Portable Alpha Daily

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Wednesday, April 18, 2007

Mid-Week Alpha

Much noise was made this afternoon about the Dow Jones Industrial Average closing above 12,800 for the first time, riding a modest wave of financial sector bullishness. We strongly caution against excessive exuberance since only 11 of the 30 components finished higher for the session.

More importantly, the technicals for the session did not support the enthusiasm. More stocks declined than advanced on both the NYSE and the NASDAQ. On the NYSE, 1.28 issues declined for every one that advanced; on the NASDAQ 1.46 issues declined for every one that advanced. This less-than-stellar Advance / Decline relationship was further supported by declining volume outnumbering advancing volume on both exchanges.

According to Bloomberg, about 68 percent of the S&P 500 companies that have already reported first-quarter results have beaten analysts' estimates. However, we must caution that it is still early in the reporting season and those companies who have done well typically like to release the news quickly while those not doing so well will hold back as long as possible.

An early review of the ten major economic sectors reveals that only the Financial Sector turned in strong performance for today’s session. The Industrial component followed with what at best would be called an anemic day. The remaining eight sectors were down for the session - not a broad rally at all.

We continue to remain modestly Bearish, in line with the posture our long-term market model adopted on December 8, 2006. Although we’re cognizant of the “recovery” from late-February’s sell-off, we’re hesitant to fully adopt a “bullish” stature. Not only is our model raising concerns from a technical standpoint, but we’re again seeing increased levels of complacency in the market vis-à-vis Investor Sentiment surveys. In addition, we question what factors might propel the markets higher at this juncture in both the market cycle and the calendar year. Finally, even though our model portfolios are positioned defensively, we’ve still managed to capture roughly 50% of the recovery since February 27th.

The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1842. Of those reviewed, 314 are rated "Buy," 354 are rated "Sell" and 1174 "Neutral.” 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. Some might question why the model fund portfolios are not allocated in line with the model stock portfolio. This is because a large percentage of the holdings in the four model portfolios are “neutral” rated. If our analytic rotates in some “buy” recommended funds, and if our market model strengthens to bullish status, we will likely increase the allocation.

Those seeking to add alpha following our weekend comments while enjoying diversification might look at the following mutual funds or ETF’s: ProFund Ultra Sector Precious Metals (PMPIX), Rydex Energy Services (RYVIX), PowerShares Dynamic Oil & Gas (PXJ), ProFund Ultra Sector Oil & Gas (ENPIX), Oil Service HOLDRS (OIH), Rydex Energy (RYEIX), iShares GS Natural Resource (IGE), iShares S&P Global Energy (IXC), Vanguard Energy (VDE), iShares DJ U.S. Energy (IYE), ProFund UltraSector Wireless (WCPIX), Rydex Dynamic Weakening Dollar (RYWBX), Fidelity Select Energy (FSENX), Fidelity Select Energy Service (FSESX), Fidelity Select Natural Resources (FNARX) and Currency Shares Euro Trust (FXE).

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 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)

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

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

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

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

Entergy Corp. (ETR 11/2/06)

Universal Corp. (UVV 11/29/06)

Constellation Energy Group (CEG 11/24/06)

Chemed Corp. (CHE 3/8/07)

Top Short Stocks for Alpha

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

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

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

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

Georgia Gulf Corp. (GGC 2/14/07)


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