Model Stock Portfolio Activity

Our Model Stock Portfolio initiated sell recommendations after yesterday’s close on three holdings and subsequent buy recommendations for five new securities. The sell recommendations were triggered by a profit protection rule designed to protect 80% of a position’s profits when that position has increased by greater than 25% of its average cost. The following were sold:

As I mentioned, the model selected five new securities for purchase, bringing the allocation percentages to 57% long and 43% cash. This is indeed a conservative allocation, but remember that this model portfolio is designed as the alpha component of an overall portable alpha portfolio. We remain bearish over the short-term and will likely wait until the long-term market model reverts to a bullish posture before increasing the long allocation percentages. There are alternatives to cash allocations, notably hedging the long positions with shorts. But our model portfolio does not initiate short coverage because we feel the risks outweigh the potential benefits for most investors. Inverse correlated funds, in our opinion, offer similar rewards with substantially less inherent risk.

Three selections came from the Mid Cap universe, which is one of our leading styles of late in terms of alpha generation. Precision Castparts Corp. (PCP 9/20/06) and MEMC Electronic Materials, Inc (WFR 1/8/07) came from the Mid-Cap All-Market category while Energizer Holdings Inc. (ENR 1/26/07) is from the Mid-Cap Growth category. The remaining two picks are Navistar International Corp. (NAV 9/12/06), which is from the Large-Cap Value universe and Rock-Tenn Co. (RKT 4/27/06) which is a Small-Cap Value holding.You’ll notice that all of the selected issues come from the Top Buy Recommended Stocks list that I publish daily.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Telecom (IYZ 1/26/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

Precision Castparts Corp. (PCP 9/20/06)

MEMC Electronic Materials, Inc (WFR 1/8/07)

Rock-Tenn Co. (RKT 4/27/06)

Navistar International Corp. (NAV 9/12/06)

Energizer Holdings Inc. (ENR 1/26/07)

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

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

Par Pharmaceutical Companies, Inc. (PRX 12/20/06)

Today’s Top “Sell” Recommended Stocks

Plexus Corp. (PLXS 12/29/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

Brightpoint Inc. (CELL 9/19/06)

Rogers Corp. (ROG 12/6/06)

Harman International Ind. (HAR 12/18/06)

Good Morning

Wall Street failed to rebound on Monday from last week’s paltry activity. Lower oil prices and caution ahead of the Fed meeting kept any rally at bay. The confluence of earnings and economic analysis isn’t painting a clear picture yet, nor is it indicating any clear allegiance to the bulls or bears. The Dow Jones Industrial Average finished slightly higher at 12,490.78, up only 3.76 points from Friday’s close. The S&P 500 Index lost 1.56 points, or 0.11 percent, to finish at 1,420.62 while the NASDAQ Composite Index gained 5.60 points, or 0.23 percent, to end at 2,441.09.

Trading was moderate on the Big Board where about 1.55 billion shares changing hands, below last year's estimated daily average of 1.84 billion, and advancers outnumbered decliners by about 6 to 5. On the tech-heavy NASDAQ, about 1.99 billion shares traded, below last year's daily average of 2.02 billion, which advancers beating decliners by about 3 to 2.

Suppressing the market was a modest drop in commodities. The Reuters/Jefferies CRB Index ended at 290.92 for a loss of 1.67 percent. Gold futures declined by $1.50 to settle at $643.20 per ounce. Perhaps the biggest hindrance yesterday was a drop in U.S. crude, which gave back $1.41 to settle at $54.01 per barrel. This in turn put pressure on big energy companies. London Brent crude dropped $1.61 a barrel to close at $53.68.

The dollar improved against the Yen by 0.3 percent, rising as high as 122.20 intra-day but closing at 121.77. Conversely, the Euro ended 0.3 percent higher against the dollar at $1.2953. Expectations of strong U.S. economic data supported a bullish dollar, but the weakness in commodities held gains in check.

On the whole, U.S. Treasury debt prices traded relatively flat on Monday, as investors are reluctant to place any big bets ahead of the economic data released later this week. The benchmark 10-year U.S. Treasury Note was down 5/32, with the yield at 4.8979 percent. The 2-year U.S. Treasury Note was down 2/32, with the yield at 4.9954 percent while the 30-year U.S. Treasury Bond was down 11/32, with the yield at 4.9982 percent.

The global markets saw modest gains on Monday, with European shares helped by M&A activity and solid earnings reports. The FTSEurofirst 300 rose 0.3 percent to close at 1,517.43 points on Monday but has returned some of the gains today and is currently down 0.1 percent at 1,515. Japan's Nikkei 225 closed 0.28 percent higher at 17,470.46 points on Monday and improved by another 0.1 percent on Tuesday, closing at 17,490.19.

On the economic front, investors are expecting the Fed to maintain the 5.25% funds rate on Wednesday, but seek guidance on future interest rate policy. Although the probability of a rate cut in the next six months is waning, Wall Street is concerned the Fed may indicate rates might need to be raised to stave off any lingering inflationary concerns.

Our long-term market model remains bearish as of December 8^th. The total universe of stocks, ETF and funds which we review on a daily basis is 1,888. Of those reviewed, 303 are rated "Buy," 626 are rated "Sell" and 959 "Neutral." Our model portfolios are currently allocated between 56.25% and 75% long.

Again, there are no “buy” recommended major market or style-box derivatives this morning. We continue to observe rotation among the sectors analyzed for alpha, with Telecommunication (IYZ), Retail (RTH) and Healthcare (IYH) the only “buy” recommended sectors. Real Estate (IYR) continues to be our top-performing sector on a one-week and one-month basis, yet for some reason cannot pass the independent technical indicators required to become “buy” recommended. Investors are urged to maintain caution over the near-term until the market digests the most recent flux of economic data and earnings.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Telecom (IYZ 1/26/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

MEMC Electronic Materials, Inc (WFR 1/8/07)

Energizer Holdings Inc. (ENR 1/26/07)

Rock-Tenn Co. (RKT 4/27/06)

Navistar International Corp. (NAV 9/12/06)

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

Precision Castparts Corp. (PCP 9/20/06)

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

CarMax Inc. (KMX 7/25/06)

Today’s Top “Sell” Recommended Stocks

Plexus Corp. (PLXS 12/29/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

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

StarTek, Inc. (SRT 11/28/06)

Rogers Corp. (ROG 12/6/06)

Leadership in Telecom?

Here’s a look at how our analytic ranked the following sectors for alpha generation through Friday’s close. I’m still not seeing many clearly-defined buying opportunities on a sector level, which along with no buy recommended major markets and no buy recommended style-box investments continues to support my bearish stature. I’m just not comfortable with the dynamics at the moment; I’m seeing conflicting economic analysis, conflicting technical analysis; and conflicting earnings reports. Sure there are winners out there, but trying to chase returns in a range-bound environment is a recipe for disaster.

Aside from the Real Estate (IYR) sector, which has quietly generated alpha for a few weeks now, the Telecom (IYZ) sector had a very impressive week in light of the volatility experienced in the tech arena. With the QQQQ’s down 1.36% and the S&P 500 down .58% for the week, the AAS buy recommended Telecom stocks listed below generated significant alpha.

I’m still partial to ADC Telecom Inc. (ADCT), which is up nearly 5% since I mentioned it in last Monday’s post (most of that happened on Friday though).

But I also like Andrew Corp. (ANDW) whose products according to Google, “are used in the infrastructure for traditional wireless networks, third-generation (3G) technologies, voice, data, video and Internet services, as well as applications for microwave and satellite communications, and other specialized applications.”

Its trend is more established than ADC Telecom, but it’s still trading-well below it’s 52-week high. Another interesting note is the recent expansion of Andrew Corp. into the Indian telecom market, which along with China is the fastest growing in the world.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Telecom (IYZ 1/26/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

Rock-Tenn Co. (RKT 4/27/06)

MEMC Electronic Materials, Inc (WFR 1/8/07)

Energizer Holdings Inc. (ENR 1/26/07)

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

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

Precision Castparts Corp. (PCP 9/20/06)

Navistar International Corp. (NAV 9/12/06)

CarMax Inc. (KMX 7/25/06)

Today’s Top “Sell” Recommended Stocks

Plexus Corp. (PLXS 12/29/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

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

StarTek, Inc. (SRT 11/28/06)

Children’s Place Retail Stores Inc. (PLCE 11/17/06)

AAS Top Six on January 19, 2007

The graphs below represent our top rated investments within six different categories as of Friday, January 19, 2007. The analytics we use to rate and select investments are based on a time-weighted alpha rating score that seeks to highlight investments beginning a bullish trend and generating alpha. Five of the six investments have positive returns with an average gain of 16.82% since the initial “buy” or “short/sell” recommendation.

I’ve color-coded the graphs to represent one of the three “recommendations” our analytic produces for each security. A red line coincides with a “Short/Sell” recommendation. A blue line represents a “Neutral” or “Hold” recommendation and the green line equates to a “Buy” recommendation.

The green arrow represents the first date that the security became an “AAS Recommended Buy” after previously being an “AAS Recommended Sell.” For the “Short/Sell” group, the red arrow represents the first date that the security became an “AAS Recommended Sell” after previously being “buy” recommended. Also included are the most recent recommendations of each security.

(Click on Chart/Graphs to enlarge)

Fairchild Semi.

Ouch. There aren’t a whole lot of New Buy Recommended securities this morning, which is to be expected after yesterday’s beating. In fact, there are only four issues that meet my minimum requirements this morning:

East West Bancorp Inc. (EWBC)

Fairchild Semiconductor International (FCS)

Granite Construction Inc. (GVA)

Legg Mason Inc. (LM)

Financials (IYF) took it on the nose yesterday (as did mostly everything) and now carry a neutral recommendation, but I’m still bullish on the sector for the near-term. I am surprised about Fairchild Semi. making it’s way to the top, especially considering Semiconductors (IGW) is our weakest rated sector. At this point, I’ve got to believe that semis are oversold, but until I see better breadth and more companies generating alpha, I’m not touching them.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – No buy recommended sector investments

Today’s Top “Buy” Recommended Stocks

CPI Corp. (CPY 1/23/07)

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

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

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

Rock-Tenn Co. (RKT 4/27/06)

Legg Mason, Inc. (LM 1/9/07)

Precision Castparts Corp. (PCP 9/20/06)

CarMax Inc. (KMX 7/25/06)

Navistar International Corp. (NAV 9/12/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Today’s Top “Sell” Recommended Stocks

Plexus Corp. (PLXS 12/29/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

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

StarTek, Inc. (SRT 11/28/06)

Lenox Group Inc. (LNX 12/22/06)

Earnings Assuage Investor Fear

Wednesday saw significant gains in U.S. stocks, with the Dow Jones Industrial Average closing at a new record high and the S&P 500 breaching the 1440 resistance level for the first time in over six years. Again the driving force behind the rally was solid reports from tech stalwarts Yahoo Inc. (YHOO) and Sun Microsystems Inc. (SUNW) among others, as well a modest gain in crude supporting energy stocks.

The Dow Jones Industrial Average added 87.97 points, or 0.70 percent, to close at 12,621.77. The S&P 500 Index improved by 12.14 points, or 0.85 percent, to finish the session at 1,440.13 while the NASDAQ Composite Index gained 34.87 points, or 1.43 percent, to end the day at 2,466.28.

Trading volume was mixed though, with below-average activity on the NYSE compared to elevated volume on the NASDAQ. 1.59 billion shares were traded on the Big Board, with advancing issues outnumbering declining ones by about 7 to 3. The NASDAQ saw 2.26 billion shares traded with an advance-decline ratio of 2 to 1.

The Treasury market ended the session on Wednesday with little change in bond prices. The benchmark 10-year Treasury note ended flat at 98 17/32, with a yield of 4.813%. The 30-year bond closed with a yield of 4.911% while the 2-year note ended up 2/32, yielding 4.928%.

Serving as a catalyst today in the bond market is a report on December’s existing U.S. home sales. Economists polled are expecting a decline in sales to 6.24 million from 6.28 million in November. Investors will then have to digest reports on Friday covering new-home sales and durable-goods orders for December.

Global markets also enjoyed a substantial rally on Wednesday aided by a boost in commodity stocks. Britain's FTSE 100 Index ended up 1.4 percent at 6,314.8. Asia saw the Nikkei 225 Index gain 0.57 percent to close at 17,507.40, its highest since April 7. The broader TOPIX Index was up 0.45 percent at 1,738.61. Asian indexes took some profits today, with the Nikkei 225 Index closing down 49.10 points to 17,458.30 but the FTSE 100 Index is marching on with a gain of 0.27 percent by 6:30 am EST.

Another influential data point yesterday was the U.S. crude oil inventory report. Deliveries from refineries and terminals averaged 20.4 million barrels a day last week, no doubt the result of a rash of cold weather invading the northeastern part of the country. U.S. crude gained 33 cents, or 0.6 percent, to settle at $55.37 a barrel while London Brent Crude settled at $55.43. U.S. supplies of distillates grew by 700,000 barrels in the week ended January 19, contrary to analyst forecasts of a drop of about 800,000 barrels.

Precious metals reversed course mid-day with Gold reaching a seven-week high late in trading. Despite a stronger dollar, Wall Street is expecting the precious metal to breach an important resistance level of $650 an ounce in the coming days or weeks. February Gold delivery settled up $2.30 at $648.20 an ounce on the NYMEX. AAS Platinum Subscribers utilizing the Model ProFund Portfolio will unfortunately experience a short-term reversal with today’s “sell” recommendation of the ProFunds Short Precious Metals (SPPIX) fund. The fund was up nearly 9% YTD and obviously producing tremendous alpha when our analytic upgraded it to “buy” status on January 18^th. However, precious metals have rallied of late, despite a strengthening dollar, and the analytic has reverted to a “sell” recommendation.

Our long-term market model remains bearish as of December 8^th. The total universe of stocks, ETF and funds which we review on a daily basis is 1,889. Of those reviewed, 301 are rated "Buy," 509 are rated "Sell" and 1,079 "Neutral." Our model portfolios are currently allocated between 56.25% and 75% long.

Again, there are no “buy” recommended major market derivatives or style-box derivatives and Financial Services (IYG) and Financials (IYF) are the only “buy” recommended sectors. Obviously we continue to urge caution as the market seeks definition and direction over the next few trading days and weeks.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Financial (IYF 1/16/07)

Today’s Top “Buy” Recommended Stocks

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

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

CPI Corp. (CPY 1/23/07)

Precision Castparts Corp. (PCP 9/20/06)

CarMax Inc. (KMX 7/25/06)

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

Navistar International Corp. (NAV 9/12/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

The Ryland Group Inc. (RYL 1/18/07)

Brown Shoe Company Inc. (BWS 9/12/06)

Today’s Top “Sell” Recommended Stocks

Advanced Micro Devices Inc. (AMD 9/27/06)

StarTek, Inc. (SRT 11/28/06)

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

Brightpoint Inc. (CELL 9/19/06)

Lenox Group Inc. (LNX 12/22/06)

Joy Global Inc.

Joy Global Inc. (JOYG 11/13/06) was upgraded to “buy” status last night after a brief stint in “neutral” territory. We’ve had a buy or neutral recommendation on JOYG since November 13^th, 2006 and have seen the price appreciate by over 15% since then. It’s still well below it’s 52-week high of 72.23 and should hopefully find support from it’s 50-Day Moving Average. Throw in the push for alternative energy sources, with clean burning coal a topic du jour, and this coal extraction company looks pretty interesting.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Financial (IYF 1/16/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

CarMax Inc. (KMX 7/25/06)

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

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

Precision Castparts Corp. (PCP 9/20/06)

Navistar International Corp. (NAV 9/12/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Boston Properties Inc. (BXP 1/10/07)

The Ryland Group Inc. (RYL 1/18/07)

Today’s Top “Sell” Recommended Stocks

StarTek, Inc. (SRT 11/28/06)

Brightpoint Inc. (CELL 9/19/06)

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

Rogers Corp. (ROG 12/6/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

Investors Worried About Tech

Wall Street started the week on a sour note, with brokerage downgrades, less-than-stellar earnings reports and good old fashioned fear driving the broad-market indexes lower. A major drag on the Dow was The Boeing Co. (BA), down over 3% after Wachovia Corp. (WB) lowered it’s rating to “market perform.” But perhaps even more significant is the en masse selling of tech shares despite earnings reports which are more or less in line with analyst expectations. With Wall Street accustomed to earnings statements obliterating expectations, investors aren’t sure how to interpret a return to normalcy. And with even more big tech companies such as Microsoft Corp. (MSFT) and Qualcomm Inc. (QCOM) reporting later in the week, caution was the name of the game on Monday.

The Dow Jones Industrial Average, with it’s biggest one-day loss in almost two months, lost 88.37 points, or 0.70 percent, to end at 12,477.16. The S&P 500 Index slipped 7.55 points, or 0.53 percent, to finish at 1,422.95 and the NASDAQ Composite Index declined 20.24 points, or 0.83 percent, to close at 2,431.07.

Trading on the NYSE was below average, with about 1.50 billion shares changing hands compared to the 1.84 billion daily average for last year. Declining shares outnumbered advancing shares by about 7 to 4. Even the NASDAQ saw sub-par volume, with about 2.01 billion shares traded compared to the 2.02 billion daily average last year. Decliners outnumbered advancers by about 2 to 1 on the tech heavy index.

Energy traders should feel a bit of whiplash with oil prices up early in the session thanks to colder weather in the Northeast followed by significant declines in the face of contract expiration. On the day, February crude gave back 86 cents to settle at $51.13 a barrel.

Gold prices fell thanks in part to the decline in oil prices. COMEX February gold lost $2.30 to settle at $634.10 an ounce.

Even though stocks fell amid worries and downgrades, investors didn’t abandon ship in favor of treasuries…yet. The absence of significant economic data yesterday held volume on the U.S. Treasury Market relatively low. Nevertheless, the benchmark 10-year U.S. Treasury note closed up 4/32 in price at 98-29/32 for a yield of 4.77 percent. The two-year note ended up 2/32 in price at 99-22/32 for a yield of 4.92 percent while the 30-year bond was up 8/32 in price at 94-17/32 for a yield of 4.85 percent.

The Treasury Department will auction $8 billion in 20-year Treasury Inflation-Protected Securities (TIPS) today, followed by $20 billion in two-year debt on Wednesday and $13 billion in five-year securities on Thursday.

The dollar closed up against major currencies on Monday. Against the Euro, the dollar closed at $1.294 while it closed at 121.67 against the Yen. The U.S. Dollar Index was up 0.18 percent at 85.04 from a previous close of 84.89.

Wall Street also brought down the European markets with the FTSEurofirst 300 Index closing down 0.4 percent at 1,513.5 points. London's FTSE 100 Index slipped 0.3 percent, Paris's CAC 40 lost 0.6 percent and Frankfurt's DAX retreated 0.9 percent.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Financial (IYF 1/16/07)

Today’s Top “Buy” Recommended Stocks

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

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

CarMax Inc. (KMX 7/25/06)

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

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Boston Properties Inc. (BXP 1/10/07)

Navistar International Corp. (NAV 9/12/06)

The Ryland Group Inc. (RYL 1/18/07)

Jo-Ann Stores Inc. (JAS 9/1/06)

Brown Shoe Company Inc. (BWS 9/12/06)

Today’s Top “Sell” Recommended Stocks

Rogers Corp. (ROG 12/6/06)

Advanced Micro Devices Inc. (AMD 9/27/06)

Brightpoint Inc. (CELL 9/19/06)

Plexus Corp. (PLXS 12/29/07)

Lenox Group Inc. (LNX 12/22/06)

My Security Selection Process

One of the topics I’ve been meaning to write about for awhile now is my personal process for selecting stocks to highlight in this blog. Consistent readers know that each post lists our top buy and sell recommended stocks at the bottom, along with the top buy recommended major market, style-box and sector investments. But every now and then I’ll write about a specific security that I find interesting and worthy of further examination. So this post will hopefully offer insight into the strategy I employ and perhaps give other investors ideas for their own strategies.

I consider myself a top-down investor, which means my approach starts with a macro examination of the market, narrowed down to sector and industry, and then to individual security. The macro examination starts with our Long-Term Market Model which combines technical, sentiment and trend analysis. Also included in the model are economic and interest rate indicators, which further help define the current investment environment. The model is currently bearish, which tells me that caution is warranted with regard to investment selection and allocation.

The next step is an examination of the sectors we analyze daily for alpha. Right now, the only buying opportunity we’re seeing is in Financials (IYF), although several sectors such as Real Estate (IYR), Transports (IYT) and Healthcare (IYH) have performed well over the last one week and one month. I can also determine which sectors are under-performing currently, which from the chart below look to be energy and tech related. Often times I look for buy recommended securities within weak sectors as a speculative holding, so I certainly don’t ignore sell recommended sectors. But I normally highlight securities within stronger sectors in the blog.

Once I’ve determined which sectors I like, I then turn to “Today’s Buy Recommendations” from our analytic, which normally produces a list of anywhere from 5 to 200 securities upgraded to “buy” status as of the last market day. Looking at that list this morning, there are 52 stock, mutual funds and ETF’s that were upgraded after Friday’s close.

The next few steps are designed to reduce that list further by removing any issues that were recently sell recommended. I always remove issues that were sell recommended within the last one week, but often time’s I’ll extend the time frame depending on market conditions. By doing so, I’m hopefully removing highly-volatile securities as well as those that are range-bound. Right away that narrows today’s list to 42 securities.

I then reduce the list further based on the AAS Rating Score. Although any positive score is indicative of a bullish trend developing, I prefer values of at least 5.00 in my analysis. Removing all securities without at least a 5.00 AAS Rating Score results in a list of 24 securities, which is still a bit high but workable. Here’s the list:

The last step involves charting the list and looking for those securities that meet certain criteria. Obviously, the criteria is different for everyone, but I personally look for securities with a positive trend off of a recent bottom and have crossed over, or are getting close to crossing over, the 50 and 200-Day Moving Averages. Recent is a subjective term, but for me it means within the last six months. After this step, I’m left with two securities: ADC Telecommunications (ADCT) and Century Aluminum Co. (CENX).

Of course, the analysis could be completely off and these stocks could tank today, which is always a risk when investing. That’s why I pay close attention to the Sell-Limit Values each day, which at the moment are 13.89 for ADCT and 39.13 for CENX. If the closing price falls below the sell-limit value, I sell the security – no questions asked.

I hope this gives you an idea of how I select securities for discussion in the blog. It’s a process that works best for me because it’s disciplined, quantitative and hopefully devoid of human emotion.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 56.25% and 75% long currently.

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

Top Rated Major Market Derivative – No buy recommended major market investments

Top Rated Style-Box Derivative – No buy recommended style-box investments

Top Rated Sector Derivative – iShares Dow Jones U.S. Financial (IYF 1/16/07)

Today’s Top “Buy” Recommended Stocks

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

CarMax Inc. (KMX 7/25/06)

Savient Pharmaceuticals Inc. (SVNT 8/9/06)

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

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

Navistar International Corp. (NAV 9/12/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Brown Shoe Company Inc. (BWS 9/12/06)

Boston Properties Inc. (BXP 1/10/07)

Public Storage Inc. (PSA 12/13/06)

Today’s Top “Sell” Recommended Stocks

Advanced Micro Devices Inc. (AMD 9/27/06)

Brightpoint Inc. (CELL 9/19/06)

Lenox Group Inc. (LNX 12/22/06)

Rogers Corp. (ROG 12/6/06)

Plexus Corp. (PLXS 12/29/07)