Portable Alpha Daily

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Sunday, March 11, 2007

Good Morning

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 1862. Of those reviewed, 258 are rated "Buy," 767 are rated "Sell" and 837 "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.

Although our analytic has yet to upgrade any Major Market, Style-Box or Sector investments, we continue to see alpha generation in the following sectors: Transport, Utilities, Basic Materials, Telecom, and Natural Resource. In terms of style-box categories, the Mid Cap groups are showing the most strength.

Some Exchange Traded funds worth further examination include PowerShares Dynamic Semiconductors (PIS) and Semiconductor HOLDRs (SMH) along with iShares Dow Jones Basic Materials (IYM), Vanguard Materials (VAW)and Materials SPIDR (XLB). Attractive plays in the Utilities sector would include Utilities HOLDRs (UTH), iShares Dow Jones U.S. Utilities (IDU) and Vanguard Utilities (VPU).

In line with the above mentioned sectors, funds generating alpha from Fidelity include Fidelity Select Utilities Growth (FSUTX), Fidelity Select Telecommunications (FSTCX), Fidelity Select Natural Resources (FNARX) and Fidelity Select Electronics (FSELX).

Sector plays from ProFunds would include both the Ultra Sector Wireless (WCPIX) and the Rising U.S. Dollar fund (RDPIX). Those seeking to work into the bearishness of the market would find the Ultra Short OTC (USPIX), Ultra Short Dow (UWPIX) and Ultra Bear (URPIX) funds to their likening. Similar selections from within the Rydex family include Inverse Dynamic OTC (RYVNX), Inverse Dynamic Dow (RYCWX), Inverse S&P 500 (RYTPX)and Inverse OTC (RYAIX).

What started as a promising early morning rally fizzled out after lunch on Friday, as investors and traders alike closed their positions over the weekend. Moving the market was data indicating the continuation of moderate economic growth. Among the data points released was a decrease in the U.S. trade deficit in January to $59.1 billion, the addition of 97,000 jobs to non-farm payrolls in February and the easing in the unemployment rate from 4.6 to 4.5 percent. But concerns over the sub-prime mortgage market curbed the optimism from the healthy economic reports.

The Dow Jones Industrial Average rose 15.62 points, or 0.13 percent, to 12,276.32. The S&P 500 index edged up 0.96 point, or 0.07 percent, to 1,402.85 and the NASDAQ Composite index slipped 0.18 point, or 0.01 percent, to 2,387.55. All three U.S. stock indexes rose over the past week.

U.S. Treasury bond and gold prices fell after the jobs data while the dollar rallied. Benchmark 10-year notes traded down 18/32 in price for a yield of 4.60 percent. Spot gold rose as high as $658.00 an ounce before falling to $649.90/650.65 and gold for April delivery on the COMEX settled down $3.50 at $652.00 an ounce. The Dollar erased more than half of the losses incurred from the carry trade sell-off, with the greenback up 1.3% this week to 118.37 Yen. The Euro traded lower by 0.1% to $1.3111. Finally, April crude settled $1.59 lower, or 2.6 percent, at $60.05 a barrel.

The FTSE 100 ended up 17.5 points, or 0.28 percent, at 6,245.2 while the FTSEurofirst 300 Index closed up 0.2 percent at 1,489.5 points. The CAC 40 gained 0.3 percent while the DAX ended up 0.1 percent. In Tokyo, the Nikkei 225 Index gained 0.43 percent to close at 17,164.04.

The week ahead is chock full of economic data that will give investors further insight into the health of the economy and direction of interest rates. Tuesday will see the release of February retail sales and Thursday will see the Producer Price Index. But most of the data comes at the end of the week including the Consumer Price Index, March Consumer Sentiment, and the Federal Reserve’s February report on industrial production and capacity utilization. Finally, Friday marks the quarterly expiration and settlement of four different types of March futures and options contracts -- a convergence known as quadruple witching.

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)

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

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

Brush Engineered Material (BW 3/6/07)

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

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

Chemed Corp. (CHE 3/8/07)

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

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

Belden CDT Inc. (BDC 1/19/07)

Today’s Top “Sell” Recommended Stocks

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

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

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

Plexus Corp. (PLXS 1/5/07)

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



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