Mid-Week Alpha

As we mentioned in Monday’s commentary, the continuation of market volatility this week has been driven by various economic reports as well as concerns surrounding the hedge fund collapse at Bear Sterns. With additional economic reports pending, not to mention the Fed’s interest rate meeting on Thursday, we maintain our expectations that the indexes will close higher for the week. In addition to the economic news, we might see portfolio managers bid the markets higher in a last-minute effort to window dress their second quarter portfolio returns.

U.S. stocks rallied on Wednesday, pushed higher by a rise in oil prices which served to improve earnings prospects for energy companies. A weaker-than-expected durable goods report showed that orders last month dropped by 2.8%. This helped to lower bond yields and allow stocks to rebound from early session losses. It also re-opened the door for a potential rate cut later in the year. But worries over the contagion of the sub-prime mortgage market, specifically into highly levered investment vehicles (read other hedge funds), kept a lid on overall market gains.

All of the sectors analyzed for alpha by AAS had a strong showing yesterday, led by Oil & Gas and Utilities. This is a marked reversal from the first two days of the week which showed strong technical deterioration. From a technical perspective the markets are approaching an oversold status; market breadth has turned mildly negative but not yet as weak as this past March and no where close to the negative state of affairs that were in place during the Spring sell-off of 2006.

We believe that the market will maintain it’s level of volatility throughout the week. The first week of July will likely be flat, with many investors and traders working a half week due to the July 4^th holiday. Once second quarter earnings season begins, we’re expecting a continuation of the earnings trends begun in the first quarter of this year. If earnings remain in line with analyst expectations, the equity markets will likely continue their upward trend. Investors seeking to commit capital ahead of earnings season might revisit those companies featured in our last commentary which included:

Energy and Natural Resources: National Oil well Varco Inc (NOV), Transocean Sedco Forex Inc (RIG), Schlumberger Ltd.(SLB), Noble Drilling Corp (NE), Atwood Oceanics (ATW), Fidelity Select Energy Service (FSESX), Oil Service HOLDRS (OIH), iShares GS Natural Resource (IGE), ProFund Ultra Sector Oil & Gas (ENPIX) and Rydex Energy (RYEIX).

Basic Materials: Martin Marietta Materials (MLM), Cleveland Cliffs Inc. (CLF), USX-U S Steel (X), Chaporral Steel (CHAP), Freeport-McMoran Copper & Gold (FCX), Fidelity Select Materials (FSDPX), Vanguard Materials (VAW), ProFund Ultra Sector Basic Materials (BMPIX), Rydex Basic Materials (RYBIX), iShares DJ U.S. Basic Materials (IYM) and Fidelity Select Chemicals (FSCHX).

Technology: MIVA Inc (MIVA), Cree Research Inc (CREE), Novatel Wireless Inc. (NVTL), Blue Coat Sys Inc. (BCSI), NVIDIA Corp (NVDA), Fidelity Select Technology (FSPTX), Fidelity Select Computers (FDCPX), Internet Architecture HOLDRS (IAH), ProFund Ultra Sector Technology (TEPIX), ProFund Ultra Sector Semiconductors (SMPIX), Rydex Internet (RYIIX), Rydex Technology (RYTIX) and Rydex Electronics (RYSIX).

Additional information on our firm may be found by clicking the following link, Alpha Advisor Service, LLC. Information concerning the availability of our newsletter is available by clicking AAS Information. Questions may be submitted to info@Alpha-Advisor.com.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

Asset Allocation Recommendation – AAS Model Portfolios are allocated between 50-75% cash and 25-50% long.

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

Top AAS Rated Major Market – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

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

Google, Inc. (GOOG 5/29/07)

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

National-Oilwell Varco Inc. (NOV 3/7/07)

Apple Inc. (AAPL 4/24/07)

Cummins Inc. (CMI 1/31/07)

ITT Educational Services Inc. (ESI 2/8/07)

Nash-Finch Co. (NAFC 2/21/07)

Novatel Wireless, Inc. (NVTL 1/4/07)

CommScope, Inc. (CTV 1/29/07)

Top AAS Rated Short Stocks for Alpha

RTI International Metals (RTI 5/1/07)

Brush Engineered Material (BW 5/1/07)

Hovnanian Enterprises Inc. (HOV 12/21/06)

Rogers Corp. (ROG 12/6/06)

Volt Information Sciences Inc. (VOL 3/26/07)

Alpha and the Week Ahead

The coming week will likely experience a continuation of the recent volatility - but with a heavy dose of economic reports scheduled for release, we’re expecting to see the indexes close marginally higher for the week. Most investors will be waiting for the outcome of the Federal Reserve's interest rate meeting on Thursday, as well as personal income and spending reports, home sales and manufacturing activity throughout the week. The direction of bond yields, which have been on the rise lately, will be a key factor with the yield curve normalizing this past week from a flat slope over the past several months.

With oil prices closing above $68 a barrel and renewed apprehension surrounding the sub-prime market calamity, it’s not surprising that the markets sold off on Friday. The devastating collapse of two cross-collateralized Bear Sterns hedge funds resurrects an issue many investors had put on the back burner: whether the market has experienced the full extent of the sub-prime mortgage debacle. Furthermore, strikes on Nigerian oil fields coupled with the beginning of “driving season” are pushing oil prices higher, which the American consumer isn’t fond of.

At quarters end, professional investors begin to worry about last-minute jolts to their portfolios. And, as always, companies whose upcoming results won’t meet analyst expectations begin to confess their shortcomings. Even more telling in our opinion, is the large pool of corporate bonds which are awaiting issuance over the next several weeks. Concerns are already brewing over how easily the market can swallow the awaiting pool. This potentially means that Private-equity firms, which have shored up the much of market this year, may struggle in their future attempts to raise funding if any of the pending bond sales go poorly.

Hopefully you’ve noticed the returns of the AAS Model Stock Portfolio - up 11.24% year-to-date as compared to the benchmark S&P 500 Index which is up 5.94% for the same period. We’re quite happy with the results so far, especially considering the portfolio has been only 50-75% allocated for much of the year. We’ve also developed a long-short equity portfolio listed below. This strategy is up 6.62% since the introduction on May 29^th as compared to the benchmark S&P 500 Index which is down -1.02%. We’re exceedingly excited by this approach not only because of its strong performance so far, but in its ease of use for AAS subscribers.

In light of last week’s declines, the only Major Market still rated an “AAS Buy” is the NASDAQ 100 (QQQQ). However, ten of the twenty-one sectors analyzed for alpha are still rated an “AAS Buy.” There was no change in the leadership over the past week with iShares Dow Jones U.S. Energy (IYE) maintaining its dominance followed by iShares Goldman Sachs Natural Resource (IGE) and iShares S&P Global Energy (IYM). Rounding out the top five are iShares Dow Jones Basic Materials (IYM) and Internet Architecture HOLDRS (IAH). The only sector analyzed that turned in a positive week was the iShares GS Semiconductor (IGW) which gained 0.20% for the week. The remaining members, while down for the week, all did better than the broad markets. Alpha-producing securities from the top sectors include:

Energy and Natural Resources: National Oil well Varco Inc (NOV), Transocean Sedco Forex Inc (RIG), Schlumberger Ltd.(SLB), Noble Drilling Corp (NE), Atwood Oceanics (ATW), Fidelity Select Energy Service (FSESX), Oil Service HOLDRS (OIH), iShares GS Natural Resource (IGE), ProFund Ultra Sector Oil & Gas (ENPIX) and Rydex Energy (RYEIX).

Basic Materials: Martin Marietta Materials (MLM), Cleveland Cliffs Inc. (CLF), USX-U S Steel (X), Chaporral Steel (CHAP), Freeport-McMoran Copper & Gold (FCX), Fidelity Select Materials (FSDPX), Vanguard Materials (VAW), ProFund Ultra Sector Basic Materials (BMPIX), Rydex Basic Materials (RYBIX), iShares DJ U.S. Basic Materials (IYM) and Fidelity Select Chemicals (FSCHX).

Technology: MIVA Inc (MIVA), Cree Research Inc (CREE), Novatel Wireless Inc. (NVTL), Blue Coat Sys Inc. (BCSI), NVIDIA Corp (NVDA), Fidelity Select Technology (FSPTX), Fidelity Select Computers (FDCPX), Internet Architecture HOLDRS (IAH), ProFund Ultra Sector Technology (TEPIX), ProFund Ultra Sector Semiconductors (SMPIX), Rydex Internet (RYIIX), Rydex Technology (RYTIX) and Rydex Electronics (RYSIX).

We continue to believe that it is best to remain conservatively allocated in line with the recommendation of the AAS Market Model which turned Bearish as of the close Tuesday, May 15, 2007. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1821. Of those reviewed, 357 are rated "Buy," 831 are rated "Sell" and 633 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios to 50% invested and 50% in cash. Until the model turns bullish, we will likely maintain at least 25% of the portfolios in cash.

Additional information on our firm may be found by clicking the following link, Alpha Advisor Service, LLC. Information concerning the availability of our newsletter is available by clicking AAS Information. Questions may be submitted to info@Alpha-Advisor.com.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

Asset Allocation Recommendation – 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 AAS Rated Major Market – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 3/20/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

Martin Marietta Materials (MLM 11/6/06)

Crocs, Inc. (CROX 5/9/07)

Google, Inc. (GOOG 5/29/07)

National-Oilwell Varco Inc. (NOV 3/7/07)

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

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

Apple Inc. (AAPL 4/24/07)

Cummins Inc. (CMI 1/31/07)

Manitowoc Company Inc. (MTW 3/16/07)

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

Top AAS Rated Short Stocks for Alpha

Brush Engineered Material (BW 5/1/07)

RTI International Metals (RTI 5/1/07)

NBTY Inc. (NTY 6/7/07)

Simon Property Group Inc. (SPG 5/1/07)

Hovnanian Enterprises Inc. (HOV 12/21/06)

Review of Last Week’s Top AAS Rated Stocks
Highlighted securities are addition’s from the prior week’s portfolio

Mid-Week Alpha

The U. S. Markets eked out small gains early in the week only to give them back and more yesterday as fear and uncertainty moved the markets into negative territory for the week. Investors just couldn't shake their bond and energy afflictions Wednesday, and the major indexes each ended down more than 1%.

Stocks were dragged lower as the price of crude oil fell from a nine-month high. Further exacerbating the decline is the concern that rising rates will slow down the buyout boom that has propelled the market this year, as acquirers will have to fund acquisitions with higher-cost capital. Additionally, investors fear that rising rates will further damage the already battered housing market, crimp consumer spending and slow corporate borrowing, all of which have fueled the rise in stocks prices.

The news of the pending demise of the two leveraged hedge funds carrying the Bear Sterns name which focus on collateralized mortgage backed securities added to the already choppy session. Questions surrounding the amount of leverage used in these investment partnerships, which focus to a large extent on the use of derivatives to accomplish the partnership goals, loom large for the markets.

On a sector basis, all were down for the session lead by Energy, specifically oil and natural gas stocks. Only the Consumer Service and Consumer Goods sectors showed any signs of optimism today and that came from the Automobiles and Airlines categories.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

Asset Allocation Recommendation – 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 AAS Rated Major Market – Fidelity Nasdaq Composite Index (ONEQ 6/1/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

Top AAS Rated Sector for Alpha – iShares Goldman Sachs Natural Resource (IGE 3/19/07)

Top AAS Rated Long Stocks for Alpha

Crocs, Inc. (CROX 5/9/07)

Martin Marietta Materials (MLM 11/6/06)

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

Cummins Inc. (CMI 1/31/07)

Apple Inc. (AAPL 4/24/07)

National-Oilwell Varco Inc. (NOV 3/7/07)

LandAmerica Financial Group Inc. (LFG 2/8/07)

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

Nash-Finch Co. (NAFC 2/21/07)

Google, Inc. (GOOG 5/29/07)

Top AAS Rated Short Stocks for Alpha

Brush Engineered Material (BW 5/1/07)

NBTY Inc. (NTY 6/7/07)

Simon Property Group Inc. (SPG 5/1/07)

RTI International Metals (RTI 5/1/07)

Volt Information Sciences Inc. (VOL 3/26/07)

Alpha and the Week Ahead

In this week’s issue of Barron’s, Michael Santoli set the tone for his weekly article with, “It’s futile to argue with the market, fruitful to inquire politely of it and listen.” We might add that the old clichés of “don’t fight the Fed” and “don’t fight the tape” are equally as meaningful at this time. This is the period of each calendar quarter when the investor must be every vigilant and able to separate the wheat from the shaft. With little or no corporate activity occurring, the markets are moved more than any other time by day-to-day economic and geopolitical news. With that brings a palatable increase in volatility which we’ve witnessed over the last few weeks.

The recent market rally may well run into next week and beyond, but be aware of the summer doldrums. As in years past we anticipate that the markets will move laterally between now and mid-July, at which point fundamental equity valuations will likely take the reins and push the market higher.

The stock market has been on a roller coaster ride during the past couple of weeks as investors struggle to digest the economic data and predict what the Fed will do with regard to interest rates. After the release of the CPI numbers on Friday the market finally settled down a bit. The divergence between the anticipated and actual CPI numbers may have convinced most investors that the Fed is going to stand pat on its interest rates throughout the year.

All three major indexes are now near the levels they last reached earlier this month. But as we mentioned earlier this week, there are technical dislocations between the indexes and their technical indicators. In other words, this week’s rally does not have the same technical strength behind it as was behind the rally two weeks ago. Sentiment has become more positive, which is a contrarian indicator for stocks, and momentum has deteriorated. Volatility continues to trend higher. The implications of the technical dislocation are incredibly hard to predict since no matter what the models say, the market continues to press higher on the abundance of liquidity.

The AAS Market Model turned Bearish as of the close Tuesday, May 15, 2007. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1823. Of those reviewed, 579 are rated "Buy," 612 are rated "Sell" and 632 "Neutral”. While we remain conservatively bearish, we have raised our recommended allocation in the Model Fund and Stock Portfolios to 50% invested and 50% in cash. Until the model turns bullish, we will likely maintain at least 25% of the portfolios in cash.

In our commentary last weekend we highlighted sixty-five securities and suggested that they presented opportunities to generate alpha. Last week the benchmark S&P 500 Index gained 1.67%. The range of change (ROC) for those suggested securities was from 11.13% to 0.06%. Fifty-seven (88%) of the suggested securities had positive gains for the week, with forty-one (63%) gaining more than the S&P 500. There were eight securities that had a negative ROC for the week.

Much has changed with regard to our top-down alpha analysis. Currently thirteen of the fourteen Major Markets are rated an AAS Buy, up from two last weekend. Seven of the nine Style Boxes are rated an AAS Buy up from 3 at the end of the prior week. The Style Box of choice remains Mid Cap with a focus on Growth. Mid Cap Growth is up 16.45% YTD while the S&P 500 is up 8.8%.

Thirteen of the twenty-six sectors we follow are rated AAS Buy with consistent leadership occurring over the past several weeks. As expected, Energy and Natural Resources are the dominant sectors, followed by Basic Materials and Telecommunications. Listed below are the top rated securities within these sectors. While many of these have been in our commentaries for the paste several weeks, the fact remains that winners continue to win.

Energy and Natural Resources: Bristow Group Inc (BRS), National Oilwell Varco Inc (NOV), USX Marathon Group (MRO), Hornbeck Offshore Svcs Inc. (HOS) and Frontier Oil Corporation (FTO). ETF’s and funds include Power Shares Dynamic Oil & Gas (PXJ), Energy Select Sector SPDR (XLE), Fidelity Select Energy Service (FSESX), ProFund Ultra Sector Oil & Gas (ENPIX) and Rydex Energy Services (RYVIX).

Basic Materials: Material Sciences Corp (MSC), Lyondell Chemical Co (LYO), Castle A M & Co (CAS), Lubrizol Corp (LZ) and OM Group Inc (OMG). ETF’s and funds include ProFund Ultra Sector Basic Materials (BMPIX) and Rydex Basic Materials (RYBIX).

Telecommunications: Verizon (VZ), Century Telephone Enterprises (CTL), Cincinnati Bell Inc (CBB), Sprint Nextel (S) and Telephone & Data Sys (TDS). ETF’s and funds include Fidelity Select Telecommunications (FSTCX), Rydex Telecommunications (RYMIX).

Additional information on our firm may be found by clicking the following link, Alpha Advisor Service, LLC. Information concerning the availability of our newsletter is available by clicking AAS Information. Questions may be submitted to info@Alpha-Advisor.com.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

Asset Allocation Recommendation – 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 AAS Rated Major Market – iShares NYSE Composite (NYC 5/3/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 3/20/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

Crocs, Inc. (CROX 5/9/07)

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

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

National-Oilwell Varco Inc. (NOV 3/7/07)

Apple Inc. (AAPL 4/24/07)

Marathon Oil Corp. (MRO 3/14/07)

LandAmerica Financial Group Inc. (LFG 2/8/07)

ITT Educational Service Inc. (ESI 2/8/07)

Nash-Finch Co. (NAFC 2/21/07)

Cummins Inc. (CMI 1/31/07)

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

Volt Information Sciences Inc. (VOL 3/26/07)

NBTY Inc. (NTY 6/7/07)

Simon Property Group Inc. (SPG 5/1/07)

Public Storage (PSA 2/28/07)

Review of Last Week’s Top AAS Rated Stocks

(Precursor to 130/30 Portfolio in Development)
highlighted securities are additions from last week's portfolio

Mid-Week Alpha

Reversing Tuesday’s losses in dramatic fashion, the bulls led the markets higher yesterday and pushed the Dow to its daily biggest gain in almost 11 months. A flurry of reports indicated full steam ahead for the U.S. economy, led by a consumer seemingly indifferent to price pressures. As if that weren’t enough to propel the indexes higher, interest rates reversed course, closing below the psychologically significant 5.25% level.

With Friday being an options expiration day, we’re expecting more volatility in the markets for the rest of the week. In fact, we’re expecting elevated volatility on a global scale over the next few months for several reasons. As mentioned before, this market is not being fueled by fundamentals. Instead, the driving force is the abundance of liquidity (easy credit) which is fostering unprecedented levels of M&A and LBO.

With over $82 billion in deals for the month of May alone, PE firms are jumping on just about any opportunity they can, knowing that within months the liquidity will begin to dry up and such deals will be more difficult to close. Our concern and what we feel our subscribers should be concerned about, is what will happen to the market when it’s no longer propped up by the abundance of liquidity.

As such, we remain conservatively bearish at this time. We have concerns that the levels of risk manifest in the market are being ignored. We’re cognizant that liquidity will, in all likelihood, remain abundant throughout the summer, which will potentially foster more gains. Assuming nothing substantial occurs on the geopolitical landscape, or we don’t have another devastating hurricane season, it’s reasonable to expect a modest up-trend for the summer albeit with elevated volatility. We’re going to try to capture as much of that up-trend as possible while being positioned conservatively to minimize volatility.

The AAS Market Model turned Bearish as of the close Tuesday, May 15, 2007. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1827. Of those reviewed, 448 are rated "Buy," 838 are rated "Sell" and 541 "Neutral”. We have lowered our recommended allocation in the Model Fund and Stock Portfolios to 25% invested and 75% in cash.

There currently exists a dislocation in the technical condition of the markets; we are now seeing a negative bias with regard to breadth and short-term market momentum. However, analysis of trading volume shows it has resumed its positive stance. This condition typically occurs shortly after a market bottom and a resurgence of the up-ward trend.

There are several interesting adjustments in the model fund portfolio’s, particularly with regard to the surfacing of the ProFunds Short Real Estate Fund (SRPIX) and the Rydex Dynamic Strengthening Dollar Fund (RYSBX). This is a purely-momentum based selection in response to last week’s weak market activity. Also noteworthy is the continuing reduction in the Model Stock Portfolio allocation due to loss prevention rules. We will continue to see sector rotation as the markets trade on M&A news and sentiment for the next few weeks. Once the second quarter earnings are released in July, we expect fundamentals to being to take over.

Additional information on our firm may be found by clicking the following link, Alpha Advisor Service, LLC. Information concerning the availability of our newsletter is available by clicking AAS Information. Questions may be submitted to info@Alpha-Advisor.com.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

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

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

Top AAS Rated Major Market – iShares NYSE Composite (NYC 5/3/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

Crocs, Inc. (CROX 5/9/07)

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

ITT Educational Service Inc. (ESI 2/8/07)

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

LandAmerica Financial Group Inc. (LFG 2/8/07)

National-Oilwell Varco Inc. (NOV 3/7/07)

Cummins Inc. (CMI 1/31/07)

Apple Inc. (AAPL 4/24/07)

Nash-Finch Co. (NAFC 2/21/07)

Marathon Oil Corp. (MRO 3/14/07)

Top AAS Rated Short Stocks for Alpha

Volt Information Sciences Inc. (VOL 3/26/07)

Rogers Corp. (ROG 12/6/06)

Simon Property Group Inc. (SPG 5/1/07)

Public Storage (PSA 2/28/07)

RTI International Metals (RTI 5/1/07)

Alpha and the Week Ahead

The three day sell-off of last week is the result of a rapid rise in interest rates which accelerated as the 10-year Treasury bond touched 5.25%. Generally rising interest rates are a negative for the stock market, which is attested to by the recent deterioration in the technical condition of the market.

In our opinion, the most negative aspect of the sell-off was its broad base with the largest declines being experienced by the broader market indexes rather than the DJIA itself. This deterioration is reflected in the sharp decline in the number of AAS Buy Rated Markets, Sectors and Style boxes. Noteworthy, however, is that while the absolute number of AAS Buy Rated securities dropped to a low this past week, it is no where near the lows of March 2007 or October 2005.

Our AAS Sentiment analysis remains bullish, plus the independent sources which we follow continue to report that there remains a significant amount or liquidity on the side lines. This typically indicates that investors have yet to become fully invested in the stock market which historically happens just before a major top is formed.

Our view of the market momentum is that it has deteriorated significantly this week as the advance/decline lines for both the NYSE and the NASDAQ suffered significant declines. The decline in the various utilities indices is worrisome as they may be breaking a four-year bull market. All of the other technical indicators which we follow show no real improvement in the overall short-term technical condition of the three major indexes despite Friday’s rally. We continue to advise our subscribers to remain cautious.

The market internals were positive Friday; quite the opposite for the prior three days. Although this rebound did not make up all the weakness of prior days, it may encourage the Bulls to again buy into the hopes of a further bounce up.

The AAS Market Model turned Bearish as of the close Tuesday, May 15, 2007. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1828. Of those reviewed, 426 are rated "Buy," 793 are rated "Sell" and 609 "Neutral”. We have lowered our recommended allocation in the Model Fund and Stock Portfolios to 25% invested and 75% in cash.

Looking into next week, the equity markets should be led by the bond markets. With few economic reports due, the May PPI and CPI numbers scheduled to be released on Thursday will likely give investors an indication of the impact rising rates will have for the stock market. Expectations are for a rise in both core PPI and core CPI numbers. Should these releases exceed expectations, they would be Bearish for stocks, while low numbers would have a Bullish implication.

Our Top-Down approach shows only the NASDAQ 100 as an AAS Buy Rated major market at this time. Those interested might look at either the NASDAQ 100 Trust Shares (QQQQ) or Fidelity NASDAQ Composite (ONEQ) as investable alternatives. Further analysis points out that the Mid Cap Core and Growth styles are currently rated an AAS Buy along with the Small Cap Core style. Alternatives here can be found with iShares Morningstar Mid Core (JKG), iShares Morningstar Small Growth (JKK) and iShares Morningstar Small Core (JKJ).

Moving on we look at the various sectors which are currently rated AAS Buy. The leader this week is Energy both with domestically and globally. Here we see opportunities with: Bristow Group Inc (BRS), Hornbeck Offshore Svcs Inc. (HOS), USX Marathon Group (MRO), National Oilwell Varco Inc (NOV) and Forest Oil Corp (FST). ETF’s and Funds that work within the Energy Sector would include: Energy Select Sector SPDR (XLE), iShares DJ U.S. Energy (IYE), iShares S&P Global Energy (IXC), Fidelity Select Energy Service (FSESX), Fidelity Select Energy (FSENX), ProFund Ultra Sector Oil & Gas (ENPIX) or Rydex Energy (RYEIX).

The next AAS Buy rated sector is Global Telecom. Opportunities here may be found with: Cincinnati Bell Inc. (CBB), Sprint Nextel (S), Qwest Communication International (Q), Verizon (VZ) and AllTel Corp (AT). ETF’s and Funds that work within the Telecom. Sectors are: iShares S&P Global Telecom (IXP), Vanguard Telecom Services (VOX), iShares S&P Global Telecom. (IXP), ProFund Ultra Sector Telecom. (TCPIX) or Rydex Telecom. (RYMIX).

Basic Materials is the third strongest AAS Buy Rated sector. Here we list the following stocks that currently carry an AAS Buy rating: Cleveland Cliffs Inc (CLF), Castle A M & Co (CAS), Lyondell Chemical Co (LYO), Olin Corp (OLN) or Lubrizol Corp (LZ). ETF’s and Funds that work within the Basic Materials Sector include: Materials SPDR (XLB), Vanguard Materials (VAW), ProFund Ultra Sector Basic Materials (BMPIX) and Rydex Basic Materials (RYBIX).

Technology is the fourth sector this week. Here opportunities can be found with: MIVA Inc (MIVA), Novatel Wireless Inc (NVTL), Cree Research Inc (CREE) and Apple Computers Inc (AAPL). ETF’s and Funds that work within the Technology Sector would include Morgan Stanley Technology (MTK), iShares Goldman Sachs Technology (IGM), Fidelity Select Computers (FDCPX), Fidelity Select Software & Computer (FSCSX), ProFund Ultra Sector Technology (TEPIX) and Rydex Technology (RYTIX).

Industrials are the fifth and last AAS Rated Buy Sector this week. Here we find Barnes Group Inc (B), Cubic Corp (CUB), Vicor Corp (VICR), Shaw Group Inc (SGR) and KBR INC (KBR) at the top of the list. ETF’s and Funds that work within the Industrial Sector include iShares Dow Jones U.S. Industrial (IYJ), Vanguard Industrials (VIS), Fidelity Select Natural Resources (FNARX), Fidelity Select Paper & Forest Prod (FSPFX), ProFund Ultra Sector Industrials (IDPIX).

Additional information on our firm may be found by clicking the following link, Alpha Advisor Service, LLC. Information concerning the availability of our newsletter is available by clicking AAS Information. Questions may be submitted to info@Alpha-Advisor.com.

Short-Term Technical Indicators

Investor Sentiment

Long-Term Market Model – Bearish since May 15, 2007

Asset Allocation Recommendation – 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 AAS Rated Major Market – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Core (JKG 5/30/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

Crocs, Inc. (CROX 5/9/07)

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

Apple Inc. (AAPL 4/24/07)

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

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

Google Inc. (GOOG 5/29/07)

ITT Educational Service Inc. (ESI 2/8/07)

LandAmerica Financial Group Inc. (LFG 2/8/07)

Marathon Oil Corp. (MRO 3/14/07)

Nash-Finch Co. (NAFC 2/21/07)

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

Whole Foods Market Inc. (WFMI 5/2/07)

Volt Information Sciences (VOL 3/26/07)

Simon Property Group (SPG 5/1/07)

Regeneron Pharmaceuticals (REGN 5/17/07)

Review of Last Week’s Top AAS Rated Stocks

(Precursor to 130/30 Portfolio in Development)
highlighted securities are additions from last week's portfolio