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Sunday, April 29, 2007

Alpha and the Week Ahead

The AAS Market Model turned Bullish as of the close Friday, April 27, 2007. The Technical component of our model is the one which turned bullish and consequently shifted the overall model to bullish status. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1835. Of those reviewed, 331 are rated "Buy," 475 are rated "Sell" and 1029 "Neutral.” Because we view this market as overbought and unsustainable, we have chosen not to increase our model portfolio allocations to 100% long. Instead, we will maintain our current allocations of 75% long and 25% cash.

Despite the recent rally and recovery, it’s difficult not to be concerned that the market is even more primed for a sell-off than it was in late February. When you look at the dynamics of the markets over the last few weeks you’ll see a significant increase in oil prices, the continued decline in the dollar, corporate earnings growth tapering off, the economy slowing and now the entry into the summer trading session. Although the bulls are clearly running the show, the bears are lurking around the corner, and this is cause for concern, especially since the full effects of the housing correction may not have been realized yet.

Even though the market has experienced a nice recovery and upside acceleration, some of the data we monitor are showing an increase in fear, not optimism. We see momentum indicators such as the relative-strength index, stochastic, and TRIN as having moved into overbought territory, which is obviously a negative. Friday’s breadth numbers on both the NYSE and the NASDAQ were again weak. Our reading of Investors Sentiment remains Neutral. In additional, we are just weeks away from the beginning of the summer season, which traditionally is subject to accelerated volatility with the majority of professional investors either on the sidelines or working reduced weeks for the summer season. In previous years this scenario typically produced a recipe for caution.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bullish since April 27, 2007

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 – NASDAQ 100 Trust Shares (QQQQ 4/27/07)

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

Varian Semiconductor (VSEA 3/27/07)

Amazon.com, Inc. (AMZN 3/21/07)

MedImmune, Inc. (MEDI 4/18/07)

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

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

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

PACCAR Inc. (PCAR 3/9/07)

Reliance Steel & Aluminum (RS 1/23/07)

Sotheby’s (BID 2/1/07)

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

Top Short Stocks for Alpha

Chicago Mercantile Exchange Holdings (CME 3/15/07)

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

The Washington Post & Co. (WPO 3/8/07)

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

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

Review of Last Week’s Top Stocks for Alpha

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