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Thursday, February 08, 2007

Good Morning

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 1,885. Of those reviewed, 376 are rated "Buy," 295 are rated "Sell" and 1214 "Neutral." Our model portfolios are currently allocated 75% long and 25% cash, with the exception of the Model Rydex Portfolio which has a 43.75% cash position.

With the markets in the midst of a modest consolidation period, meaning momentum and relative strength metrics are basically stagnant, our analytic is unable to upgrade major-market or style-box investments to “buy” status. The good news is that we’re not seeing many downgrades to “sell” status either – which means we’re basically treading water. Remember, patience is a virtue. In terms of our sector analysis, Retail (RTH) is again the top rated investment followed by Telecommunication (IYZ) and Financial Services (IYG).

Wednesday ended with another nominal session on Wall Street as falling oil prices offset a stout sales forecast from Cisco Systems Inc. (CSCO) and a stronger-than-expected productivity reading. Hawkish comments from a Federal Reserve official also abated any bullish sentiment. With inflationary and interest rate concerns on the minds of economist’s and traders alike, any allusion to an increase in short-term rates has a tendency to move the market. Such was the case yesterday, when Philadelphia Fed President Charles Plosser noted that it was too soon to declare inflation “neutralized” and that an improving economy might result in a hike in the overnight rate.

The Dow Jones Industrial Average improved by just 0.56 of a point to close the day at 12,666.87. The S&P 500 Index added 2.02 points, or 0.14 percent, to finish at 1,450.02 while the NASDAQ Composite Index gained 19.01 points, or 0.77 percent, to close at 2,490.50. Additionally, the Russell 2000 Index set a new closing and trading high of 816.20.

The Big Board saw moderate volume with about 1.48 billion shares changing hands, below last year's estimated daily average of 1.84 billion. Advancers outnumbered decliners by a ratio of 7 to 5. On the NASDAQ about 2.27 billion shares were traded, above last year's daily average of 2.02 billion, with an advance-decline ratio of 3 to 2.

Better than expected Q4 productivity figures from the Labor Department helped assuage inflationary concerns as employers can obtain more output from employees without having to add workers in a tight labor market. If employers were forced to compete for workers, an increase in wages and benefits would occur, resulting in a classic inflationary wage-price spiral. Productivity grew at a 3 percent annual rate and wage pressures retreated in the last three months of the year. Productivity edged up by 2.1 percent throughout 2006, the weakest performance since a 1.6 percent rise in 1997. Additionally, a gauge of wage pressures tied to productivity jumped by 3.2 percent last year.

U.S. Treasury debt prices rose on the session, fueled by the economic reports and a well received 10-year note auction. Yields on the two-year Note eased to 4.88 percent while five-year notes closed at 4.73 percent. The new 10-year notes sold at a high yield of 4.74 percent while existing 10-year notes were up 5/32 and offering a yield of 4.75 percent. The 30-year Bond added 8/32 and was offering a yield of 4.86 percent.

The Energy Department’s weekly domestic inventory data referenced a decrease in crude stockpiles of 400,000 barrels to 324.5 million barrels. Additionally, distillate fuel inventories fell by 3.7 million barrels, exceeding analyst’s expectations of 2.9 million barrels. Light, sweet crude settled down $1.17 at $57.71 per barrel on the NYMEX. Brent crude fell $1.19 to settle at $57.23 a barrel on London's ICE commodities exchange. Natural gas prices settled at $7.709 per 1,000 cubic feet.

So far today, the MSCI All-Country World Index is down 0.4 percent, while Europe's FTSEurofirst 300 is down 0.5 percent. Japan's Nikkei Average closed unchanged at 17,292.5. The Euro was down 0.2 percent at $1.2980 while the dollar rose 0.6 percent versus the yen to 121.40.

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 – Retail HOLDRs (RTH 1/29/07)

Today’s Top “Buy” Recommended Stocks

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

CPI Corp. (CPY 1/23/07)

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

Simon Property Group Inc. (SPG 2/1/07)

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

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

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

The Macerich Co. (MAC 12/27/06)

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

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

Today’s Top “Sell” Recommended Stocks

Google Inc. (GOOG 12/18/06)

Plexus Corp. (PLXS 12/29/06)

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

Brightpoint Inc. (CELL 9/19/06)

EGL, Inc. (EAGL 2/7/07)

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