Correction...Not Quite

What a ride! The long awaited correction FINALLY happened…except that yesterday’s sell-off can hardly be classified as a “correction,” at least in accordance with my definition of the word. A 3.29% single-day decline in the Dow is gut wrenching to be sure, but since when is that defined as a correction? Most published definitions quote a decline of 10% or more. I’m willing to define an 8% decline as a correction, but that still leaves us with 4.7% left to go. Furthermore, seldom (read: never) does a “correction” take place in the span of one trading day.

Despite our market model being bearish, I feel allocating our portfolios in a 100% defensive posture is not prudent at the moment. I am recommending that the cash levels in the model fund portfolios be increased to 50%. I am also beginning to incorporate inverse funds in several portfolios, but only when those inverse funds carry "buy" recommendations.

With regard to the Model Stock Portfolio, we are not initiating any trades today and have decided to maintain our current allocation which is roughly 75% long and 25% cash. Our analytic is still rating those selected securities within the portfolio very high in terms of alpha generation and despite yesterday's losses, none of the issues triggered any "sell" recommendations. If the markets continue to weaken, we will recommend selling certain stocks and increasing the cash allocation.

Sell-offs and periods of correction are the most strident tests of investment discipline. Although our portfolios lost value yesterday, we maintain our confidence not only in the strategy employed but in our alpha analytic and market models. We will continue to select those funds that are generating the most alpha, we will not override our models on "speculation" or "theory" and we will not deviate from the strategy that has generated our historical out-performance.

With that being said, it’s interesting to see how yesterday’s sell-off impacted our alpha analytic. Believe it or not, we did see several securities upgraded to buy status. The top eight are listed below:

Conversely, many more were downgraded to “sell” status with the bottom eight as follows:

My gut tells me that several months from now we’ll look back on yesterday’s session as the beginning phase of a defined market correction. I would feel much more comfortable shifting to a bullish stature in late-spring or early-summer if the market looses a bit more ground and the foundation for a bullish recovery is a more established. Until then I plan on hedging our portfolios either through cash or inverse fund allocations.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios have 50% cash allocations and mixed long – short allocations.

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

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

Vulcan Materials Co. (VMC 10/31/06)

Texas Industries Inc. (TXI 10/11/06)

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

TXU Corp. (TXU 2/23/07)

Weyerhaeuser Co. (WY 1/3/07)

Avnet Inc. (AVT 10/5/06)

Carbo Ceramics Inc. (CRR 2/27/07)

Temple-Inland, Inc. (TIN 12/5/06)

Itron Inc. (ITRI 1/19/07)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Chicago Mercantile Exchange (CME 2/22/07)

Google Inc. (GOOG 12/18/06)

Plexus Corp. (PLXS 12/29/06)

SanDisk Corp. (SNDK 10/20/06)

Weakness in Asian Markets

Bulls hoping to start the week off on a good foot were disappointed Monday as last week’s broad-market declines carried over into yesterday’s session. Concerns of a pending recession off-set significant M&A activity involving a private equity buyout of TXU Corp. (TXU) and potential buyout of Dow Chemical (DOW). With sour economic reports expected throughout the week, including a downward GDP revision, investors are beginning the feel the wheels coming off the rally that started back in July 2006. Recent spikes in the Put/Call ratios illustrate institutional investors’ concern that a market correction is fast approaching.

The Dow Jones industrial average fell 15.22, or 0.12 percent, to 12,632.26. The S&P 500 index was down 1.82, or 0.13 percent, at 1,449.37, the NASDAQ composite index fell 10.58, or 0.42 percent, to 2,504.52 and the Russell 2000 index of fell 2.95, or 0.36 percent, to 823.69.

Volume was moderate on the NYSE, where about 1.56 billion shares changed hands, below last year's estimated daily average of 1.84 billion shares. Decliners registered at 1,657 while advancers were slightly below at 1,650. On the NASDAQ, about 1.94 billion shares traded, below last year's daily average of 2.02 billion with an advance-decline ratio of three to two.

Bonds prices continued to improve after last week’s sell off, spurred by a warning from former Fed Chairman Greenspan about the possibility of a recession by year’s end. The yield on the benchmark 10-year Treasury note fell to 4.63 percent from 4.68 percent late Friday.

The dollar lost traction against the other major currencies. The Euro bought $1.3185, the Pound rose to $1.9644 from $1.9637 and the dollar bought 120.57 Yen.

A weakening dollar and geopolitical tensions led gold to its highest level in nine months on Monday. Other central banks expecting to diversify reserves out of the U.S dollar and into other currencies also fueled the rally. Gold for April delivery on the COMEX settled up $3.10 at $689.80 an ounce.

A strong winter storm traversing across the U.S led oil prices higher and spurred expectations of increased heating oil demand. Light sweet crude rose 25 cents to $61.39 on the NYMEX. April Brent crude added 45 cents to finish at $61.33 a barrel. Heating oil prices settled at $1.7562 a gallon while natural gas futures dropped 20.8 cents to $7.547 per 1,000 cubic feet.

Overseas, Japan's Nikkei stock average closed up 0.15 percent on Monday. However, Tuesday’s session saw the Shanghai Composite Index fall 8.8 percent to close at 2.771.79 after investors sold off stocks to lock in recent profits. The massive decline will likely carry over into European and U.S. markets today.

In Europe, the FTSEurofirst 300 index rose 0.4 percent to end at 1,550.4, its highest closing level since December 2000. London's FTSE 100 index added 0.5 percent, Paris's CAC 40 gained 0.8 percent, and Frankfurt's DAX was 0.5 percent higher.

Our long-term market model remains bearish as of December 8^th. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1877. Of those reviewed, 456 are rated "Buy," 429 are rated "Sell" and 992 "Neutral." Our model portfolios are currently allocated between 37.5% and 75% long currently.

To be sure, we see continued opportunities for adding alpha to existing portfolios in both the Mid Cap and Small Cap market segments. For those risk-averse investors, alpha can be found within the following sectors: Transports (IYT), Telecommunication (IYZ), Retail (RTH) and Consumer Services (IYC).

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 37.50% 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 Transports (IYT 2/20/07)

Today’s Top “Buy” Recommended Stocks

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

Vulcan Materials Co. (VMC 10/31/06)

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

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

Texas Industries Inc. (TXI 10/11/06)

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

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

OM Group Inc. (OMG 2/7/07)

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

Cleveland-Cliffs Inc. (CLF 11/17/06)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Chicago Mercantile Exchange (CME 2/22/07)

Google Inc. (GOOG 12/18/06)

SanDisk Corp. (SNDK 10/20/06)

Daktronics Inc. (DAKT 2/14/07)

Alpha and the Week Ahead

Most of the major indexes closed out the week slightly lower due in part to a higher than expected CPI report and the resurgence in oil prices. A bright light however was the NASDAQ, which ended the week with a rally surpassing levels of the preceding six years.

U.S. markets will most likely continue into the end of the month on a weak note with higher energy prices weighing heavily on investor sentiment along with uncertainty over the health and direction of the U.S. Market. Investors will continue to struggle digesting the barrage of economic reports, including critical housing and crude inventory reports that will hopefully provide guidance as to the near-term direction of the economy. Data to be released next week includes:

• Feb 27 Durable Orders
• Feb 27 Consumer Confidence Report
• Feb 27 Existing Home Sales
• Feb 28 GDP Preliminary
• Feb 28 Chain Deflator Preliminary
• Feb 28 Chicago PMI
• Feb 28 New Home Sales
• Feb 28 Crude Inventories

We see continued opportunities for adding alpha to existing portfolios in both the Mid Cap and Small Cap market segments principally focused within the following sectors: Basic Materials, Telecommunications, Real Estate, Transports and Utilities.

This week we are taking a slightly different approach in highlighting these opportunities. We have broken out of our universe those equity members from the Small and Mid Cap Styles, as well as from the five highlighted sectors.

The top five names in each table are ranked by AAS Rating Score along with the calculated alpha factor over relatively reasonable time periods. The alpha factor represents the return of the security minus the return of the S&P 500.

Mid Cap Stocks

Small Cap Stocks

Basic Materials

Transports

Telecommunications

Real Estate

Utilities

A word of caution to those interested in investing in Real Estate: note that while those members of today’s report bear significant AAS Rating Scores and attractive alpha generation, only Central Parking Corp. (CPC) carries a Buy status. All other equities are currently listed as “Neutral,” reflecting many issues concerning both the Commercial and Residential Real Estate markets of late.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 75% long and 25% cash 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 Transports (IYT 2/20/07)

Today’s Top “Buy” Recommended Stocks

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

Vulcan Materials Co. (VMC 10/31/06)

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

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

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

Texas Industries Inc. (TXI 10/11/06)

OM Group Inc. (OMG 2/7/07)

Avnet Inc. (AVT 10/5/06)

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

Carpenter Technology Corp. (CRS 1/31/07)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Chicago Mercantile Exchange (CME 2/22/07)

Plexus Corp. (PLXS 12/29/06)

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

SanDisk Corp. (SNDK 10/20/06)

AAS Top Six on February 16, 2007

The graphs below represent our top rated investments within six different categories as of Friday, February 16, 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 11.23% 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)

Good Morning

Our long-term market model remains bearish as of December 8^th. We’ve seen steady improvement in the model over the last week, yet several critical components remain negative at this time. The interest rate environment is positive, but further improvement in the NASDAQ is critical before the model turns bullish. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1882. Of those reviewed, 444 are rated "Buy," 302 are rated "Sell" and 1136 "Neutral." Our model portfolios are currently allocated between 75% long and 25% cash.

With over 60% of the securities we analyze carrying “neutral” recommendations, we’re still not seeing a preponderance of buying opportunities for alpha. That being said, we are seeing improvement in our sector analysis. Real Estate (IYR) has vaulted to the top of our rankings based on the AAS Rating Score, although Transports (IYT), Retail (RTH), Consumer Services (IYC) and Telecom (IYZ) are out-performing. Conversely, Energy (IYE) and Natural Resources (IGE) continue to under-perform.

Inflation was again the catalyst on Wall Street yesterday as the release of FOMC minutes coupled with a larger-than-expected CPI reading led the Dow lower. A 0.2 percent rise in the CPI surprised economists and analyst’s alike, many of whom expected a 0.1 percent increase. The core figure, which excludes food and energy prices, rose 0.3 percent. An unseasonably warm January, which resulted in a drop in energy prices, failed to offset a rise in medical, food and airline costs. Furthermore, the Fed minutes illustrated inflationary pressures, although easing despite a weak housing and sub-prime mortgage market, remain paramount.

The Dow Jones industrial average declined by 0.38 percent to close at 12,738.41; the S&P 500 index retreated 0.14 percent to close at 1,457.63; the Russell 2000 improved by 0.15 percent to end at 827.33 and the NASDAQ Composite added 0.21 percent to finish the session at 2,518.42, its highest level in six years.

Bonds prices ended the day lower despite a modest recovery following the release of the FOMC January 30-31 policy meeting minutes. Although the minutes indicated a positive perspective on core inflation from the central banker’s point of view, inflationary pressures remain and a downward trend has yet to be established. The benchmark 10-year U.S. Treasury note fell 4/32 in price with the yield at 4.70 percent; the 2-year U.S. Treasury note was down 1/32 with the yield at 4.84 percent while the 30-year U.S. Treasury bond lost 6/32 with the yield at 4.79 percent.

Currency traders acted on news that the Bank of Japan raised interest rates to 0.5 percent. The dollar traded up 0.76 percent at 120.86 yen while the euro remained relatively unchanged at $1.3138. The U.S. Dollar Index improved by 0.04 percent to close the session at 84.20.

Gold prices, a traditional hedge against a weakening market, rose sharply to $682.10 an ounce. COMEX gold for April delivery settled at $684.00 an ounce, pushed higher on geopolitical concerns, oil prices and mutual fun inflows.

News of a pipeline and oil field shut down, in conjunction with tensions between Iran and the west over uranium enrichment, led oil prices above $60 for the first time this year. Light, sweet crude for April delivery settled at $60.07 a barrel while Brent crude for April delivery rose $1.37 to $59.35 a barrel on the ICE Futures Exchange in London. Heating oil settled at $1.6816 a gallon, while natural gas futures rose 6 cents to $7.646 per 1,000 cubic feet.

The international markets lost ground throughout the day, with Japan's Nikkei stock average down 0.14 percent ahead of the U.S. open. Britain's FTSE 100 closed down 0.86 percent, Germany's DAX index fell 0.59 percent, France's CAC-40 declined by 0.33 percent and the FTSEurofirst 300 index retreated 0.6 percent to 1,535.51.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 75% long and 25% cash 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 Real Estate (IYR 1/10/07)

Today’s Top “Buy” Recommended Stocks

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

Vulcan Materials Co. (VMC 10/31/06)

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

CPI Corp. (CPY 1/23/07)

OM Group Inc. (OMG 2/7/07)

Carpenter Technology Corp. (CRS 1/31/07)

Crocs, Inc. (CROX 9/6/06)

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

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

Sears Holding Corp. (SHLD 2/15/07)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Plexus Corp. (PLXS 12/29/06)

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

The Corporate Executive Board Co. (EXBD 12/1/06)

SanDisk Corp. (SNDK 10/20/06)

AOS, EXPD, PALM

After running our alpha analytic model this morning, three stocks stood out that I wanted to mention. All three have AAS Rating Scores above 5, are beginning to develop a bullish trend and have crossed or are close to crossing over their 200-day MA.

A.O. Smith Corp. (AOS) manufacturers electric motors and water heating equipment, not only in domestic residential, commercial and industrial markets, but also internationally. It’s also recently announced a plan to buyback up to one million shares.

The Transports (IYT) sector has been on a tear lately and in fact is our top-rated sector for alpha as of this morning. Expeditors International of Washington (EXPD) provides global logistic services including consolidation of air and ocean freight as well as a customs broker in several overseas offices. It’s coming off a modestly-weak Q406 and is also dealing with the retirement of it’s President and COO, but that doesn’t necessarily remove this company from consideration, at least in my opinion.

Palm Inc. (PALM) provides a option within the Telecom (IYZ) sector, which has been a strong performer over the last six weeks or so.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 75% long and 25% cash 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 Transport Average (IYT 2/20/07)

Today’s Top “Buy” Recommended Stocks

CPI Corp. (CPY 1/23/07)

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

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

Crocs, Inc. (CROX 9/6/06)

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

Vulcan Materials Co. (VMC 10/31/06)

LCA-Vision Inc. (LCAV 2/12/07)

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

Avnet, Inc. (AVT 10/4/06)

Carpenter Technology Corp. (CRS 1/31/07)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Plexus Corp. (PLXS 12/29/06)

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

Google Inc. (GOOG 12/18/06)

The Corporate Executive Board Co. (EXBD 12/1/06)

Good Morning

Last week was moderately positive for the Bulls; mid-week saw three indexes, the Dow Industrials, the Dow Transports and the Dow Utilities, reach new highs coincidentally on the same day, which the news makers identified as having last happened on March 17, 1998. Supporting the Dow in part was the NASDAQ, which showed vigor in its attempt to break the 2,500 level for the first time since mid-January 2007.

With that being said, the importance of new index highs is minimal in our opinion. In fact the markets sold off into the weekend when Microsoft CEO Steve Ballmer spooked shareholders by saying analysts' sales estimates for Vista are "overly aggressive." In addition, recently released data on Housing Starts tends to cloud Fed Chairman Bernake’s earlier statements on the possibility that the struggling housing market may have in fact bottomed out.

Traders will be cautious after the long holiday weekend as they await the release of the CPI reports along with the Leading Economic Indicators report on 2/21/07. These critical reports, in conjunction with the release of the minutes from January FOMC meeting, will create a tepid environment for investors.

Our long-term market model remains bearish as of December 8^th. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1881. Of those reviewed, 371 are rated "Buy," 345 are rated "Sell" and 1165 "Neutral." Our model portfolios are currently allocated between 75% long and 25% cash.

We see alpha generation in several sectors including the Dow Jones U.S.Telecom (IYZ), the Dow Jones U.S. Consumer Services (IYC) and Retail (RTH). Investors seeking to allocate into equities within these sectors might look to Energizer Holdings Inc. (ENR), Belden CDT Inc. (BDC), C-COR Inc. (CCBL), or Tollgrade Comm. Inc. (TLGD). With the retail sector, companies such as Sears Holdings Corp. (SHLD), Nordstrom Inc. (JWN), Sotheby’s Holdings Inc. (BID), AutoZone Inc. (AZO), P.F. Chang's (PFCB), and Abercrombie & Fitch Co. (ANF) may be of interest.

For those seeking both added alpha and diversification, the following list of mutual funds are timely in terms of sector and AAS Recommendation status. While many are currently rated Neutral, we’re seeing improvement and bullish trend development.

Navistar International Corporation (NAV) was suspended from the New York Stock Exchange at the end of trading 02/13/07 and began trading as of 02/14/07 on the over-the-counter market commonly known as the "pink sheets" under the symbol NAVZ. Since we do not follow companies listed on Pink Sheets, the company is no longer eligible for consideration in the AAS Model Stock Portfolio and consequently it was removed from the Model Stock Portfolio as of the close 02/13/07.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are between 75% long and 25% cash 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

CPI Corp. (CPY 1/23/07)

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

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

Crocs, Inc. (CROX 9/6/06)

LCA-Vision Inc. (LCAV 2/12/07)

Vulcan Materials Co. (VMC 10/31/06)

Investors Financial Services Corp. (IFIN 1/12/07)

OM Group Inc. (OMG 2/7/07)

Cummins Inc. (CMI 1/31/07)

MEMC Electronic Materials Inc. (WFR

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Plexus Corp. (PLXS 12/29/06)

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

Google Inc. (GOOG 12/18/06)

Brightpoint, Inc. (CELL 9/19/06)

Gone Skiing

Skiing at Heavenly. Have a great week and I'll see you next Tuesday!

Good Morning

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 1885. Of those reviewed, 322 are rated "Buy," 523 are rated "Sell" and 1040 "Neutral." Our model portfolios are currently allocated between 56.25% and 75% long.

Our analytic continues to resist upgrading any major markets or style box investments to “buy” status. In terms of our sector analysis, Retail (RTH) is again the top rated investment followed by Telecommunication (IYZ) and Real Estate (IYR).

Carrying Friday’s weakness through to Monday, U.S. stocks declined yesterday thanks in part to a sell-off in energy shares as well as concerns over the housing market and its impact on consumer spending. The Dow Jones Industrial Average lost 28.28 points, or 0.22 percent, to end at 12,552.55. The S&P 500 Index slipped 4.69 points, or 0.33 percent, to finish at 1,433.37 while the NASDAQ Composite Index declined 9.44 points, or 0.38 percent, to close at 2,450.38.

Trading was moderate on the NYSE, with about 1.32 billion shares changing hands and declining stocks outnumbered advancing ones by a ratio of about 5 to 3. On the NASDAQ, about 1.89 billion shares traded, below last year's daily average of 2.02 billion with 17 advancers for every 13 decliners.

The benchmark 10-year note fell 5/32 in price to 98-18/32, while its yield rose to 4.81 percent from 4.79 percent late Friday while the 30-year bond closed with a yield of 4.89.

U.S. crude oil for March delivery fell $2.08 to settle at $57.81 a barrel after OPEC signaled contentment with the current environment and reluctance to cut supplies further. The sharp drop in oil prices resulted in a sell-off of big oil companies, which in turn brought down both the Dow and the S&P 500. London Brent crude slid $2.41 to $56.60. COMEX April gold dropped $5.00 to end at $667.30 an ounce.

Aside from energy companies, mortgage bankers, homebuilders and REIT’s lost ground for the second day with the MSCI U.S. REIT Index closing down 1.9 percent. Last Friday, Countrywide Financial Corp. (CFC) noted that foreclosures were at the highest level since 2002 and New Century Financial Corp. (NEW) issued a warning that their bottom line would be impacted by bad sub prime loans.

Share trading in Japan was closed for a holiday, but elsewhere in Asia, the MSCI Asia-Pacific Index closed down 0.9 percent.

The European markets didn’t fare well either on Monday, with the FTSEurofirst 300 Index down 0.6 percent lower at 1,533.15 points. Britain's FTSE 100 closed down 0.4 percent, France's CAC 40 was down 0.9 percent and Germany's DAX lost 0.8 percent.

The currency markets were looking for a stronger message after this weekends G7 summit. But much to their disappointment, the topic of the weak Japanese currency was only discussed indirectly and G7 officials appear reluctant to pressure Tokyo. The result was heavy selling of the yen. The Euro traded at 159.00 yen intra-day, the highest level since the common currency's 1999 launch, but closed at 157.78 yen, down 0.3 percent. The dollar neared a four-year peak against the Yen and closed at 121.88. Against the Euro, the dollar closed at 0.7714. The Euro declined 0.32 percent to $1.2963.

With such low interest rates, investors borrow on a cheap yen to purchase higher yielding investments in what’s referred to as a carry-trade. The result is a yen valued at its lowest level in more than two decades on a trade-weighted basis, but the increased liquidity has translated to gains in equities.

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 – Retail HOLDRs (RTH 1/29/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

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

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

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

LCA-Vision Inc. (LCAV 2/12/07)

Investors Financial Services Corp. (IFIN 1/12/07)

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

USANA Health Sciences Inc. (USNA 12/20/06)

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

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

Google Inc. (GOOG 12/18/06)

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

Plexus Corp. (PLXS 12/29/06)

Administaff, Inc. (ASF 1/10/07)