Portable Alpha Daily

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Thursday, March 08, 2007

Good Morning

I’ve updated the PDF files for the five AAS Model Portfolios through the end of January 2007. Those files, which include performance analysis, holdings and allocations, can be seen by clicking on the portfolio link in the performance chart to the right.

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 for alpha is 1866. Of those reviewed, 97 are rated "Buy," 768 are rated "Sell" and 1001 "Neutral." Our model 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 50% long with 50% cash.

Tuesday’s momentum and impressive rebound was unsustainable yesterday as stocks lost ground in late trading. The majority of the session was spent in a narrow trading range, with traders and investors seeming shrugging off inflationary concerns and weak economic data. A much welcomed return to normalcy fell upon the global markets, evident in the pre-market futures, which translated to average volume on Wall Street.

Perhaps indicative of the conundrum facing investors, the question after Wednesday is whether the resilience of the broad-indexes in the face of “stubborn inflation” and weak economic data is a sign of stability or evidence that complacency is still rampant.

The Dow Jones industrial average fell 15.14, or 0.12 percent, to 12,192.45. The S&P 500 index fell 3.44, or 0.25 percent, to 1,391.97, the NASDAQ composite index declined 10.50, or 0.44 percent, to 2,374.64 and the Russell 2000 index fell 2.98, or 0.38 percent, to 775.90.

With much of the day spent range-bound, advancing issues ended roughly equal to declining issues on the NYSE, with volume around 1.72 billion shares. On the NASDAQ, about 2.07 billion shares were traded, above last year's daily average of 2.02 billion, with three stocks down for every two that were up.

The Federal Reserve Beige Book, released on Wednesday, indicated modest economic growth in February for most of the country, although four of the twelve districts reported slowing activity. This of course perpetuated the flight to quality that began last week as investors grow increasingly wary of a weakening economy. The benchmark 10-year Treasury note rose 10/32 in price for a yield of 4.495 percent, compared with 4.52 percent before the report and 4.54 percent late on Tuesday. Two-year notes, which are closely correlated to interest-rate expectations, rose 2/32 in price for a yield of 4.54 percent versus 4.58 percent late on Tuesday.

The Beige Book pushed the dollar lower on the belief that the Fed might have to cut interest rates more than once this year. The dollar fell to 115.84 yen while the euro closed at $1.32. A surprise drop in U.S. supplies pushed crude oil for April delivery higher by $1.13 to settle at $61.82 a barrel on the NYMEX. Precious metals ended lower with gold falling to $648.50 an ounce and silver down at $12.93 an ounce.

Uncertainty defined the global markets as well on Wednesday with most major indexes ending on a mixed note. Japan's Nikkei stock average closed down 0.47 percent and Hong Kong's Hang Seng Index fell 0.73 percent, but the Shanghai Composite Index rose 1.99 percent. In Europe, Britain's FTSE 100 closed up 0.29 percent, Germany's DAX index added 0.34 percent, and France's CAC-40 advanced 0.33 percent.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios have 50% cash allocations and mixed long – short allocations.

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 – No buy recommended sector investments.

Today’s Top “Buy” Recommended Stocks

Chicago Mercantile Exchange (CME 3/6/07)

Vulcan Materials Co. (VMC 10/31/06)

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

Brush Engineered Material (BW 3/6/07)

The Goodyear Tire & Rubber Co. (GT 8/24/06)

Deere & Co. (DE 1/11/07)

Ryerson Inc. (RYI 12/7/06)

Avnet Inc. (AVT 10/5/06)

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

MEMC Electronic Materials (WFR 1/8/07)

Today’s Top “Sell” Recommended Stocks

New Century Financial Corp. (NEW 6/13/06)

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

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

OM Group Inc. (OMG 3/5/07)

Fremont General Corp. (FMT 12/29/06)



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