Portable Alpha Daily

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Saturday, June 16, 2007

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


  • "Wheat from the shaft"!! Funny!

    By Anonymous Anonymous, at 8:48 AM  

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