher. My technical indicators are weakening, but a solid day will likely return them to last week’s levels. I’m still bullish, but if for some reason we don’t break through the resistance levels and close with new highs within the next week or so, I might adopt a more neutral sentiment perhaps until after the mid-term elections. Keep your fingers crossed!

Short-Term Technical Indicators – On Monday I highlighted the 21 – Day Breadth Indicator as a technical analytic that would support a new DJIA high. That indicator, although continuing to slip, is still in a position to support such a move.

Another analytic I use is the 21 – Day Volume Ratio, which is also designed to support a new high. Due to the volatility experienced over the last few days, this value currently does not support a new DJIA high. However, it’s entirely possible that if we were to see a new high today or later this week, the stimulus used to generate the new high would be enough to push the 21 – Day Volume ratio higher into a supporting position.

(Click on graph to magnify)


Long-Term Market Model – Bullish since August 23rd.

Investor Sentiment – There was dramatic movement in all three Put / Call ratios yesterday, but the Index Put / Call ratio jumped by more than 50%. The current value is now only 0.73 away from its 52-week high of 3.89. Since mid-October of 2003, the Index Put / Call Ratio has crossed above the 3.0 threshold only eight times, with the previous two being 5/24/2006 and 9/26/2005. This elevated value is the result of a higher volume of Puts compared to Calls, which indicates bearish sentiment.

Asset Allocation – 75% to 85% invested within the actively-managed portion of the overall investment portfolio. 15% to 25% in cash or bonds.

Beta Exposure and Portable Alpha Generation

Top Rated Major Market Derivative – Russell 2000 (IWM)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ)

Top Rated Sector Derivative – iShares Dow Jones U.S. Real Estate (IYR)

Today’s Top “Buy” Recommended Stocks
  • NVR Inc. (NVR)
  • Piper Jaffray Companies (PJC)
  • Veritas DGC Inc. (VTS)
  • Sears Holding Corp. (SHLD)
  • NCI Building Systems Inc. (NCS)
Today’s Top “Buy” Recommended Exchange Traded Funds
  • iShares Cohen & Steers Realty Majors (ICF)
  • iShares MSCI Mexico Index (EWW)
  • iShares Dow Jones U.S. Real Estate (IYR)
  • Vanguard REIT Index (VNQ)
  • Vanguard Telecom Services (VOX)

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