Portable Alpha Daily

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Sunday, March 25, 2007

Alpha in Energy, Utilities and Materials

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 1853. Of those reviewed, 598 are rated "Buy," 288 are rated "Sell" and 967 "Neutral.” These numbers along with the technical indicators which we follow have improved significantly over last week’s indicators when we reduced our model portfolio allocations. We have adjusted our recommendations accordingly and are currently recommending an allocation in the range of 50% in cash or money market investments and 50% Long Funds or ETF’s. The allocation recommendation for the model stock portfolio was also adjusted to approximately 50% long with 50% cash.

Market conditions in the coming will in part be determined by two reports on consumer sentiment, which may serve to further quantify the magnitude of the recent turmoil in the sub-prime lending market and its impact on the economy. Additional reports scheduled to be released in the coming wee include: new-home sales, Durable Goods Orders and GDP Q4, Personal Income and Spending, the Chicago PMI and University of Michigan Sentiment Index, which may well add fuel to the recent market rally.

Leadership in the recent rally is coming from the Mid and Small cap members of the Utility, Energy / Natural Resources, Basic Materials and Industrial sectors. This can be seen in a quick review of the Market Overview page.

Those seeking Mid Cap opportunities should examine the iShares S&P Mid Cap 400 (IJH), iShares tracking the Morningstar Mid Cap Growth (JKH) or Value (JKI) indexes or for a blended approach the iShares Morningstar Mid Cap Core (JKG). Similarly, small cap enthusiasts will be drawn to the iShares Morningstar Small Growth (JKK), iShares Morningstar Small Core (JKJ) or iShares Morningstar Small Value (JKL).

Within the Fidelity group, the Fidelity Leveraged Company Stock (FLVCX), Fidelity Aggressive Growth (FDEGX) or Fidelity Value (FDVLX) provide similar Mid and Small cap exposure. Likewise, investors looking for opportunities from ProFunds should start with the ProFund Mid Cap Value (MLPIX) or the ProFund Small Cap Value (SVPIX) funds. Alternatives from Rydex include the Rydex Mid Cap Value (RYAVX), Rydex Mid Cap Growth (RYBHX), Rydex Mid Cap Advantage (RYMDX) or even the Rydex Russell 2000 Advantage (RYMKX) funds.

Subscribers seeking to employ ETF’s to match up with the Sectors mentioned above might examine the Oil Service HOLDRs (OIH), Utilities HOLDRs (UTH), Vanguard Utilities (VPU), iShares DJ U.S. Utilities (IDU) or Vanguard Materials (VAW). The top AAS rated mutual funds which match up nicely are Fidelity Select Utilities Growth (FSUTX), Fidelity Select Energy Service (FSESX), ProFund Ultra Sector Basic Materials (BMPIX), ProFund Ultra Sector Utilities (UTPIX) or Rydex Energy Services (RYVIX).

Individual equities to look at which are highly rated and work into these Sectors are RMI Titanium Co. (RTI), Precision Castparts Corp. (PCP), Allegheny Technologies (ATI), MEMC Electric Material (WFR), Martin Marietta Materials (MLM), Brush Wellman Inc. (BW), U.S. Steel Corp. (X), Constellation Energy Group (CEG), Vulcan Materials Co. (VMC) and Cummins Inc. (CMI).

Monday Morning Links

Sunday links from Abnormal Returns.

Excellent article from All About Alpha on the importance on alpha centric investing.

Alpha generation by selling naked puts ahead of earnings.

Hedge fund blog on the consistency of irrationality in the industry.

Larry put’s forth his solutions to the sub-prime bonanza.

The mother lode of links from The Big Picture.

Dr. Brett shares his steps toward successful stock picking.

Barclays Global launches a private equity ETF.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are allocated at 50% cash and 50% long.

Top Alpha Generating Securities
Date = Date of AAS “Buy” or “Short/Sell” Recommendation

Top Major Market ETF – iShares S&P Mid Cap 400 (IJH 3/20/07)

Top Style-Box ETF for Alpha – iShares Morningstar Mid Cap Growth (JKH 3/20/07)

Top Sector ETF for Alpha – iShares Dow Jones U.S. Utilities (IDU 3/12/07)

Top Long Stocks for Alpha

RTI International Metals (RTI 10/11/06)

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

Allegheny Technology Inc. (ATI 10/5/06)

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

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

Brush Engineered Material (BW 3/6/07)

Deckers Outdoor Corp. (DECK 9/7/06)

Blue Coat Systems Inc. (BCSI 3/1/07)

U.S. Steel Co. (X 2/28/07)

Constellation Energy Group Inc. (CEG 11/24/06)

Top Short Stocks for Alpha

Beazer Homes USA Inc. (BZH 1/25/07)

Spectrum Brands Inc. (SPC 2/8/07)

Meritage Homes Corp. (MTH 12/18/06)

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

Shuffle Master Inc. (SHFL 12/11/06)



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