Portable Alpha Daily: 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.

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Short-Term Technical Indicators