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Wednesday, April 11, 2007

Good Morning

Nothing looked good today after the release of the home-sales forecast and energy reports around mid-day. On the housing front, the National Association of Realtors released a report which reflected their projection that existing home sales will fall 2.2% this year to 6.34 million, compared with its previous forecast of a 0.9% decline. The decline was laid at the feet of the troubles with sub-prime mortgage lending. Energy prices rose on the news reflecting a decline in gasoline stocks to their lowest level since October 2005. Crude stockpiles, while continuing to rise, still came in well below the previously estimated levels.

The Dow Jones Industrial Average retreated 89.23, or 0.7 percent, to 12,484.62, its first drop since March 28. The S&P 500 Index slid 9.52, or 0.7 percent, to 1438.87, the NASDAQ Composite Index decreased 18.30, or 0.7 percent, to 2459.31 and the Russell 2000 index fell 6.27, or 0.77 percent, to 808.24.

On the NYSE, trading volume reached around 1.57 billion shares with 1,053 stocks gaining and 2,229 declining. Sixty-five companies closed at new highs while forty-three closed at new lows. At the NASDAQ, 1,056 stocks gained and 1,952 declined with a volume of 1,993 billion shares. Forty-three stocks hit new highs while fifty reached new lows.

Bonds fell upon the release of the Fed minutes. The 5 – Year Treasury note fell 2/32 to a yield of 4.64%, the benchmark 10-year Treasury note fell 4/32, yielding 4.739% and the 30-year bond was down 3/32 with a yield of 4.91%. The dollar, fueled by comments from Fed Chairman Bernanke that China is unlikely to sell off U.S. assets, traded at 119.31 yen, up from 119.10 yen late Tuesday, while the Euro settled at $1.342, down from $1.3433 on Wednesday. Gold prices remained unchanged.

Most major international markets closed modestly down, with the exception of Japan's Nikkei stock average, which closed up 0.03 percent. Britain's FTSE 100 edged down 0.07 percent, Germany's DAX index fell 0.19 percent, and France's CAC-40 lost 0.25 percent.

Also fueling the weakness was news that the Federal Reserve believes that the economy may slow without curbing inflation, raising the specter of higher interest rates The Fed's news added to concern which began today after the International Monetary Fund stated that the U.S. economy will expand at its slowest pace in five years. The Fed news indicated that higher borrowing costs may ``prove necessary'' and it gave no hint of a rate cut.

A quick review of the Market Heat report today shows all 10 economic sectors closed lower for the day. Only the Airlines Industrial Group showed a positive return for the day with declining groups being lead by the Telecom and Financials Services sectors.

We remain modestly Bearish, in line with the posture of our long-term market model it adopted on December 8, 2006. We have adjusted our recommendations accordingly and are currently recommending an allocation in the range of 50% in cash or money market investments and 50% Long Funds or ETF’s. The Model Stock portfolio was increased to 73% equities and 27% cash this past week.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation – AAS Model Portfolios are allocated at 50% cash and 50% long.

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

Top Major Market ETF – iShares S&P Mid Cap 400 (IJH 3/20/07)

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

Brush Engineered Material (BW 3/6/07)

RTI International Metals (RTI 10/11/06)

U.S. Steel Co. (X 2/28/07)

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

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

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

Chemed Corp. (CHE 3/8/07)

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

Universal Corp. (UVV 11/29/06)

Constellation Energy Group (CEG 11/24/06)

Top Short Stocks for Alpha

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

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

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

Shuffle Master Inc. (SHFL 2/9/07)

Daktronics Inc. (DAKT 2/14/07)

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