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Wednesday, October 11, 2006

Software and Biotech

Small Cap Core (JKJ) took over the top spot for style-box investments this morning followed by Large Cap Core (JKD) and Small Cap Growth (JKK). I wrote about the recent strength of small cap investments yesterday and I continue to be impressed with their rally. With Software (IGV) and Biotech (IBB) our top rated sectors, investors looking for alpha might narrow their focus to small cap companies within those two sectors. Today is going to be bumpy, so I wouldn’t allocate new money just yet. I’d wait for a few more days of earnings and get a better idea of how Wall Street is reacting. If things look good over the next few sessions and these sectors continue to outperform, then I’d consider investing. Have a great day.

Short-Term Technical Indicators – Nine of the ten short-term, technical indicators remain bullish.

The only bearish indicator is the S&P 500 On-Balance Volume %, the value of which has declined three days in-a-row.


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

Investor Sentiment – The VIX and all three Put / Call ratios retreated yesterday while the VXN gained slightly. Market volatility remains very acceptable, although I suspect that we’ll see a bump up today due to Alcoa Inc. (AA) and Genentech Inc. (DNA). Looking at several surveys and polls, I see a continued increase in bullish investor sentiment, with some at precarious levels. We remain bullish, but the indicators within our market model have basically stopped improving, with some already beginning to retreat.

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 – Fidelity NASDAQ Composite Index (ONEQ)

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

Top Rated Sector Derivative – iShares Goldman Sachs Software (IGV)

Today’s Top “Buy” Recommended Stocks
  • CPI Corp. (CPY)
  • Allegheny Technologies Inc. (ATI)
  • Goldman Sachs Groups Inc. (GS)
  • Rogers Corp. (ROG)
  • Gymboree Corp. (GYMB)
Today’s Top “Buy” Recommended Exchange Traded Funds
  • Biotech HOLDRs (BBH)
  • iShares MSCI Spain Index (EWP)
  • Vanguard Telecom Services (VOX)
  • iShares Cohen & Steers Realty Majors (ICF)
  • iShares Goldman Sachs Software Index (IGV)

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