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Tuesday, October 31, 2006

Aerospace & Defense

With only a few more days before the mid-term elections, investors are considering the potential ramifications of a change in power on the markets. There are several market segments that might be impacted by the Republicans retaining control of the House and Senate and one that I find interesting is the Aerospace / Defense sector. This sector has done relatively well lately and it will be interesting to see what happens over the next few weeks. I am by no means a political expert, and I have no idea if there is any correlation, but it makes sense to me that political agendas would have a direct impact on military spending, which in turn would impact price performance.

Let's assume though that even if the Democrats were to take over, that military policy in Iraq, Afghanistan and elsewhere will be relatively unchanged. If that's the case, then it might make sense to look to the A&D sector for alpha. We have sixteen companies within this sector, with ten currently “buy” recommended, three “neutral” recommended and three “sell” recommended. Our highest-rated A&D company today is Sequa Corp. (SQA-A 10/5/06) which is up nearly 11% since the “buy” recommendation.

Other companies of note today include: Curtiss-Wright Corp. (CW 10/20/06), Precision Castparts Corp. (PCP 9/20/06) and Triumph Group Inc. (TGI 10/30/06).

An interesting A&D company just beginning its bullish trend in October is Kaman Corp. (KAMN 10/26/06).

Short-Term Technical Indicators – The DJIA MACD crossed below its 9-Day Moving Average, which typically reflects the development of a short-term bearish trend.

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

Investor Sentiment – The VIX has edged higher ever so slightly for three days in a row and is again trading above last week’s level.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” Recommendation

Top Rated Major Market Derivative – Russell 2000 (IWM 10/9/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • Harman International Industries Inc. (HAR 10/9/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Centene Corp. (CNC 10/20/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Manitowoc Co. Inc (MTW 8/10/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Piper Jaffray Companies (PJC 10/4/2006)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Carbo Ceramics Inc. (CRR 2/7/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Express Scripts Inc. (ESRX 9/22/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)
Today’s Top “Buy’ Recommended Rydex Mutual Funds
  • Dynamic OTC (RYVYX 8/16/06)
  • Russell 2000 Advantage (RYMKX 10/5/06)
  • Real Estate (RYHRX 7/6/06)
  • Dynamic S&P 500 (RYTNX 8/3/06)
  • Internet (RYIIX 8/31/06)

Monday, October 30, 2006

Be Cautious with Some Tech Sectors

Was Friday merely a bump in the road or the beginnings of a change in direction for the markets? Hopefully we’ll have an answer to that question soon as a myriad of economic reports and earnings will give Wall Street plenty to chew on this week. We do know several things based on our alpha analysis this morning:
  1. Our Long-Term Market Model appears to have peaked on 9/21/06 and has weakened steadily since 10/16/06.
  2. The Short-Term Technical Indicators continue to scream “overbought.”
  3. Roughly 1/3 of the securities we analyze daily carry “buy” recommendations.
However, we’re also not seeing a preponderance of “sell” recommendations at the moment, which is a good sign for bulls like us. The GDP report, which was inherently not that bad, appears to have been more of an excuse for investors to do a little profit-taking. If anything, a low GDP value might serve as the impetus for a rate decrease in 2007, which we all agree is a good thing.

We do have several “sell” recommended sectors though including Software (IGV 10/27/06), Networking (IGN 10/18/06) and Semiconductors (IGW 10/18/06). Goldman Sachs released a very interesting report on motherboard demand, which supports our “sell” recommendations on the above sectors. The real question is whether computer sales will pick up going into the holiday season.

We’re very cautious at the moment and will likely be so at least throughout the week. Even though we’re still bulls with a 100% long allocation, we’re paying very close attention to our sell-limit values. Stock selection for alpha is growing increasingly more difficult.

Short-Term Technical Indicators – Modest weakness in all four indexes as a result of Friday’s sell-off.

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

Investor Sentiment – Both the VIX and VXN as well as all three Put / Call ratios edged higher on Friday. All five indicators have values higher than the week prior, but are still historically very low.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” Recommendation

Top Rated Major Market Derivative – Fidelity NASDAQ Tracking (ONEQ 8/30/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • Harman International Industries Inc. (HAR 10/9/06)
  • Centene Corp. (CNC 10/20/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Piper Jaffray Companies (PJC 10/4/2006)
  • Veritas DGC Inc. (VTS 7/28/06)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Carbo Ceramics Inc. (CRR 2/7/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Express Scripts Inc. (ESRX 9/22/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)

Sunday, October 29, 2006

AAS Top Ten as of October 20, 2006

The graphs below represent our top rated investments within six different categories as of Friday, October 20, 2006. The analytics we use to rate and select investments are based on a time-weighted alpha rating score that seeks to highlight investments beginning a bullish trend and generating alpha. You can tell from the chart and graphs below that the analytic was correct in five of the six categories of investments with an average gain of 13.07% since the initial “buy” or “short/sell” recommendation.

We’ve color-coded the graphs to represent one of the three “recommendations” our analytic produces for each security. A red line coincides with a “sell” recommendation. A blue line represents a “neutral” or “hold” recommendation and the green line equates to a “buy” recommendation.

The green arrow represents the first date that the security became an “AAS Recommended Buy” after previously being an “AAS Recommended Sell.” For the “Short/Sell” group, the red arrow represents the first date that the security became an “AAS Recommended Sell” after previously being “buy” recommended. Also included are the most recent recommendations of each security.

Friday, October 27, 2006

Out of Town

I’m heading out of town early this morning, so I don’t have time to write much of a post. Regarding yesterday’s post, Carpenter Technology Corp. (CRS) was indeed down-graded to a “sell” recommended stock after yesterday’s beating. It will be interesting to see what happens to CRS going forward.

I’ll update the blog sometime on Sunday hopefully with the AAS Top Ten from October 20, 2006. Until then, have a great weekend!

Short-Term Technical Indicators – NASDAQ and S&P technicals are bullish, but the Dow is still questionable as long as the Breadth and Volume indicators remain bearish.

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

Investor Sentiment – All five sentiment indicators continue to trade in the basement. The VIX is at its fourth lowest level of the year and only .29 away from its 52-week low of 10.27 occurring on December 23, 2005.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” or "Sell" Recommendation

Top Rated Major Market Derivative – Fidelity NASDAQ Tracking (ONEQ 8/30/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • Harman International Industries Inc. (HAR 10/9/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Centene Corp. (CNC 10/20/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Piper Jaffray Companies (PJC 10/4/2006)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Carbo Ceramics Inc. (CRR 2/7/06)
  • Express Scripts Inc. (ESRX 9/22/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)
Today’s Top “Buy” Recommended ProFund Mutual Funds
  • Internet Ultra Sector (INPIX 10/24/06)
  • Real Estate Ultra Sector (REPIX 7/5/06)
  • Ultra OTC (UOPIX 8/16/06)
  • Telecom Ultra Sector (TCPIX 7/19/06)
  • Ultra Small Cap (UAPIX 10/5/06)

Thursday, October 26, 2006

Alpha in Steel

Very rarely does a market segment from the Basic Materials (IYM 10/16/06) sector show any sort of dominance within our analysis. Materials by and large are “vanilla” investments, good for a longer-term investment strategy, but rarely on par with tech or energy companies in terms of generating alpha. That’s why it’s all the more interesting that nearly 78% of the companies analyzed this morning within the Steel industry have solid AAS Rating Scores and are “buy” recommended. I know I’m not the first and only blogger to comment on the recent out-performance of Steel companies, but this is still somewhat surprising.

Looking at Today’s Top “Buy” Recommended Stocks at the bottom of this post, three of the top four are steel oriented including:

Carpenter Technology Corp. (CRS 10/5/06) is getting hammered today, although I’m not exactly sure why. I’ll read the release later on, but analysts didn’t like something in today’s earnings call apparently. We’ll see what happens within our analytic as a result of today’s activity, but CRS might still be worth looking at despite today, especially if it only shifts down to a “neutral” instead of a “sell.”

Investors looking for a metal company might want to check out Material Sciences Corp. (MSC 10/16/06).

Short-Term Technical Indicators – Breadth and Volume within the Dow Jones Industrial Average continue to support the bears, but as long as the market keeps gaining, no one is listening.

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

Investor Sentiment – Both the VIX, VXN and all three Put / Call ratios slipped lower again.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” Recommendation

Top Rated Major Market Derivative – Russell 2000 (IWM 10/9/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones Transportation (IYT 10/5/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Carpenter Technology Corp. (CRS 10/5/06)
  • Manitowoc Co. Inc (MTW 8/10/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Centene Corp. (CNC 10/20/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Express Scripts Inc. (ESRX 9/22/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)
  • Career Education Corp. (CECO 10/18/06)
Today’s Top “Buy” Recommended Fidelity Select Mutual Funds
  • Software & Computer (FSCSX 7/27/06)
  • Transportation (FSRFX 10/10/06)
  • Technology (FSPTX 10/9/06)
  • Automotive (FSAVX 9/28/06)
  • Retailing (FSRPX 9/8/06)

Wednesday, October 25, 2006

Utilities to the Rescue

I’m going to take a look at the Utilities (IDU) sector today to coincide with my theme of late regarding the emergence of alpha in defensive sectors. Looking at the chart below you can see that IDU had a great run-up starting in late-June and then took a break in late-August at which point it traded relatively range-bound until the beginning of October. However, since early-October the Utilities sector has been on fire and continues to close at new highs.

Is it too late to allocate into the Utilities sector? I don’t think so, although I'd wait for IDU to get a "buy" recommendation (it's still a "neutral," which is why the line above is blue currently). Considering the weather is just beginning to turn cold and natural gas recently crossed over its 200-Day MA, finding one or two Utilities companies might be a good idea.

In fact, of the 87 Utilities securities that we analyze for alpha, an over-whelming majority have “neutral” recommendations and positive AAS Rating Scores. This means there is potential for many of these companies to be upgraded to “buy” recommendations if the trend continues.

Our two top-rated, “buy” recommended utility companies this morning are Northwest Natural Gas Co. (NWN, 8/28/06) and Nisource Inc. (NI 10/23/06).

Both have performed well over the last few weeks, but I’m not too sure how much further they can go. If you’re looking for Utility companies that are just beginning to trend and generate alpha, consider these for your watchlist: Southwestern Energy Co. (SWN), Equitable Resources Inc. (EQT) and Peoples Energy Corp. (PGL).

By the way, I’ve updated the Alpha Advisor Service, LLC archived newsletter to October 9, 2006. The link is in the right margin.

Short-Term Technical Indicators – Breadth and Volume within the Dow Jones Industrial Average continue to support the bears.

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

Investor Sentiment – There was a substantial jump in the Index Put / Call ratio yesterday, but both volatility indexes slipped slightly. Bullish sentiment continues to creep higher as the rally continues.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation
Date = Date of AAS “Buy” Recommendation

Top Rated Major Market Derivative – Fidelity NASDAQ Composite (ONEQ 8/30/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones U.S. Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Carpenter Technology Corp. (CRS 10/5/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Steel Dynamics Inc. (STLD 10/19/06)
  • Goldman Sachs Group Inc. (GS 9/12/06)
  • JLG Industries Inc. (JLG 9/26/06)
Today’s Top “Sell” Recommended Stocks
  • Apollo Group Inc. (APOL 10/13/06)
  • Legg Mason Inc. (LM 10/11/06)
  • Advanced Micro Devices Inc. (AMD 9/27/06)
  • Universal Forest Products Inc. (UFPI 5/24/06)
  • SanDisk Corp. (SNDK 10/20/06)
Today’s Top “Buy” Recommended Exchange Traded Funds
  • iShares MSCI Spain Index (EWP 8/4/06)
  • iShares Cohen & Steers Realty Majors (ICF 6/29/06)
  • Vanguard Telecom Services (VOX 3/3/06)
  • streetTRACKS Wilshire REIT (RWR 8/14/06)
  • iShares Dow Jones Transportation Average (IYT 10/5/06)

Tuesday, October 24, 2006

Telecom Re-Visited

Sorry for the delay in posting, I’m battling a stupid head cold that’s got me all drugged up. In any case, I’m going to file yesterday’s markets under “c” for curve ball. Not quite a Kenny Rogers pine tar curve, but a curve nonetheless. If you weren’t somewhat surprised by a triple-digit rally in the Dow, you have a much better understanding of the current market mechanics than I. Of course I was pleasantly surprised considering I’m a bull with a 100% long allocation. I guess I'll have to keep waiting for the “inevitable” correction that mostly everyone, including myself, thinks will happen.

In yesterday’s post I noted that there’s also alpha in more defensive sectors such as Real Estate (IYR 6/30/06), Consumer Services (IYC 9/8/06) and even Transports (IYT 10/5/06). The alpha generation of these sectors isn’t a new development and we’ve had “buy” recommendations on two of them for quite awhile. I think it's important for portable alpha investors not to get sucked into the hot market segments and forget the others, which is the impetus of yesterday's post. The markets have to be in dire straights not to have alpha somewhere and investors that have a myopic view and refuse to look outside the box are doing themselves a great disservice.

Of the seven “buy” recommended sector derivatives we have this morning, three are defensive and four are tech related including: Biotechnology (IBB 10/6/06), Software (IGV 8/10/06), Technology (IYW 8/15/06) and Telecommunication (IYZ 7/24/06). Although Telecom is one of our lowest rated “buy” recommended sector derivatives, it’s had a solid week of performance and continues to provide several alpha producing securities.

Of the thirty-three telecom stocks analyzed this morning, eight are “buy” recommended and fourteen are “neutral” recommended. An interesting company to put on the watch-list is Comtech Telecommunications Corp. (CMTL 9/22/06).

Short-Term Technical Indicators – Yesterday’s session certainly made an impact on our short-term technical indicators with all but two now bullish. The markets are beginning to (and perhaps have been) defy convention, which makes short-term indicators such as the ones below less effective. I don’t use these to dictate my bullish or bearish sentiment, but rather as an attempt to keep track of the market and minimize any surprises. With that being said…the markets are still surprising me.

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

Investor Sentiment – A modest jump in the VIX and VXN yesterday is welcome news to technical investors skeptical of a rally with volatility levels so low.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation

Top Rated Major Market Derivative – Fidelity NASDAQ Composite Index Tracking (ONEQ 8/30/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones U.S. Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • OM Group Inc. (OMG 8/11/06)
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • CPI Corp. (CPY 4/19/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • JLG Industries Inc. (JLG 9/26/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Connectics Corp. (CNCT 10/10/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • World Acceptance Corp. (WRLD 4/25/06)
Today’s Top “Sell” Recommended Stocks
  • Legg Mason Inc. (LM 10/11/06)
  • Apollo Group Inc. (APOL 10/13/06)
  • SanDisk Corp. (SNDK 10/20/06)
  • Advanced Micro Devices Inc. (AMD 9/27/06)
  • LCA-Vision Inc. (LCAV 6/7/06)
Today’s Top “Buy” Recommended Rydex Mutual Funds
  • Dynamic OTC (RYVYX 8/16/06)
  • Dynamic S&P 500 (RYTNX 8/3/06)
  • Dynamic Dow (RYCVX 8/11/06)
  • Russell 2000 Advantage (RYMKX 10/5/06)
  • Real Estate (RYHRX 7/6/06)

Monday, October 23, 2006

Alpha Moving to Defensive Sectors

Our alpha analytic and market model is beginning to shift into a defensive posture, possibly ahead of any consolidation that I feel the domestic market desperately needs. I’d really like to see a more substantial base develop before November and the mid-term elections. I’m not even sure we need to see red; a range-bound period for the broad-market indexes might do the trick.

We’re seeing alpha generation within several defensive “buy” recommended sectors such as Real Estate (IYR 6/30/06) and Transportation (IYT 10/5/06). We’re also seeing alpha within several “neutral” recommended sectors such as Utilities (IDU), Natural Resources (IGE) and Healthcare (IYH).

I noted strength in transports back on October 6th and pointed out companies such as Alaska Air Group Inc. (ALK 9/25/06), Burlington Northern Santa-Fe Corp. (BNI 9/29/06), and CSX Corp. (CSX 10/3/06) as companies generating alpha. Other “buy” recommended transportation companies generating alpha are Norfolk Southern Corp. (NSC 10/5/06), Frontier Airlines Holdings Inc. (FRNT 10/19/06) and JetBlue Airways Corp. (JBLU 10/17/06), with the last two recently upgraded.

Short-Term Technical Indicators – The short-term indicators continue to shift with a bias on the bearish side. Both NASDAQ indictors are weakening.

However, the S&P 500 On-Balance Volume % indicator jumped to its highest value since December 2, 2005. This is somewhat surprising considering the value was beginning to trend down over the last week or so. You can tell from the graph that after December 2, 2005, the S&P 500 edged slightly higher but was basically range-bound through the spring of 2006.

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

Investor Sentiment – The bears are getting restless and rightfully so. The VIX, at 10.63 on Friday, is only 0.36 away from its 52-week low. The VXN also slipped lower on Friday to 16.70.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation

Top Rated Major Market Derivative – Fidelity NASDAQ Composite Index Tracking (ONEQ 8/30/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares Dow Jones U.S. Real Estate (IYR 6/30/06)

Today’s Top “Buy” Recommended Stocks
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • CPI Corp. (CPY 4/19/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • JLG Industries Inc. (JLG 9/26/06)
  • Sears Holdings Corp. (SHLD 9/19/06)
  • Granite Construction Inc. (GVA 7/28/06)
  • Gymboree Corp. (GYMB 9/28/06)
  • Veritas DGC Inc. (VTS 7/28/06)
  • Piper Jaffray Companies (PJC 10/4/06)
  • Sequa Corp. (SQA-A 10/5/06)
Today’s Top “Sell” Recommended Stocks
  • Legg Mason Inc. (LM 10/11/06)
  • Apollo Group Inc. (APOL 10/13/06)
  • LCA-Vision Inc. (LCAV 6/7/06)
  • Advanced Micro Devices Inc. (AMD 9/27/06)
  • Caterpillar Inc. (CAT 8/9/06)

Sunday, October 22, 2006

AAS Top Ten as of October 13, 2006

The graphs below represent our top rated investments within six different categories as of Friday, October 13, 2006. The analytics we use to rate and select investments are based on a time-weighted alpha rating score that seeks to highlight investments beginning a bullish trend and generating alpha. You can tell from the chart and graphs below that the analytic was correct in all six categories of investments with an average gain of 21.42% since the initial “buy” or “short/sell” recommendation.

We’ve color-coded the graphs to represent one of the three “recommendations” our analytic produces for each security. A red line coincides with a “sell” recommendation. A blue line represents a “neutral” or “hold” recommendation and the green line equates to a “buy” recommendation.

The green arrow represents the first date that the security became an “AAS Recommended Buy” after previously being an “AAS Recommended Sell.” For the “Short/Sell” group, the red arrow represents the first date that the security became an “AAS Recommended Sell” after previously being “buy” recommended. Also included are the most recent recommendations of each security.

Friday, October 20, 2006

Weekend Reading

A picture like this just blows my mind.

Adobe is doing its best to make the lives of bloggers easier.

Abnormal Returns on the Chicago Mercantile Exchange’s merger with the Chicago Board of Trade.

Alpha Male tackles the name game between portable alpha and 130/30 strategies.

Brian on the recent weakness in semiconductors.

Precious metals are generating alpha, and Bill Cara covers SLW and SSRI.

Any blog that combines GNR, Bianna Golodryga, and options expiration in the same post gets my attention.

Greg Mankiw on the 300 million mark and over-population.

A worthwhile post from the Hedge Fund blog on why transparency might actually hurt performance….

…yet many hedge funds are outsourcing to improve transparency.

European hedge funds continue to gain momentum.

Larry has a great post on stretch IRA’s and their importance.

Rob Fraim, via The Big Picture, on the 1987 crash. Incredibly interesting.

The Bull Trader on investing in ETF’s versus mutual funds.

Kirk has another great collection of links.

Trader Mike on generating site traffic.

Dr. Brett on capturing stock market momentum.

A funny cartoon from WallStreetFighter.

Vince from InvestorGeeks wrote about a cool new site (new to me) from the Motley Fool.

Like stogies? Of course you do. Check out Cigar Blog 101

"All About Alpha"

I’ve mentioned before that one of my favorite sites is All About Alpha. As a Tar Heel, applauding the merits of Dook alum violates collegiate code ingrained in my head since orientation the summer before my freshman year. Ask Dr. Brett, how he still feels about UNC and you’ll understand the depth of the rivalry. By the way, I’m contractually obligated to misspell Dook; it says so on my diploma.

Nevertheless, Chris does an incredible job of gathering and dissecting articles from all over the world on alpha-centric investing. But even more impressive is that he’s an excellent writer with the ability to inject humor into fairly complicated material. His site is a must for any investor interested in alpha, beta, or anything related to the two.

He labels my blog as one that “provides practical portable alpha implementation tips for individual investors.” I appreciate this designation because that’s the whole point of Alpha Advisor Service, LLC and Portable Alpha Daily. We help both private and professional investors adopt a portable alpha investment strategy using tools that the majority of the investment community is comfortable with.

Not all investors understand how to use futures and swaps for alpha or beta, or how to adjust allocation and exposure through leverage. And to be honest with you, I’m not convinced that such instruments are the best tools, which is what most hedge funds believe. I think that ETF’s and funds do the job just as well, are less risky and easier to use.

On another note, I’ve added a new category below titled “Today’s Top Sell Recommended Stocks.” Shorting is a popular method of generating alpha among traders and hedge funds and we include a “Short-Sell” category in our newsletter, but it’s not something we practice ourselves, preferring to use inverse mutual funds or ETF’s. However, the analytic we use to determine which securities are generating alpha on the long side can also be used, with some modification, to find securities that might generate alpha through “short-selling.”

I’m also exploring the idea of adding the dates that the security became a recommended “buy” or “sell” to the post. A fairly powerful picture can be painted by pulling up a chart of the security and looking at when our alpha analytic signaled a “buy” or “sell” recommendation.

Short-Term Technical Indicators – Even though the markets continue to go up, our indicators are beginning to turn. I would not be surprised to see a consolidation; in fact I think we need it.

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

Investor Sentiment – Too complacent and too bullish. VIX and VXN are still very low, and all three Put / Call ratios slipped yesterday.

Asset Allocation – 100% invested within the actively-managed, alpha producing portion of the overall investment portfolio.

Beta Exposure and Portable Alpha Generation

Top Rated Major Market Derivative – Russell 2000 (IWM 10/9/06)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ 10/9/06)

Top Rated Sector Derivative – iShares NASDAQ Biotechnology (IBB 10/6/06)

Today’s Top “Buy” Recommended Stocks
  • Allegheny Technologies Inc. (ATI 10/5/06)
  • CPI Corp. (CPY 4/19/06)
  • RTI International Metals Inc. (RTI 10/11/06)
  • JLG Industries Inc. (JLG 9/26/06)
  • Gymboree Corp. (GYMB 9/28/06)
Today’s Top “Sell” Recommended Stocks
  • Legg Mason Inc. (LM 10/11/06)
  • Apollo Group Inc. (APOL 10/13/06)
  • LCA-Vision Inc. (LCAV 6/7/06)
  • Advanced Micro Devices Inc. (AMD 9/27/06)
  • Express Scripts Inc. (ESRX 9/21/06)
Today’s Top “Buy” Recommended ProFund Mutual Funds
  • Real Estate (REPIX 7/5/06)
  • Ultra Small Cap (UAPIX 10/5/06)
  • Ultra OTC (UOPIX 8/16/06)
  • Ultra Mid Cap (UMPIX 10/9/06)
  • Telecommunication (TCPIX 7/19/06)