Portable Alpha Daily: 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.