Portable Alpha Daily

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Tuesday, January 16, 2007

Good Morning

The markets ended the second week of 2007 on a good note, with stocks up for a third day on Friday. Pushing prices up was a slight rebound in oil and a better-than-expected December retail sales report, which accelerated by 0.9 percent in December, supporting those investors optimistic of a strong and growing economy. The December gain in retail sales, which includes the holiday shopping season, was the largest since July. Friday’s report, along with a slew of recent economic data, point to a robust economy, with the chances of an early year rate cut slipping further and further away.

The Dow Jones Industrial Average added 41.10 points, or 0.33 percent, to end at 12,556.08. The S&P 500 Index improved by 6.91 points, or 0.49 percent, at 1,430.73 and the NASDAQ Composite Index increased by 17.97 points, or 0.72 percent, to finish at 2,502.82.

Global markets fared well on Monday thanks to gains from oil producers and M&A activity. The FTSEurofirst 300 Index closed up 0.6 percent at 1,519.4 points. London's FTSE 100 ended 0.4 percent higher, Paris's CAC 40 closed up 0.2 percent, and Frankfurt's DAX gained 0.4 percent.

However, the global markets were paring gains on Tuesday ahead of the U.S. session. The FTSEurofirst 300 Index slipped 0.34 percent to 1,514.32 points as of 0918 GMT. London's FTSE 100 was down 0.47 percent, while the French CAC 40 dropped 0.16 percent and Germany's DAX dropped 0.25 percent. Asian markets also moved lower in anticipation of the Bank of Japan’s meeting later this week, which might lead to an increase in interest rates. The benchmark Nikkei 225 Index fell 7.46 points, or 0.04 percent, to finish at 17,202.46 while the Topix Index, lost 1.04 points, or 0.06 percent, to finish at 1,703.54 points.

Headlining the shortened week will be Q4 earnings statements and economic data. Positive corporate results and easing inflationary pressures will likely facilitate a continued rally in equities. Among the big tech names reporting is Intel Corp. (INTC), Apple Inc. (AAPL), Motorola Inc. (MOT), which should give investors an idea of how the sector performed during the slowing economy. Also shaping the markets are the reports from several large financial institutions including Citigroup Inc. (C), Merrill Lynch (MER) and JP Morgan Chase & Co (JPM).

Perhaps even more important will be inflationary data released this week, which will help Wall Street determine when the Fed is likely to cut interest rates. The core Producer Price Index is expected to have accelerated at a 0.1 percent rate in December while the core Consumer Price Index is forecast to have risen at a 0.2 percent rate. Other economic data released this week include the Philadelphia Fed's index of business conditions in the Mid-Atlantic and the University of Michigan's preliminary read on consumer sentiment.

Our long-term market model remains bearish as of December 8th. However, we have been observing the gradual improvement in our market model over the last two weeks and anticipate a possible reversion to bullish posture sometime this week. The impact of this shift on the allocations of the AAS model portfolios will be dealt with on a day-to-day basis as we analyze any new “buy” recommended investments for the portfolios.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 37.5% 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

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

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

Daktronics, Inc. (DAKT 10/31/06)

CarMax Inc. (KMX 7/25/06)

Savient Pharmaceuticals Inc. (SVNT N/A)

Hansen Natural Corp. (HANS 1/3/07)

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

Albemarle Corp. (ALB 8/9/06)

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

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

Today’s Top “Sell” Recommended Stocks

CONSOL Energy Inc. (CNX 12/15/06)

Brightpoint Inc. (CELL 9/19/06)

Intuitive Surgical Inc. (ISRG 12/19/06)

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

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


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