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Sunday, April 22, 2007

Alpha and the Week Ahead

Next week, Wall Street's attention will again be driven by earnings. Strong first-quarter earnings reports helped drive this week's gains and may provide a similar boost next week, in large part because consensus expectations for the quarter may have been too low. Bloomberg reported that about 66 percent of companies in the S&P 500 have reported first-quarter results topping analysts' estimates as compared to about 61 percent of S&P 500 members beating estimates in the fourth quarter of 2006.

But stocks don't move in one direction forever. Once the earnings season ends the weakening economic data pointing to a potentially slowing economy will undoubtedly take precedent with investors.

We continue to remain modestly Bearish, in line with the posture of our long-term market model adopted on December 8, 2006. However, we have adjusted our model portfolio recommendations and are currently recommending an allocation in the range of 25% in cash or money market investments and 75% Long Funds or ETF’s. The Model Stock portfolio was increased to 73% equities and 27% cash this past week.

In my March 11, 2007 post, I pointed you toward alpha generating opportunities in Mid Caps, Utilities and Natural Resource categories among a few others. There still exist, in my opinion, attractive opportunities within these areas especially with regard to the iShares Morningstar Mid Growth (JKH), iShares Morningstar Mid Value (JKI) or the iShares Morningstar Mid Core (JKG).

Within the Oil and Gas universe these ten selections lead the pack of companies with attractive AAS Rating Scores and current Buy recommendations:

Tidewater Inc (TDW)

Schlumberger Ltd. (SLB)

Valero Energy Corp (VLO)

Chevron Texaco Corp (CVX)

Baker Hughes Inc (BHI)

Suncor Energy Inc (SU)

Exxon Mobil Corp (XOM)

Helmerich & Payne Inc. (HP)

Devon Energy Corp (DVN)

Encana Corporation (ECA)

Our review of the Utilities grouping produced the following ten companies which currently are leading based upon AAS Rating Scores and current Buy recommendations:

Entergy Corp (ETR)

Public Svc Enterprise Group (PEG)

Equitable Resources Inc (EQT)

American Electric Power Inc (AEP)

Excelon Corp (EXC)

Questar Corp (STR)

FirstEnergy Corp (FE)

MDU Resources Group Inc (MDU)

Southwestern Energy Co (SWN)

Interstate Energy Corp (LNT).

Mutual Funds aligned with this strategy would include:

ProFund Ultra Sector Oil & Gas (ENPIX)

ProFund Ultra Sector Utilities (UTPIX)

Rydex Energy Services (RYVIX)

Fidelity Select Energy Service (FSESX)

Rydex Utilities (RYUIX)

Fidelity Select Utilities Growth (FSUTX)

Fidelity Select Energy (FSENX)

Fidelity Select Natural Resources (FNARX)

Rydex Energy (RYEIX)

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are allocated at 75% cash and 25% long.

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

Top Major Market ETF – iShares NYSE Composite (NYC)

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

Brush Engineered Material (BW 3/6/07)

RTI International Metals (RTI 10/11/06)

Chaparral Steel Co. (CHAP 11/1/06)

Polo Ralph Lauren Corp. (RL 8/28/06)

The Goodyear Tire & Rubber Co. (GT 8/23/06)

Cleveland-Cliffs Inc. (CLF 11/17/06)

Entergy Corp. (ETR 11/2/06)

Intuitive Surgical Inc. (ISRG 2/2/07)

Constellation Energy Group (CEG 11/24/06)

Universal Corp. (UVV 11/29/06)

Top Short Stocks for Alpha

USNA Health Sciences Inc. (USNA 3/15/07)

Stamps.com Inc. (STMP 3/2/07)

Altria Group Inc. (MO 2/1/07)

The Corporate Executive Board Co. (EXBD 12/1/06)

Rogers Corp. (ROG 12/6/06)

Review of Last Week’s Top Stocks for Alpha

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