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Wednesday, March 14, 2007

Good Morning

High volatility continues to define the trading environment, with the Dow dropping below 12,000 intraday only to end the session well above that psychologically significant level. Wednesday’s market volatility was driven by somewhat positive news on the U.S Current Account deficit, which reportedly narrowed for the last quarter. The improvement came in part due to lower costs for imported oil and the slowing of price increases associated with other imported goods. Reports released by both the Department of Labor and the Department of Commerce reflected the improvement in the Current Account Deficit.

The Dow Jones Industrial Average was up 57.44 points, or 0.48 percent, to end at 12,133.40. The S&P 500 Index finished up 9.22 points, or 0.67 percent, at 1,387.17 and the NASDAQ Composite Index ended up 21.17 points, or 0.90 percent, at 2,371.74. All three indices erased significant mid-session tumbles as investor’s regained confidence believing that mortgage delinquencies pose less of a risk to the financial system than previously thought. Elsewhere it was reported that all sixteen homebuilders in the S&P 500 advanced.

Trading was moderate to heavy, with about 2.08 billion shares changing hands on the NYSE with advancing stocks outnumbering declining ones by a ratio of about 20 to 13. On the tech-heavy NASDAQ, about 2.29 billion shares were traded with about sixteen advancers for every 13 decliners.

The Bearish posture of our Major Market Model has deepened as the result of this weeks weak market performance and we maintain our Bearish advisory which as been in place since December 8th, 2006. We’ve made the decision to reduce both our long and short exposure further from 50% to 25%, thus increasing our cash levels to 75% in all five model portfolios. We feel that maintaining a significant allocation in money market investment is the best strategy over the short-term.

You will note that we have removed New Century Financial Corp. (NEW) from Today’s Top “Sell” Recommended Stocks list after a long run. The removal came after the NYSE suspended trading in the shares of NEW on Tuesday due to the worsening financial condition of the company along with a pull back by lenders and rumors of defaulted debt obligations.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios have 75% 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 – Broadband HOLDRs (BDH 3/14/07)

Today’s Top “Buy” Recommended Stocks

Chicago Mercantile Exchange (CME 3/6/07)

RTI International Metals (RTI 10/11/06)

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

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

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

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

Ryerson Inc. (RYI 12/7/06)

Chemed Corp. (CHE 3/8/07)

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

Big Lots Inc. (BIG 5/25/06)

Today’s Top “Sell” Recommended Stocks

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

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

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

Daktronics Inc. (DAKT 2/14/07)

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

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