Portable Alpha Daily: 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