Portable Alpha Daily

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Sunday, June 03, 2007

Alpha and the Week Ahead

In last week’s commentary we listed 59 various securities including ETF’s, stocks and mutual funds. We’re pleased to report that 55 members of this group had positive Rates of Change (ROC) for the week ending on June 1, 2007 while only 4 had a negative ROC. The ROC for this period ranged from 7.51% to -3.36% for the group over the four trading days. 36 securities surpassed the QQQQ ROC (2.77%), 48 members surpassed the SPY ROC (1.90%) and 48 members surpassed the DIA ROC (1.65%).

As you might have noticed, the AAS Model Stock Portfolio YTD return is 12.58% compared to 8.32% for the S&P 500 Index, the portfolios benchmark. The out-performance of 4.26% has been accomplished while the allocation recommendation has been less than 100% for most of this year. The historic beta for the AAS Model Stock Portfolio is 0.93 with a correlation to the S&P 500 of only 74.35% and a non-correlated alpha of 2.67%.

In the holiday-shortened week, U.S. stocks advanced on government reports that showed an improving economic outlook, closing the week with U. S. equity benchmarks at record levels. The economic data capped a week of better-than-expected earnings and M&A activity valued at more than $1 trillion in acquisitions so far this year. The S&P 500 Index surpassed its 2000 record and set two more peaks this week, while the Dow Jones Industrial Average reached its 26th high for the year.

In private-sector reports, the Institute for Supply Management's factory index rose to 55 in May, the highest in 13 months. Readings greater than 50 signal expansion. The Reuters/University of Michigan's final index of consumer sentiment increased to 88.3 last month from 87.1 in April.

The market internals were positive for most of the week with advancers beating decliners by a 19 to 13 ratio on the NYSE and by a 17 to 12 ratio on the NASDAQ. About 55% of the volume was up on the NYSE while almost 65% of the volume was up on the NASDAQ.

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, 767 are rated "Buy," 371 are rated "Sell" and 690 "Neutral”. We have raised our recommended allocation in the Model Fund and Stock Portfolios to 75% invested and 25% in cash.

The adjustment in the recommended allocation reflects our acknowledgement that the short term uptrend is strong for all of the major indexes with leadership found in the Mid Cap Growth (JJH) and Mid Cap Core (JKG) sectors. Alpha is being generated within many sectors but leadership is in Natural Resources (IGE), US Energy (IYE), Global Energy (IXC) Global Telecommunications (IXP) and Basic Materials (IYM).

Energy (XLE) continues to lead this group with particular attention paid to: W-H Energy Svcs Inc. (WHQ), Hornbeck Offshore Svcs Inc (HOS), Bristow Group Inc (BRS), USX Marathon Group (MRO) and Peabody Energy Corp (BTU).

Telecommunications (IXP) produced the following names which continue to show strength: Cincinnati Bell Inc (CBB), Sprint Nextel (S), Qwest Communication International (Q), Verizon (VZ) and Alltel Corp (AT).

Industrials (XLI) are being lead by: Shaw Group Inc (SGR), Barnes Group Inc (B), KBR INC (KBR),

Edo Corporation (EDO) and Woodward Governor Co (WGOV).

Basic Materials (XLB) continue to be lead by: Cleveland Cliffs Inc (CLF), O M Group Inc (OMG), Chaporral Steel (CHAP), Lyondell Chemical Co (LYO) and Castle A M & Co (CAS).

Technology (XLK), which has replaced Health Care in this week’s commentary, produced the following: Novatel Wireless Inc. (NVTL), MIVA Inc (MIVA), Cree Research Inc (CREE), Acxiom Corp (ACXM) and Maximus Inc (MMS).

For those wishing to follow this lead but seeking additional diversification, alpha may be found in the following ETF’s and mutual Funds: Vanguard Materials (VAW), iShares DJ U.S. Energy (IYE), iShares Goldman Sachs Technology (IGM), iShares S&P Global Energy (IXC) and Oil Service HOLDRS (OIH).

Alpha producing Fidelity funds include: Energy Service (FSESX), Telecommunications (FSTCX), Energy (FSENX), Natural Resources (FNARX) and Materials (FSDPX).

The ProFunds family is lead by: Ultra Sector Internet (INPIX), Ultra Sector Basic Materials (BMPIX), Ultra Sector Oil & Gas (ENPIX), Ultra Sector Telecom (TCPIX) and Ultra Sector Industrials (IDPIX).

And finally, the following Rydex funds should be considered: Basic Materials (RYBIX), Energy Services (RYVIX), Energy (RYEIX), Telecommunications (RYMIX) and Internet (RYIIX).

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 S&P Mid Cap 400 (IJH 3/20/07)

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

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

Top AAS Rated Long Stocks for Alpha

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

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

Martin Marietta Materials Inc. (MLM 11/6/06)

CPI Corp. (CPY 1/23/07)

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

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

Apple Inc. (AAPL 4/24/07)

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

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

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

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

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

Cambrex Corp. (CBM 5/4/07)

Komag Inc. (KOMG 12/11/06)

Advanced Medical Optics, Inc. (EYE 5/24/07)

Review of Last Week’s Top AAS Rated Stocks

(Precursor to 130/30 Portfolio in Development)


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