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Wednesday, December 27, 2006

Master List Updated for 2007

The markets are off to a great start today, which I still appreciate despite being a bear. Our model, as you may know, turned bearish on December 8th. We made the decision then not to adopt a completely defensive posture, which would include a combination of money market and inverse-correlated investments. That turned out to be a good decision, at least up to this point. We have slowly reduced our allocations, took some profit and reduced exposure to the more volatile investments. We’ve also isolated several inverse funds, both Rydex and ProFunds, that might be used instead of money market funds if we get a serious down-turn. We would need “buy” recommendations on these funds prior to commitment however.

You might notice that there’s a fairly significant difference between the top “buy” and “sell” recommended securities listed today and those listed over the last few weeks. I also list IAH as a “buy” recommended sector, which has not been listed before on the blog. The reason is that we just completed updating our master list of securities for 2007.

Typically we update the master list annually during the last weeks of Q4. On the equity side we start with the S&P 1500 and then isolate those stocks that pass our fundamental screening. On the fund side we add any new Fidelity (NTF), ProFund or Rydex mutual funds with at least one year of data. With so many ETF’s released, we use a bit more discretion when selecting which ones to add, but all new entrants must also have at least one year of data. The total list of securities analyzed daily for alpha is now 1906, up from around 1700 last year. We’re considering making this a quarterly process instead of annually, at least with regard to ETF’s since so many interesting ones were released this year.

On the alpha front, I’m afraid we’re still not seeing a preponderance of buying opportunities. With regards to sectors, there are no “buy” recommendations other than IAH. Financials (IYG, IYF, IXG), Telecom (IXP, IYZ) and Utilities (IDU) have made their way to the top of our rankings, but are only “neutral” recommended currently. We’re managing the model portfolios day-to-day, with no real allegiance to the bulls or the bears. The objective is to be prepared for a downturn without sacrificing returns if the rally continues. It’s a narrow path to walk for sure, but I think it’s possible with the right strategy.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – Between 37.5% and 75% long 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 – Internet Architecture HOLDRS (IAH 8/16/06)

Today’s Top “Buy” Recommended Stocks

Veritas DGC Inc. (VTS 7/28/06)
Robbins & Myers Inc. (RBN 8/10/06)
Volt Information Sciences, Inc. (VOL 11/6/06)
NBTY, Inc. (NTY 12/5/06)
Deckers Outdoor Corp. (DECK 9/7/06)
Albemarle Corp. (ALB 8/9/06)
Bradley Pharmaceuticals Inc. (BDY 8/25/06)
ElkCorp (ELK 12/4/06)
Joy Global Inc. (JOYG 11/13/06)
Savient Pharmaceuticals, Inc. (SVNT 8/9/06)

Today’s Top “Sell” Recommended Stocks

CONSOL Energy Inc. (CNX 12/15/06)
Google Inc. (GOOG 12/18/06)

Mercantile Exchange Holdings (CME 12/18/06)
Carpenter Technology Corp. (CRS 10/26/06)
SanDisk Corp. (SNDK 10/20/06)


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