Portable Alpha Daily

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Monday, October 02, 2006

Devote This Week to Beta

This week could be pretty choppy with the momentum shifting to the bears after Friday’s session. Chalk it up to profit-taking or whatever, but the failure of the Dow to close above its record after moving to within 7 points doesn’t bode well for the short-term. I think that a new high will indeed be accomplished; I’m just not sure that it’ll happen this week.

Since I’m expecting elevated volatility in the markets this week, I don’t feel that it’s a good time for new money to be allocated into the alpha producing investments. If you’re currently invested, hold your positions unless a stop-loss rule is triggered. There were a lot of investors reluctant to allocate into the recent up-trend. If inflation rears its ugly head again or Q3 earnings start off below Wall Street estimates, the hot money (read: bears) will leave the markets in a hurry, dragging everything down.

In the meantime, portable alpha investors should put some thought into the beta component of their portable alpha strategy. You’ve heard that offense sells tickets, but defense wins championships. Well the same can be said about a solid portable alpha strategy. The alpha investments provide the out-performance, but the beta investments keep you on par. In fact, many portable alpha experts feel that the beta component is more important than the alpha. Right now the NASDAQ 100 (QQQQ) is our highest rated index derivative with the S&P 100 (OEF) following.

Short-Term Technical Indicators – All are weaker as a result of Friday’s disappointing session. I’m in the process of designing a chart that will include all of the short-term and investor sentiment indicators I use, which I plan to include in the morning blog posts. It’ll be easier for me to and more informative for you. Look for that sometime this week, assuming I can find the time to finish it.

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

Investor Sentiment – Both the VIX and VXN edged up modestly while all three Put / Call ratios retreated.

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 – NASDAQ 100 (QQQQ)

Top Rated Style-Box Derivative – Morningstar Large Cap Core (JKD)

Top Rated Sector Derivative – iShares Dow Jones Software (IGV)

Today’s Top “Buy” Recommended Stocks
  • CPI Corp. (CPY)
  • OM Group Inc. (OMG)
  • Gymboree Corp. (GYMB)
  • Veritas DGC Inc. (VTS)
  • Goldman Sachs Group Inc. (GS)
  • American Eagle Outfitters Inc. (AEOS)
  • Apple Computer Inc. (AAPL)
  • Jack in the Box Inc. (JBX)
  • The Children’s Place Retail Stores Inc. (PLCE)
  • Abercrombie & Fitch Inc. (ANF)


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