Portable Alpha Daily

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Thursday, December 21, 2006

Good Morning

U.S. stocks ended lower on Wednesday, hurt by bellwether FedEx’s Q306 forecast and the consequent sell-off in the transport sector. Declines of 1.3 percent in United Parcel Service Inc. and 3.7 percent in Norfolk Southern Corp. led the Dow Jones Transportation Average down by 1.1 percent. The Dow Jones Industrial Average lost 7.45 points, or 0.06 percent, to 12,463.87. The S&P 500 Index slipped 2.02 points, or 0.14 percent, to 1,423.53 and the NASDAQ Composite Index fell 1.94 points, or 0.08 percent, to close at 2,427.61.

Trading on the Big Board was exceptionally light ahead of the Christmas Holiday, where about 1.38 billion shares changed hands, below last year's daily average of 1.61 billion. Advancing shares beat decliners on the NYSE by a ratio of about 5 to 4. On the NASDAQ, about 1.79 billion shares were traded, slightly below last year's daily average of 1.80 billion, with more than five stocks advancing for every four that declined.

The price of the benchmark 10-year Note lost ground for the second day in a row closing at 100-7/32 with a yield of 4.597 percent. Investors are anxiously waiting for the core personal consumption expenditure (PCE) price index to be reported on Friday, which is a favorite measure of inflation for the Federal Reserve.

Crude oil prices rose slightly, settling near $64 a barrel on a larger-than-expected drop in U.S. oil inventories in the past week. U.S. crude oil for February delivery rose 26 cents to settle at $63.72 a barrel on the NYMEX while in London, Brent February crude rose 36 cents to $63.17. COMEX February gold settled at $624.30 an ounce, down $1.10.

The global currency market was fueled Wednesday by comments from European Central Bank President Jean-Claude Trichet who warned that higher inflation in 2007 would likely result in higher Euro zone interest rates. Higher rates make the Euro attractive to yield-seeking investors. The Euro was up 0.14 percent at 156.00 yen but lost ground against the dollar, slipping 0.10 percent to $1.3175 from $1.3189 late Tuesday. Against the yen, the dollar was up 0.24 percent at 118.38 yen from 118.10 yen late in Tuesday's session.

Weakness in the yen gave investors the incentive to buy shares of major Japanese exporters, which in turn led to a 234.16 point gain in the Nikkei Average to end at 17,011.04, its highest close since May 9. M&A news also boosted European shares, with the FTSEurofirst 300 Index gaining 0.23 percent to close at 1,481.33.

Short-Term Technical Indicators – Despite a lower close across the board, we saw strength in five of the ten indicators yesterday. Unfortunately, weakness in the Stochastic Indicators for all three indexes, coupled with weakness in the Relative Strength indicator for the Dow, outweighs any gains yesterday. I’m expecting up and down days like we’ve had this week for the remainder of the year.

Long-Term Market Model – Bearish since December 8th.

Investor Sentiment - Volatility eased a bit yesterday, but there was an increase in the Index Put / Call ratio.

Asset Allocation – 75% invested within the actively-managed, alpha producing portion of the overall portable alpha portfolio.

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

Top Rated Major Market Derivative – NYSE 100 (NYC 11/6/06)

Top Rated Style-Box Derivative – iShares Morningstar Large Cap Value (JKF 11/29/06)

Top Rated Sector Derivative – No “Buy” Recommended Sectors Today

Today’s Top “Buy” Recommended Stocks

RTI International Metals Inc. (RTI 10/11/06)

Veritas DGC Inc. (VTS 7/28/06)

Daktronics Inc. (DAKT 10/31/06)

Robbins & Myers Inc. (RBN 8/10/06)

Joy Global Inc. (JOYG 11/13/06)

NBTY, Inc. (NTY 12/5/06)

Bradley Pharmaceuticals Inc. (BDY 8/25/06)

Martin Marietta Materials Inc. (MLM 11/6/06)

Albemarle Corp. (ALB 8/9/06)

Volt Information Sciences, Inc. (VOL 11/6/06)

Today’s Top “Sell” Recommended Stocks

SanDisk Corp. (SNDK 10/20/06)

LCA-Vision Inc. (LCAV 6/7/06)

Rogers Corp. (ROG 12/6/06)

Whole Foods Market, Inc. (WFMI 11/2/06)

Valassis Communications Inc. (VCI 5/10/06)


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