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Tuesday, January 30, 2007

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 8th. 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 8th.

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)

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