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Sunday, August 19, 2007

Goodbye and Goodluck!

I’ve been posting to Portable Alpha Daily for slightly over a year now, learning tremendously about the nuts and bolts of the market and different strategies to generate alpha in a variety of environments. I’ve met and befriended extremely smart investors along the way, many of which have significantly contributed to the growth and success not only of Portable Alpha Daily, but also Alpha Advisor Service, LLC. A heartfelt thank you goes out to Chris (All About Alpha), Adam (Daily Options Report), Brett (TraderFeed) and Larry (Millionaire Now!) for their help and best wishes for their continued success!

As any blogger can attest, blogging takes a tremendous amount of time and thought, which can be draining to say the least. Although I’ve enjoyed sharing my thoughts and analysis with my viewers, the time has come to change direction and devote my energy to other endeavors.

For those investors who appreciated the analysis provided on Portable Alpha Daily, I invite you to take a look at Alpha Advisor Service, LLC. It’s a twice-weekly newsletter that contains everything from the blog and much, much more. Any investor searching for alpha can utilize our research to build and actively manage stock, mutual fund and ETF portfolios. With prices starting at only $19.99 per month, it’s an extremely valuable yet cost-effective tool.

Thank you again and best of luck!

Justin

Wednesday, August 15, 2007

Mid-Week Alpha

Trepidation defined the markets again yesterday, driving down all the major indexes into negative territory. A Merrill Lynch downgrade of Countrywide Financial Corp. (CFC) led to speculation of possible bankruptcy for one of the nations biggest mortgage lenders, which in turn facilitated the sell-off. It’s a stock “pickers” market with stability absent and no signs of a fundamental base. Over the past twenty years, from October 1987 through today, there have been five noteworthy market dislocations. These corrections ranged from -14.05% in 2003 to a decline of -33.51% in 1987. Typically the phases lasted around 106 days with an average high-to-low correction of about -24%. This year’s correction is but an infant, being roughly 26 days old and down approximately -9.43% from the high. Irrespective of credit woes, economic reports, hedge fund failures or liquidity injections, it’s our opinion that this market will experience further declines before the storm passes.

However, that’s not to say investors should tuck tail and run, as there are opportunities for alpha present. We continue to recommend caution and discretion in portfolio allocations, thoughtful selection of entry points and disciplined stop loss limits. Perhaps even more appropriate would be utilizing long / short strategies, correlated and non-correlated pairs trading or inverse mutual funds and ETF’s, which can be used to hedge long market exposure. Both the AAS Model ProFund and Rydex portfolio have been 50% allocated among inverse funds for the last several weeks, with one-month returns for those portfolios at 3.41% and 1.04% respectively versus -9.39% for the S&P 500.

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 50-77% cash and 0-50% long.

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

Top AAS Rated Major Market – Diamonds Trust, Series 1 (DIA 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 – Internet Architecture HOLDRs (IAH 5/1/07)

Top AAS Rated Long Stocks for Alpha

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

Oceaneering International (OII 3/19/07)

IDEXX Laboratories Inc. (IDXX 7/18/07)

FLIR Systems Inc. (FLIR 3/12/07)

SurModics, Inc. (SRDX 7/19/07)

ArthoCare Corp. (ARTC 5/29/07)

Vertex Pharmaceuticals Inc. (VRTX 8/8/07)

The Corporate Executive Board Co. (EXBD 8/7/70)

Biogen Idec Inc. (BIIB 5/29/07)

Daktronics Inc. (DAKT 8/7/70)

Top AAS Rated Short Stocks for Alpha

Radian Group Inc. (RDN 6/7/07)

Beazer Homes USA Inc. (BZH 1/25/07)

LandAmerica Financial Group (LFG 7/11/07)

U.S. Steel Corp. (X 7/20/07)

Meritage Homes Corp. (MTH 10/31/06)

Sunday, August 12, 2007

Alpha and the Week Ahead

Equities, which were in negative territory for most of Friday’s session, moved higher in late trading after news of the Fed’s third liquidity injection of the day. Although the fundamental impact of increased liquidity will likely be minimal, the psychological impact might prove sufficient and calm fears of a liquidity crisis. It’s painfully obvious that Chairman Bernanke is less trigger-happy than Greenspan, and hopes of a “Greenspan Put” are falling by the wayside. With central bankers throughout the world injecting liquidity into the market, its certain that re-pricing risk and minimizing volatility are of utmost importance.

However despite the modest gains for the week, the technical conditions of the market show no signs of improvement. Market internals continue to deteriorate, although at a slower rate. Volatility continues to intensify. Breadth was negative with both advancing/declining issues and up/down volume favoring the downside. The ten major sectors were equally split for the session with the Oil and Gas sectors showing leadership while Telecom and Utilities lagged. Bearish sentiment will likely escalate, especially if the triple digit rallies and breakdowns continue on a daily basis. In our opinion, it’s unlikely that we’ve reached a market bottom at this juncture.

Next week, in addition to being an option expiration week which tends to bring about a positive investor sentiment, many key economic reports are scheduled for release. The most important include Core CPI, Industrial Production, Capacity Utilization and Initial Jobless Claims. In our opinion the flight from equities on Friday reflects the collective fear that financial events -- the seizing up of credit markets, hedge-fund failures and such -- are fast developing into economic issues.

Our Major Market Model remains Bearish as of May 15th 2007. Both the Technical and Sentiment components are firmly bearish, while the Trend component maintains its bullish stature. However, if the S&P 500 closes below 1397 expect the Trend component to turn bearish as well. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1795. Of those reviewed, 185 are rated "Buy," 902 are rated "Sell" and 708 "Neutral.” We continue to recommend a defensive portfolio allocation in line with the recommendation of the AAS Market Model. The AAS Model Fund portfolios consist of 50% cash while the AAS Model Stock portfolio is now 100% in cash.

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation Recommendation – AAS Model Portfolios are allocated between 50-100% cash

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

Top AAS Rated Major Market – Diamonds Trust, Series 1 (DIA 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 – Internet Architecture HOLDRs (IAH 5/1/07)

Top AAS Rated Long Stocks for Alpha

Intuitive Surgical Inc. (ISRG 2/22/07)

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

CME Group Inc. (CME 7/30/07)

Oceaneering International (OII 3/19/07)

Astec Industries Inc. (ASTE 7/18/07)

Itron Inc. (ITRI 7/12/07)

Valmont Industries Inc. (VMI 5/22/07)

FMC Technologies Inc. (FTI 3/7/07)

Jacobs Engineering Group Inc. (JEC 1/23/07)

Varian Semiconductor (VSEA 8/10/07)

Top AAS Rated Short Stocks for Alpha

Radian Group Inc. (RDN 6/7/07)

CPI Corp. (CPY 7/20/07)

LandAmerica Financial Group (LFG 7/11/07)

U.S. Steel Corp. (X 7/20/07)

Beazer Homes USA Inc. (BZH 1/25/07)

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

Wednesday, August 08, 2007

Mid-Week Alpha

Stock prices lost the bulk of their gains for the session until the final half hour of trading Wednesday. Mid afternoon rumors that Goldman Sachs would be releasing negative news after the close drove the major indexes down almost into the negative territory around 2:30 pm. A strong denial of the rumor by Goldman quickly reversed the decline allowing the major indexes to end in the green for the third session in a row. While the equity markets appear to be attempting to put in a base from which to move higher, there continues to be too much news driven volatility, which precludes any recommendation of an asset allocation change at this time. We can’t get comfortable with any rally that is so easily influenced by rumors. Further, this rally is fairly dependent on reversals in actively shorted securities rather than fundamentals.

It’s noteworthy to mention that the short-term breadth and volume indicators are currently at the lowest levels since the market decline of May 2004. Perhaps history is destined to repeat itself. The market finished strong in 2004, although it did languish and display significant volatility through the summer and into the fall, which we believe will be experienced in 2007 as well. Despite the strong sessions this week, we believe caution is still warranted.

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 50-77% cash and 0-50% long.

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

Top AAS Rated Major Market – Diamonds Trust, Series 1 (DIA 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 – Internet Architecture HOLDRs (IAH 5/1/07)

Top AAS Rated Long Stocks for Alpha

Intuitive Surgical Inc. (ISRG 2/22/07)

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

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

Cummins Inc. (CMI 1/31/07)

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

CME Group Inc. (CME 7/30/07)

Oceaneering International (OII 3/19/07)

Itron Inc. (ITRI 7/12/07)

FMC Technologies Inc. (FTI 3/7/07)

Juniper Networks Inc. (JNPR 4/16/07)

Top AAS Rated Short Stocks for Alpha

CPI Corp. (CPY 7/20/07)

Radian Group Inc. (RDN 6/7/07)

LandAmerica Financial Group (LFG 7/11/07)

Pre-Paid Legal Services Inc. (PPD 7/26/07)

Beazer Homes USA Inc. (BZH 1/25/07)

Sunday, August 05, 2007

Alpha and the Week Ahead

The fifteen position long/short equity portfolio (shown at bottom of post) ended the week down -1.07%. The equally-weighted ten long positions contributed -2.67% for the week, but the five equally-weighted short positions returned 6.88%. Since it’s inception on May 25th, the hedged equity portfolio is up 7.13% compared to -5.45% for its benchmark, the S&P 500.

We have no reason to believe that the volatility and declines experienced over the last few weeks will subside this week. Despite some of the major indexes well into oversold territory, we feel that most investors are too cautious now to value buy at the lows. Although an interest rate cut is not likely this week, expect the markets to pay extremely close attention to the FOMC statement in an attempt to price in a cut sometime this year. If a dovish statement is released, we expect a substantial rally to ensue. Also expect to hear more news of hedge fund collapses which will continue to fuel the sell-off.

Unfortunately the bulls are running out of ammunition with only 33 companies from the S&P 500 scheduled to report earnings next week. Out of all the S&P 500 companies, 408 have so far reported earnings with 66% beating estimates. The year-over-year earnings growth rate has risen to 7% in the past week, up from 5.8% the previous week. Despite the strong earnings growth and relatively-sound economy, the reduced liquidity coupled with the fear of sub-prime contagion into other market segments is too much to bear for most investors.

Our Major Market Model remains Bearish as of May 15th 2007. Both the Technical and Sentiment components are firmly bearish, while the Trend component maintains it’s bullish stature. However, if the S&P 500 closes below 1397 expect the Trend component to turn bearish as well. We continue to recommend a defensive portfolio allocation in line with the recommendation of the AAS Market Model. The AAS Model portfolios are between 50% and 62.5% cash with the remaining allocation in either bonds, commodities or inverse funds. The total universe of stocks, ETF’s and mutual funds which we review on a daily basis is 1798. Of those reviewed, 79 are rated "Buy," 1011 are rated "Sell" and 708 "Neutral”.

As has been the case for the past several weeks, a Top Down approach does not produce any broad indices, Investment Styles or Sectors which are currently producing measurable alpha. Listed below are the top 25 AAS buy rated securities out of the 79 included in today’s newsletter:

Intuitive Surigal Inc (ISRG), Berkshire Hathaway Inc Del (BRK-B), Crocs Inc. (CROX), Precision Castparts Corp (PCP), Cummins Inc (CMI), Amazon.com Inc (AMZN), Deckers Outdoor Corp (DECK), National Oilwell Varco Inc (NOV), Apple Computers Inc (AAPL), Blue Coat Sys Inc. (BCSI), Chicago Mercantile Exchange (CME), Triumph Group Inc (TGI), Shaw Group Inc (SGR), Penford Corp (PENX), Washington Post Co Clb (WPO), Varian Semiconductor Equipment (VSEA), iShares FTSE/Xinhua China 25 (FXI), Itron Inc. (ITRI), Alliant Tech Systems Inc (ATK), Flour Corp (FLR), Oceaneering International (OII), Astec Inds Inc (ASTE), Google Inc. (GOOG), FMC Technologies Inc. (FTI) and Freeport-McMoran Copper & Gold (FCX).

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 - 100% cash and 25 - 50% long.

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

Top AAS Rated Major Market – Diamonds Trust, Series 1 (DIA 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 – Internet Architecture HOLDRs (IAH 5/1/07)

Top AAS Rated Long Stocks for Alpha

Intuitive Surgical Inc. (ISRG 2/22/07)

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

Cummins Inc. (CMI 1/31/07)

The Washington Post Co. (WPO 7/24/07)

Itron Inc. (ITRI 7/12/07)

Fluor Corp. (FLR 3/5/07)

Oceaneering International (OII 3/19/07)

Sturm, Ruger & Co. (RGR 3/8/07)

Kaman Corp. (KAMN 3/14/07)

IDXX Laboratories Inc. (IDXX 7/18/07)

Top AAS Rated Short Stocks for Alpha

LandAmerica Financial Group (LFG 7/11/07)

Beazer Homes USA Inc. (BZH 1/25/07)

Radian Group Inc. (RDN 6/7/07)

Meritage Homes Corp. (MTH 12/18/06)

Martin Marietta Materials Inc. (MLM 7/20/07)

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

Wednesday, August 01, 2007

Mid-Week Alpha

On the surface, market action this week appears to be a departure from the typical range-bound summer doldrums, but is it? Not really. Irrespective of the wild swings in the intra-day values of the major indexes, the DJIA is only up 0.73% for the week while the S&P 500 eked out a meager 0.49% gain for the same period. True, volatility is at levels not seen in awhile, but we feel it’s attributable more to thinly staffed trading desks than systemic hysteria. The players in the volatility and arbitrage hedge space, after having warmed the bench the past year or so, are subbing in for the credit- and event-driven players who are completely worn out. This makes for a bumpy but exciting ride.

Over the next few weeks (or even months), expect to hear the same story over and over again on CNBC: the credit crunch is scaring the mess out of investors, who in turn are requesting redemptions from the hedge funds, which in turn are collapsing under the weight of the liquidity exodus. It’s unfortunately a self-fulfilling prophecy of sorts, likely to get worse as funds start to mark-to-market their books.

Those paying attention to the market were probably a bit surprised with how quickly the gains and losses reversed course throughout the day. In our opinion trading volume was the real story. On the NYSE there were 2.42 billion shares traded with advancing volume marginally higher than declining volume. Over at the NASDAQ, volume was even more impressive with 3.01 billion shares exchanging hands and advancing volume clearly outperforming declining volume. Unfortunately for the bulls, breadth remained very bearish on both exchanges.

Aside from hedge fund and credit news, economic analysis fueled the market. The Institute for Supply Management, a private research group, said its July manufacturing index moved to 53.8, from 56.0 in June. While still positive, the decline wasn’t reassuring. Also the National Association of Realtor’s Index, while up year to date, is 8.6% below the level of June 2006 - reflecting the continuation of the housing downturn. Perhaps the most important report this week is still to come, as Employment data is scheduled to be released on Friday.

Another interesting caveat from yesterday’s market activity is the strong performance from the Utility sector. While most sectors positively participated in the rally, it should be noted that utilities were the strongest. Last week, in fact, utilities was the worst performing sector which begs the question of what would cause this defensive sector to jump from worst to first in a short week?

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 50-87% cash and 0-50% long.

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

Top AAS Rated Major Market – Diamonds Trust, Series 1 (DIA 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 – Internet Architecture HOLDRs (IAH 5/1/07)

Top AAS Rated Long Stocks for Alpha

Cummins Inc. (CMI 1/31/07)

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

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

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

Penford Corp. (PENX 7/3/07)

Astec Industries (ASTE 7/18/07)

Schlumberger Ltd. (SLB 3/7/07)

Sturm, Ruger & Co. (RGR 3/8/07)

NVIDIA Corp. (NVDA 5/29/07)

MEMC Electronic Materials (WFR 7/26/07)

Top AAS Rated Short Stocks for Alpha

Beazer Homes USA Inc. (BZH 1/25/07)

LandAmerica Financial Group (LFG 7/11/07)

Meritage Homes Corp. (MTH 12/18/06)

American Standard Companies Inc. (ASD 7/24/07)

Children’s Place Retail Stores (PLCE 11/17/06)