Portable Alpha Daily

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Tuesday, February 20, 2007

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 8th. 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 8th.

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)



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