Portable Alpha Daily: Dead Cat Bounce?

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 1876. Of those reviewed,188 are rated "Buy," 653 are rated "Sell" and 1035 "Neutral." Our model fund portfolios are currently allocated with 50% in cash or money market investments and the other 50% mixed between long and inverse funds. The model stock portfolio remains roughly 75% long with 25% cash.

There are currently no “buy” recommended major market, style box or sector investments being generated by our models. This is to be expected after such a large sell-off since momentum and relative strength are critical components. In terms of AAS Rating Score analysis, Mid and Small cap investments continue to out-rank their Large cap counterparts. Performance comparisons over various time frames validate the ranking. However, investors concerned about a more substantial correction or even potential recession will shift their allocation focus to large cap equities, which often produce dividends and defensive earnings growth. If this broad-based shift takes place, large cap investments will begin to generate alpha based primarily on the influx of capital.

With regards to our sector analysis, those sectors previously listed as “buy” recommended over the last several weeks have maintained their position at the top of our list. These sectors include Utilities (IDU), Telecom (IXP and IYZ), Basic Materials (IYM) and Real Estate (IYR). Weakness in the Financial (IYF and IYG) sectors can be partially attributed to the sub-prime mortgage market as well as uncertainty surrounding the interest rate environment.