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Thursday, October 19, 2006

Alpha Not in All Tech Sectors

Not all sectors under the broad umbrella of “technology” are generating alpha. The Networking (IGN) and Semiconductor (IGW) derivatives shifted to a “sell” recommendation this morning. Both are down over the last week and IGW is slightly down over the last one month. I’m not sure how much of this can be attributed to a few lower-than-expected Q3 earnings reports as opposed to broad-based sector weakness, but it’s worth noting.

Here’s an interesting stock that was upgraded to a “buy” recommended security this morning: Potlatch Corp. (PCH). Not only is it a REIT, but it owns and manages timberlands that operate in five segments: New Resources, New Land Sales and Development, Wood Products, Pulp and Paperboard and Consumer Products. With Real Estate (IYR) our second-highest rated sector derivative and Natural Resources (IGE) out-performing every sector except for Energy (IYE) this week, this could be a decent alpha producing security.

Short-Term Technical Indicators – The 15-Day Stochastic indicators on both the S&P 500 and the NASDAQ weakened overnight. Although the value for the S&P remains well entrenched in “bullish” territory, the value for the NASDAQ is closing in on 80. If the value crosses from above 80 to below 80, it is considered a short-term “sell” signal.

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

Investor Sentiment – The VIX and VXN retreated modestly on Wednesday while all three Put / Call Ratios edged higher. The VIX, with a value of 11.34, remains at a very low level and close to its 52-week low of 10.27.

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)

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

Top Rated Sector Derivative – iShares NASDAQ Biotechnology (IBB)

Today’s Top “Buy” Recommended Stocks
  • CPI Corp. (CPY)
  • Allegheny Technologies Inc. (ATI)
  • JLG Industries Inc. (JLG)
  • Gymboree Corp. (GYMB)
  • Piper Jaffray Companies (PJC)
Today’s Top “Buy” Recommended Fidelity Select Mutual Funds

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