Portable Alpha Daily

Goodbye and Goodluck!

2007-08-19T13:02:00.000-04:00

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

Mid-Week Alpha

2007-08-15T22:18:00.000-04:00

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)

Alpha and the Week Ahead

2007-08-12T22:17:00.001-04:00

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 15^th 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

Mid-Week Alpha

2007-08-08T22:47:00.000-04:00

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.

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)

Alpha and the Week Ahead

2007-08-05T21:33:00.000-04:00

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 25^th, 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 15^th 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

Mid-Week Alpha

2007-08-01T22:50:00.000-04:00

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?

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)

Alpha and the Week Ahead

2007-07-29T20:51:00.000-04:00

The fifteen position long/short equity portfolio (shown at bottom of post) performed well again last week, up 0.77%. The equally-weighted ten long positions contributed -5.35% for the week, but the five equally-weighted short positions returned 13.89%. We’ve adjusted our calculation procedures to make the performance shown more portfolio-oriented. We initiated this portfolio on Tuesday, May 29^th 2007. Since then it’s up 9.74% compared to -3.90% for its benchmark, the S&P 500.

Today’s Alpha Advisor Service, LLC newsletter is unusual in that there are so few buy-rated securities available for our subscribers. According to our analysis there are only 80 securities out of 1800+ which are currently buy-rated as compared to the daily average of 410 since we first began publishing the newsletter. We took this statistic one step further and found that market bottoms have occurred in the S&P 500 when the number of AAS buy-rated securities fell below 100. These market bottoms transpired in October 2005, in June 2006 and most recently in March 2007. While short-lived, these bottoms represented periods of significant asset class rotation followed by the resumption of the bullish trend.

We believe that the U.S. equity markets (and by default the global markets) will continue to recede next week. Although faced with a significant round of corporate earnings from almost 100 S&P 500 companies as well as economic reports on payrolls, wages and manufacturing, nervousness from last week will carry forward, not only from the retail investor but from the hedge funds and prop desks struggling to contain the losses.

Thus far the companies who have reported earnings have beaten expectations by a slightly lower margin than in the recent past. Out of the 304 companies of the S&P 500 that have reported, approximately 64% have beaten estimates as compared with an average of 68% over the past eight quarters.

Concerns over the collapse in the sub-prime mortgage sector and the related policy changes within the banks that have been providing debt funding to the LBO markets will continue to fuel the day to day volatility of the markets. Investors next week will remain on the lookout for more hedge fund troubles. News broke this past week that a second Australian hedge fund has run into trouble because of its exposure to U.S. sub-prime mortgages. There are also unsubstantiated rumors about German and Japanese funds taking a hit from bad U.S. home loans.

We recommend a defensive portfolio allocation in line with the recommendation of the AAS Market Model which 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 1802. Of those reviewed, 80 are rated "Buy," 1070 are rated "Sell" and 652 "Neutral”. We remain bearish, and our Model Fund and Stock Portfolios are allocated around 0% to 25% long and 75% to 100% defensive.

There are no AAS buy-rated Markets, Sectors or Styles this week. In fact, the only buy-rated security on our Market Overview page is the iShares Lehman 1-3 Year Bond (SHY). However, on the ProFund and Rydex mutual fund pages we see alpha generating securities in the inverse index and sector funds. Further analysis highlights alpha in the Bond, Commodity, International and Alternative Product sectors.

Despite last week’s troubles, there are still alpha-generating securities available. The list below comes from our Top Ten page of the newsletter and the securities listed are biased towards Medical, Energy and Inverse investment opportunities.

Equities: Sturm Ruger (RGR), Hanesbrands Inc (HBI), Cabot Microelectroics (CCMP), Lennox International (LII), DJ Orhtopedics Inc (DJO), Astec Inds Inc (ASTE), Smith A O Corp (AOS), Deckers Outdoor Corp (DECK), National Oilwell Varco Inc (NOV), Biogen IDEC (BIIB), Plantronics Inc (PLT), Cummins Inc (CMI), Gen-Probe Inc (GPRO), IDEXX Laboratories Inc. (IDXX), FMC Technologies Inc. (FTI), ITRON Inc. (ITRI), Sandisk Corp (SNDK), Anixter International Inc (AXE), Precision Castparts Corp (PCP), Schlumberger Ltd. (SLB), Mgi Pharma Inc (MOGN), Noble Drilling Corp (NE), Air Prods & Chems Inc (APD), Transocean Sedco Forex Inc (RIG) and Washington Post Co Clb (WPO).

ETF’s and Mutual Funds: ProFund Ultra Short Small Cap (UCPIX), ProFund Ultra Short Mid Cap (UIPIX), ProFund Short Real Estate (SRPIX), ProFund Ultra Bear (URPIX), Inverse S & P 500 Strategy (RYTPX), Inverse Russell 2000 Strategy (RYSHX), ProFund Short Small Cap (SHPIX), Inverse Dow 2x Strategy (RYCWX), ProFund Ultra Short Dow 30 (UWPIX), Inverse Mid Cap Strategy (RYMHX), Inverse OTC 2x Strategy (RYVNX), ProFund Ultra Short OTC (USPIX), Inverse S & P 500 2x Strategy (RYURX), ProFund Bear (BRPIX), ProFund Short Oil & Gas (SNPIX), Inverse OTC Strategy (RYAIX), ProFund Short OTC (SOPIX), iShares Lehman 1-3 Year Bond (SHY), Commodities Strategy (RYMBX), Strengthening Dollar 2x Strategy (RYSBX), iShares GSCI Commodity-Index Trust (GSG) and ProFund Rising U.S. Dollar (RDPIX).

A word of caution about most of the Inverse funds listed above. They are leveraged between 1.25x and 2x the underlying benchmark. These funds are capable of producing significant out-performance during the appropriate periods in a market cycle. However, the leverage does produce significant short term price volatility, as such the investor is advised to establish tight stop loss limits and to keep a keen eye on these securities at all times.

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 – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

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

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

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

Cummins Inc. (CMI 1/31/07)

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

Transocean Inc. (RIG 4/20/07)

Astec Industries (ASTE 7/18/07)

Schlumberger Ltd. (SLB 3/7/07)

Noble Corp. (NE 3/23/07)

Itron Inc. (ITRI 7/12/07)

Top AAS Rated Short Stocks for Alpha

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

Sears Holding Corp. (SHLD 5/3/07)

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

Sepracor Inc. (SEPR 5/17/07)

Vulcan Materials Co. (VMC 5/10/07)

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

Alpha and the Week Ahead

2007-07-22T21:35:00.000-04:00

Our fifteen position long/short equity portfolio (shown at bottom of post) had a very solid week, up over 4% on a price-weighted index basis. The equally-weighted ten long positions contributed -0.37% for the week, but the five equally-weighted short positions more than made up for the loss on the long side by returning over 4.5%. As you may recall, we initiated this portfolio on Tuesday, May 29^th 2007. Since then, the long/short portfolio has gained 15.08% compared to 1.05% for its benchmark, the S&P 500. We’re obviously very excited about this portfolio and the potential it provides.

For the few weeks we’ve urged our subscribers to exercise discretion in their portfolio allocations. Our opinion was that irrespective of the record high’s which the major markets have been reaching, the technical indicators of the market were not confirming the day-to-day up trends experienced. A quick review of today’s Market Overview page is enough to convince even our most Bullish subscribers that our advice was warranted and that prudence and caution in the coming week is strongly suggested.

Thursday’s record breaking rally pushed the market further into an over-extended status and Friday’s sell-off was truly overdue in our opinion. The Advance/Decline line has turned downward and is being confirmed by both the short-term breadth and volume indicators. Market trends, as measured by short-term MACD, have turned downward and while both the Relative Strength and Stochastic Oscillators are retracing towards more acceptable levels, they both still indicate an over-bought status.

For those investors still fully allocated on the long side, we suggest to watch the dynamic Sell Limit Values closely. Make sure to use the most current values from today’s newsletter while keeping a watchful eye on corporate earnings report this week. Maintain those holdings above their respective short-term moving average but look to close positions as they either drop below their dynamic Sell Limit Value or violate their short-term moving average. On the other hand, stocks that break upward through their short-term moving average and are confirmed by an AAS “Buy” recommendation should be viewed as strong candidates for purchase.

Friday’s sell-off wasn’t much of a surprise considering Thursday’s rally and options expiration. Not a single sector had a positive session Friday with the Financial sector turning in the weakest performance of the group. Financials continues to suffer from concerns that the sub-prime mortgage problem has not yet run its full course and that further credit related problems will surface. An interesting note is that last week CitiGroup’s price declined after announcing it was unable to syndicate several bridge loans it had made for leverage buyouts. As mentioned several times prior, fear is continuing to brew that the sub-prime problems will extend into a broader credit crunch and reduce investor liquidity, the crucial driving force behind the rally.

Not all was negative last week however as the Technology and Energy sectors ended higher. In fact, the only outright AAS “Buy” recommended sectors is iShares GS Networking (IGN) - the carryover leader from last week.

It was reported elsewhere that only 59% of the companies reporting earnings thus far this quarter have exceeded expectations as compared to approximately 68% of the reporting companies beating expectations over the past several years. The coming week will be the busiest of the second-quarter earnings season, in essence solidifying the corporate growth trend or lack thereof.

Listed below are the securities from the Top Ten page of our newsletter sorted by the AAS Rating Score in descending order. Of the fifty long-only securities, only thirty-three carry an AAS “Buy” recommendation, which further confirms our bearish view-point.

Top to Bottom: Apple Computers Inc (AAPL), Precision Castparts Corp (PCP), National Oilwell Varco Inc (NOV), Deckers Outdoor Corp (DECK), Blue Coat Systems Inc (BCSI), Shaw Group Inc (SGR), Freeport-McMoran Copper & Gold (FCX), Penwest (PENX), iShares FTSE/Xinhua China 25 (FXI), Robbins & Meyers Inc (RBN), FMC Technologies Inc (FTI), Fidelity Select Energy Service (FSESX), iShares MSCI South Korea (EWY), ProFund UltraSector Precious Metals (PMPIX), Fidelity Southeast Asia (FSEAX), Fidelity Select Technology (FSPTX), BLDRS Emerging Markets 50 ADR (ADRE), Fidelity Select Chemicals (FSCHX), Fidelity Select Computers (FDCPX), PowerShares Gld. Drg. Haltr. USX Ch (PGJ), Fidelity China Region (FHKCX), iShares GS Networking (IGN), Fidelity Select Air Transportation (FSAIX), Fidelity Select Indust. Equipment (FSCGX), PowerShares Wilderhill Clean Energy (PBW), Fidelity Select Gold (FSAGX), iShares GSCI Commodity-Index Trust (GSG), Fidelity Select Defense & Aerospace (FSDAX), iShares MSCI Taiwan (EWT), PowerShares Water Resources (PHO), Commodities Strategy (RYMBX), ProFund Short Real Estate (SRPIX) and finally BLDRS Asia 50 ADR (ADRA).

It’s interesting to note that of the thirty-three “buy” recommended securities, leadership is seen in the International, Energy and Industrial groups followed closely by Technology and Alternative Investment Products.

We continue to recommend a conservative portfolio allocation in line with the recommendation of the AAS Market Model which 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 1,806. Of those reviewed, 216 are rated "Buy," 779 are rated "Sell" and 817 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 50-75% invested and 0-25% 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 at 50 - 87.5% cash and 12.5 - 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 – iShares Goldman Sachs Networking (IGN 5/31/07)

Top AAS Rated Long Stocks for Alpha

Apple Inc. (AAPL 4/24/07)

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

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

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

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

Shaw Group Inc. (SGR 5/4/07)

Freeport-McMoRan Cooper & Gold Inc. (FCX 3/8/07)

Penford Corp. (PENX 7/3/07)

Robbins & Myers Inc. (RBN 6/12/07)

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

Top AAS Rated Short Stocks for Alpha

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

Vulcan Materials Co. (VMC 5/10/07)

Sears Holding Corp. (SHLD 5/3/07)

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

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

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

Mid-Week Alpha

2007-07-18T23:03:00.000-04:00

In Monday’s newsletter we cautioned that, “the bullish momentum is showing no signs of slowing down over the short term, however the market internals themselves, while improving, don’t look quite as positive as the price trends might indicate.“ The technical indicators continue to show signs of fatigue and the weakness is beginning to manifest itself in the equity markets. The topic du jour is still the sub-prime market, where fears from imprudent home loans and bad hedge fund bets continue to send shockwaves through Wall Street. Rumors spread yesterday about two more sizable funds on the brink of collapse, which in essence becomes a self-fulfilling prophecy. Additional pressure mounted following a report that the two levered Bear Sterns hedge funds are now virtually worthless. On the economic front, comments by Federal Reserve Chairman Ben Bernanke indicating to Congress that the sub-prime situation would likely get worse before getting better didn’t help the Bull’s much. Finally, earnings from major chip and tech companies disappointed investors, which also brought equities down.

Yesterday’s trading pattern in the last hour of the session, while comforting since it pared the majority of the day’s losses, will do nothing to help the general weakening technical condition of the market. The over- extended condition that carried into the week will warrant close monitoring over the next several sessions. In our opinion this pullback is likely to be short-lived and if today’s earnings reports are decent we may see another run at the 14,000 level for the Dow this week. One of the most important philosophies of Alpha Advisor Service is that winners have the tendency to continue to win, often pushing through pullbacks, and we expect the trend to continue.

Oil and Gas along with Utilities were the leading sectors for the day with the Tech and Financials bringing up the rear. As has been the case over the last few weeks, the financial sector is under pressure as analysts attempt to gauge the scope of the sub-prime market damage. The credit-ratings agencies are putting the market on notice that they’re considering downgrading a significant number of credit instruments.

The market showed little reaction to news that consumer prices increased a moderate 0.2% in June, a touch higher than the 0.1% expected, with falling energy prices offsetting rising food prices. The data was roughly in line with Wall Street forecasts. Also, the Commerce Department said June housing starts increased 2.3%, beating forecasts. But building permits fell 7.5% last month, indicating the upturn might be short-lived.

We continue to recommend a conservative portfolio allocation in line with the recommendation of the AAS Market Model which 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 1809. Of those reviewed, 233 are rated "Buy," 604 are rated "Sell" and 972 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 0-50% invested and 50-87% 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 50-87% 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 – iShares Goldman Sachs Networking (IGN 5/31/07)

Top AAS Rated Long Stocks for Alpha

Apple Inc. (AAPL 4/24/07)

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

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

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

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

Shaw Group Inc. (SGR 5/4/07)

Crocs Inc. (CROX 5/9/07)

Penford Corp. (PENX 7/3/07)

Google, Inc. (GOOG 5/29/07)

Freeport-McMoRan Cooper & Gold Inc. (FCX 3/8/07)

Top AAS Rated Short Stocks for Alpha

Sears Holding Corp. (SHLD 5/3/07)

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

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

Lexmark International (LXK 1/25/07)

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

Alpha and the Week Ahead

2007-07-15T22:29:00.000-04:00

The market surged to record highs last week as investors actively sought securities of large cap industrials and multi-nationals. As expected after Thursday’s monstrous rally, the Dow Jones Industrial Average had the best showing, up 2.17% for the week, but the Nasdaq and S&P 500 performed strongly as well, up 1.52% and 1.44% respectively. Year-to-date the Dow is up 11.6% while the NASDAQ has gained 12.1% and the S&P 500 is up 9.46%.

The bullish momentum is showing no signs of slowing down over the short term, however the market internals themselves, while improving, don’t look quite as positive as the price trends might indicate. Nevertheless, the technical oscillators are in fact looking stronger now than they were at this time last year, which was about the point when the market rally of 2006 took off, and remained basically unabated until March 2007.

Friday’s gains were extremely impressive, as profit taking normally ensues after huge rallies. There was evidence though that trader's were cautious for the session, with advancers barely out-numbering decliners on the NYSE and actually lagging on the NASDAQ. Volume was evenly distributed on both exchanges.

We believe that bullish momentum is well in place as we head into the coming week. Earnings reports will flood the headlines and economic reports, including the release of June PPI and CPI, will grab Wall Street’s attention mid week. These reports, along with the trading activity driven by expiring option contracts on Friday, will lead to elevated volatility on Thursday and Friday.

The past week saw bonds traverse the developing trading range amid an abundance of economic data. The rise in prices is being driven by a “flight-to-quality” on more bad news surrounding the sub-prime market. Both S&P and Moody’s continue to downgrade ratings on approximately 1,012 issues backed by sub-prime mortgages representing over $12 billion. This forces hedge funds active in the sub-prime market to sell their holdings in order to abide by fund mandates, which turns paper losses into realized losses, fueling redemptions and eventual collapses. It’s becoming increasingly clear that the sub-prime “iceberg” was only partially visible and more financial failures are likely to occur before the debacle is over.

While all fourteen Major Markets analyzed by Alpha Advisor Service, LLC are currently rated “neutral,” we must point out momentum, as measured by the AAS Score, is improving in the Large Cap Indices - particularly in the NASDAQ and Dow. In addition, investor sentiment remains only slightly positive, which is bullish for stocks.

At this time we’re not seeing any strong “buy” rated securities with our Major Market, Style or Sector analysis. That’s not to say that alpha isn’t present in these areas, it just means that the trend hasn’t fully established itself yet. Further research within the Energy (Natural Resources), Internet, Materials and Industrial sectors should produce good opportunities. Finally, many International ETF’s and mutual funds are generating alpha, specifically in the Latin American and Asian regions.

Listed below are the top twenty securities from the above sectors ranked by the AAS Rating Score:

Apple Computers Inc (AAPL), Blue Coat Systems Inc. (BCSI), National Oilwell Varco Inc (NOV), Novatel Wireless Inc (NVTL), Nash Finch Co. (NAFC), NVIDIA Corp (NVDA), Transocean Sedco Forex Inc (RIG), FMC Technologies Inc (FTI), Frontier Oil Corporation (FTO), ConocoPhillips (COP), Noble Drilling Corp (NE), Cree Research Inc (CREE), Synapitics Inc (SYNA), Sanderson Farms Inc (SAFM), Schlumberger Ltd. (SLB), Bristow Group Inc (BRS), Oil Service HOLDRS (OIH), Spartan Stores Inc. (SPTN), Smith International Inc (SII) and the only mutual fund amongst the group Fidelity Select Energy Service (FSESX).

This coming week will also see the minutes of the June FOMC meeting released and Fed Chairman Bernanke will appear before Congress for the semi-annual (formerly known as Humphrey-Hawkins) testimony on the economy and monetary policy.

We continue to recommend a conservative portfolio allocation in line with the recommendation of the AAS Market Model which 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 1,811. Of those reviewed, 267 are rated "Buy," 444 are rated "Sell" and 1,100 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 50-75% invested and 0-25% 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 at 50-75% cash and 25-50% long.

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

Top AAS Rated Major Market – Fidelity Nasdaq Composite (ONEQ 6/1/07)

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 Networking (IGN 5/31/07)

Top AAS Rated Long Stocks for Alpha

Apple Inc. (AAPL 4/24/07)

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

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

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

Shaw Group Inc. (SGR 5/4/07)

Crocs Inc. (CROX 5/9/07)

Google, Inc. (GOOG 5/29/07)

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

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

Martin Marietta Materials (MLM 11/6/06)

Top AAS Rated Short Stocks for Alpha

Sears Holding Corp. (SHLD 5/3/07)

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

Rogers Corp. (ROG 12/6/06)

Lexmark International (LXK 1/25/07)

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

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

Mid-Week Alpha

2007-07-11T22:50:00.001-04:00

Overall we feel that the market has behaved as anticipated through Wednesday, reacting with degrees of emotion to various news releases and remaining relatively flat through the first three days of the week. As you may recall from Monday’s commentary, we were forecasting a relatively modest week for

U.S.

stocks, primarily because we felt that the cloud of rising oil prices, sub-prime related problems and higher bond yields might rain on the earnings season parade that kicked off this past Monday. So far our projection is on track.

The Dow Jones Industrial Average rose 76.17 to 13577.87 on Wednesday putting it down about 0.25% for the first three days of the week and up 8.9% on the year. The S&P 500 added 8.64 to 1518.76, also down 0.68% thru mid week and up 7.1% year to date. The NASDAQ was up 12.63 to 2651.79, down 0.85% thus far and is 9.8% higher so far this year.

In the bond markets, the price of the 5–year note dropped slightly raising the yield to 4.979 percent, the 10– year note dropped 8/32nds, raising its yield to 5.09% and the 30–year bond declined 30/32nds to a yield of 5.191%.

On the New York Stock Exchange Wednesday, 1,803 stocks gained and 1,504 declined, on volume of 1.52 billion shares traded. Stocks making 52-week highs just barely out paced those making 52-week lows. Over at the NASDAQ, 2.06 billion shares traded on the exchange, with 1, 618 stocks up and 1,398 down for the session.

Dragging down equities is increased concern that the rating agencies will downgrade certain debt securities backed by sub-prime mortgages. Doing so would undoubtedly cause a massive sell-off of such securities, in turn devastating hedge fund portfolio returns and bringing to light more fund collapses. We’re also seeing “risk” beginning to get re-priced in the credit markets, causing spreads to widen and volatility to escalate. Also weighing on the markets were the inflationary comments made by Federal Reserve Chairman Ben Bernanke on Tuesday.

However, the negative news around sub-prime lending has not yet translated into lower investor sentiment which continues to help the equity market. Even though there are potential hazards in the market, we feel that alpha is still plentiful and available for the research oriented investor.

We continue to recommend a conservative portfolio allocation in line with the recommendation of the AAS Market Model which 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 1811. Of those reviewed, 267 are rated "Buy," 712 are rated "Sell" and 827 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 50-75% invested and 0-25% 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 63-75% cash and 38-50% long.

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

Top AAS Rated Major Market – Fidelity Nasdaq Composite (ONEQ 6/1/07)

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

Crocs Inc. (CROX 5/9/07)

Apple Inc. (AAPL 4/24/07)

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

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

Google, Inc. (GOOG 5/29/07)

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

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

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

Freeport-McMoRan Cooper & Gold Inc. (FCX 3/8/07)

Robbins & Myers Inc. (RBN 6/12/07)

Top AAS Rated Short Stocks for Alpha

Sears Holding Corp. (SHLD 5/3/07)

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

Rogers Corp. (ROG 12/6/06)

Simon Property Group Inc. (SPG 5/1/07)

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

Alpha and the Week Ahead

2007-07-08T20:48:00.000-04:00

The broad-market indices ended up for the week as expected. The DJIA closed at 13,611.68 on Friday for a weekly gain of 1.5%, the S&P 500 closed at 1,530.44 ending the week up 1.8%, and the NASDAQ ended at 2,666.51 improving by 2.4% over the holiday-shortened week. Year-to-date, the Dow is up 9.2% while the NASDAQ has gained 10.4% and the S&P 500 is up 7.9%.

The 5–year note declined 6/32nds to yield 5.094%, the 10-year note declined 10/32 to yield 5.187% and the 30-year bond was off 20/32 to 92-3/32, yielding 5.271%.

Indeed it was an impressive week, although we caution against getting too optimistic on gains experienced on such low trading volumes. On Friday, trading was below average on the NYSE, with about 1.25 billion shares changing hands, less than last year's estimated daily average of 1.84 billion, while on NASDAQ about 1.64 billion shares traded, below last year's daily average of 2.02 billion. Advancing stocks out-numbered declining ones by a ratio of about 19 to 12 on the NYSE and by 17 to 12 on NASDAQ.

We’re forecasting a relatively modest week for U.S. stocks, as the cloud of rising oil prices and higher bond yields rains on the earnings season parade that kicks off Monday. In addition to these concerns, the coming week is loaded with major economic reports released daily.

The consensus forecast for the second-quarter earnings growth rate is somewhere around 4.4%, up slightly from the first-quarter rate of 3.9%. It’s our belief that if those companies reporting earnings on Monday and Tuesday are in line with analyst estimates, than we should see the concerns about valuations, loftier Treasury yields, and the ongoing climb in the pricing of crude-oil futures dissipate into the week. However, it’s been reported elsewhere that out of 136 existing “guidance” statements from companies about their earnings, seven were warnings and two were in-line with expectations leaving 127 as “unknown.”

Our technical assessment of the markets continues to improve with Breadth and Volume indicators turning positive late last week and consequently confirming the price trends. There is the possibility that if last week’s rally carries forward into the coming week that that market could be classified as over-bought. But in our opinion an over-bought status would be more tolerable than the non-confirmative state which has been in place for the past several weeks.

As of Friday all of the Major Markets and Style Box alternatives which are analyzed by the AAS Service are viewed as Neutral. The AAS “Buy” rating only begins to surface in the sector analysis where we have five “buy” ratings, eighteen “neutral” ratings and three “sell” ratings.

As such, sectors for potential alpha generation in the coming week include: Natural Resources (IGE), Internet (IAH), Industrials (IYJ) Networking (IGN) and Telecommunications (IYZ).

Energy (Natural Resources): iShares GS Natural Resource (IGE), Oil Service HOLDRS (OIH), PowerShares Water Resources (PHO), PowerShares Dynamic Oil & Gas (PXJ), Frontier Oil Corporation (FTO), National Oil Well Varco Inc (NOV), Overseas Ship holding Group (OSG), Transocean Sedco Forex Inc (RIG), Bristow Group Inc (BRS).

Industrials: iShares Dow Jones U.S. Industrial (IYJ), PowerShares Dynamic Bldg. & Cons (PKB), PowerShares Aerospace & Defense (PPA), Vanguard Industrials (VIS), Industrial SPDR (XLI), Lindsay Manufacturing Co (LNN), Cubic Corp (CUB), Shaw Group Inc (SGR), Robbins & Meyers Inc (RBN), Cascade Corp (CAE), Fidelity Select Industrials (FCYIX), Fidelity Select Air Transportation (FSAIX), Fidelity Select Industrial Equipment (FSCGX), Fidelity Select Chemicals (FSCHX) and Fidelity Select Defense & Aerospace (FSDAX).

Internet Architecture and Networking: B2B Internet Holdrs (BHH), Internet Architecture Holdrs (IAH), iShares GS Networking (IGN), Internet Infrastructure Holdrs (IIH), PowerShares Dynamic Networking (PXQ), MIVA Inc (MIVA), Cree Research Inc (CREE), Blue Coat Systems Inc. (BCSI), NVIDIA Corp (NVDA) and Neoware Systems Inc.( NWRE).

Telecommunications: iShares DJ U.S. Telecom. (IYZ), Telecom Holdrs (TTH), Vanguard Telecom Services (VOX), Wireless Holdrs (WMH), Telephone & Data Sys (TDS), Sprint Nextel (S) and Qwest Communication International (Q).

Most of the sectors we analyze were up on Friday with the exception of the Utility and Financial sectors which are more interest-rate sensitive. Both sectors face increased competition to attract investors when bond yields are a rising.

We continue to recommend a conservative portfolio allocation in line with the recommendation of the AAS Market Model which 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 1814. Of those reviewed, 362 are rated "Buy," 5112 are rated "Sell" and 940 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 50-75% invested and 0-25% 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 at 50-75% cash and 25-50% long.

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

Top AAS Rated Major Market – Fidelity Nasdaq Composite (ONEQ 6/1/07)

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

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

Apple Inc. (AAPL 4/24/07)

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

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

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

Crocs Inc. (CROX 5/9/07)

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

Cummins Inc. (CMI 1/31/07)

Google, Inc. (GOOG 5/29/07)

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

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

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

Hovnanian Enterprises Inc. (HOV 12/21/06)

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

RTI International Metals (RTI 5/1/07)

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

Mid-Week Alpha

2007-07-04T15:57:00.000-04:00

U.S.

stocks closed higher Tuesday and extended Monday’s rally as investors focused less on declines in pending home sales and factory orders and more on a healthy flow of merger news.

Real Estate was the only sector down for the day. Leadership for the shortened session was provided by Energy along with Technology, Financials and Industrials. All of those sectors were mentioned as areas of alpha generation in Monday’s commentary, with the exception of Financials, which in our opinion remains suspect until the issue of sub-prime lending works it way thoroughly through the system.

Not much can be concluded from the market activity thus far in the week. We see some improvement in the technical condition of the markets, now more resembling the conditions of early January 2007 rather than those which prevailed in mid-March of this year. We continue to feel that the recent positive bias remains in place, but with low trading volumes volatility will remain a concern.

Most investors will pay close attention to employment data released on Friday by the Labor Department, which includes unemployment and payroll growth for June. Given the job market's strong impact on consumer spending, which is the backbone of the U.S. economy, Friday’s report is really the only important event for the rest of the week.

The second-quarter earnings season will officially begin on July 9, 2007 which will certainly provide direction for next week. Some investors are now voicing concerns that more and more reporting companies will not continue to provide “guidance” for future earnings estimates. In our opinion, companies no longer providing guidance are making a good decision as it will put the burden upon the analyst and investors to do their own homework. We believe this trend will continue to spread amongst additional companies hopefully resulting in a return to conservatism with regard to Corporate Governance.

We remain conservatively allocated in line with the recommendation of the AAS Market Model which 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 1815. Of those reviewed, 362 are rated "Buy," 558 are rated "Sell" and 895 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 38-50% invested and 63-75% 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 63-75% cash and 38-50% long.

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

Top AAS Rated Major Market – Fidelity Nasdaq Composite (ONEQ 6/1/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

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

Top AAS Rated Long Stocks for Alpha

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

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

Cummins Inc. (CMI 1/31/07)

Apple Inc. (AAPL 4/24/07)

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

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

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

Google, Inc. (GOOG 5/29/07)

Martin Marietta Materials (MLM 11/6/06)

Robbins & Myers Inc. (RBN 6/12/07)

Top AAS Rated Short Stocks for Alpha

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

Rogers Corp. (ROG 12/6/06)

Hovnanian Enterprises Inc. (HOV 12/21/06)

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

Simon Property Group Inc. (SPG 5/1/07)

Alpha and the Week Ahead

2007-07-01T22:08:00.000-04:00

The coming week, although shortened by the July 4^th holiday, will continue to be fueled by various economic reports scheduled for release. Starting with Monday’s Institute of Supply Management report, followed by Tuesday’s release of the Commerce Department's factory orders report for May and Friday's monthly jobs report from the Labor Department, sentiment and volatility will likely be directly related to the release of these economic indicators. Furthermore, attention will be focused on the terrorist activities taking place over the last few days both in London and Glasgow, which will obviously make holiday travel difficult and stressful.

That being said we believe that the U.S. markets will move slightly higher in the coming week just as they did last week. We expect the economic reports to support the view that the economy, although slowing, is healthy and that inflation remains within the appropriate levels. However, geopolitical concerns combined with worries over tightening liquidity and the shaky sub-prime mortgage market (which may translate into additional hedge fund collapses) will dampen investor exuberance. Furthermore, lower trading volumes throughout the week will exaggerate market volatility.

In our opinion market breadth was moderately negative. Advancers took a 17 to 16 edge over decliners on the NYSE but lagged by a 13 to 16 ratio on the NASDAQ. The majority of trading volume was on the downside both at the NYSE and the NASDAQ. It’s obvious that the major indexes have stalled since making record or multi-year highs in the beginning of June.

As we mentioned previously, the technical indicators we analyze are showing negative divergences from the index prices and have been do so since mid-May. Rising equity prices without confirmation by the technical indicators is not a comforting environment for stocks over the short-term.

On the sector basis, higher oil prices helped the energy and materials sectors move higher while the financial services sector moved lower as fears brewed over the Bear Stern’s hedge fund collapse. As mentioned above, worries about a pending “credit crunch” and its impact not only on consumer lending but more importantly on corporate borrowing will persist into the weeks ahead.

At this time there are no AAS Major Markets or Style Boxes carrying a ”Buy” rating. However, we are observing alpha generation on a sector basis with Internet (IAH), U. S. Technology (IYM), Global Technology (IXN) and Networking (IGN) sectors all carrying “Buy” rating.

Using a top-down approach, those seeking an opportunity to add alpha might benefit by looking deeper into the above sectors or by doing additional research into the following:

Technology: Novatel Wireless Inc. (NVTL), Blue Coat Sys Inc. (BCSI), NVIDIA Corp (NVDA), BankRate Inc (RATE), Synaptics Inc (SYNA), Commscope Inc (CTV), Apple Computers Inc (AAPL), Google Inc (GOOG), Factset Research Sys Inc (FDS), SPSS Inc (SPSS), PowerShares Dynamic Hdwr. & Elect. (PHW), Technology SPDR (XLK), Vanguard Information Technology (VGT), iShares DJ U.S. Technology (IYW), iShares Goldman Sachs Technology (IGM), Morgan Stanley Technology (MTK), B2B Internet HLDRS (BHH), Internet Infrastructure Holdrs (IIH), iShares GS Networking (IGN), iShares S&P Global Technology (IXN), Internet Architecture Holdrs (IAH), Fidelity Select Computers (FDCPX), Fidelity Select IT Services (FBSOX), Fidelity Select Network & Infrastructure (FNINX), ProFund UltraSector Telecom. (TCPIX), ProFund Ultra Sector Technology (TEPIX), Rydex Internet (RYIIX), Rydex Telecommunications (RYMIX) and Rydex Technology (RYTIX).

Industrials: Lindsay Manufacturing Co (LNN), Cascade Corp (CAE), Shaw Group Inc (SGR), Cummins Inc (CMI), Ceradyne Inc. (Calf) (CRDN), Kennametal Inc (KMT), Robbins & Meyers Inc (RBN), Spx Corporation (SPW), Precision Castparts Corp (PCP), Flour Corp (FLR), Industrial SPDR (XLI), PowerShares Aerospace & Defense (PPA) and Vanguard Industrials (VIS).

Energy / Natural Resources: Frontier Oil Corporation (FTO), National Oilwell Varco Inc (NOV), Transocean Sedco Forex Inc (RIG), Overseas Shipholding Grp (OSG), Occidental Petroleum (OXY), El Paso Corp (EP), Stone Energy Corp (SGY), Williams Cos Inc (WMB), ConocoPhillips (COP), Valmont Industries (VMI), Idex Corp (IEX), PowerShares Water Resources (PHO), PowerShares Dynamic Oil & Gas (PXJ), Oil Service Holdrs (OIH) and Fidelity Select Energy Service (FSESX).

We remain conservatively allocated in line with the recommendation of the AAS Market Model which 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 1821. Of those reviewed, 279 are rated "Buy," 815 are rated "Sell" and 727 "Neutral”. While we remain conservatively bearish, our Model Fund and Stock Portfolios are allocated around 25-50% invested and 50-75% in cash. Until the model turns bullish, we will likely maintain at least 25% of the portfolios 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 at 50-75% cash and 25-50% long.

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

Top AAS Rated Major Market – Fidelity Nasdaq Composite (ONEQ 6/1/07)

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

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

Martin Marietta Materials (MLM 11/6/06)

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

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

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

Google, Inc. (GOOG 5/29/07)

Apple Inc. (AAPL 4/24/07)

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

Cummins Inc. (CMI 1/31/07)

Robbins & Myers Inc. (RBN 6/12/07)

Top AAS Rated Short Stocks for Alpha

RTI International Metals (RTI 5/1/07)

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

Rogers Corp. (ROG 12/6/06)

Hovnanian Enterprises Inc. (HOV 12/21/06)

Simon Property Group Inc. (SPG 5/1/07)

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

Mid-Week Alpha

2007-06-27T22:51:00.000-04:00

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).

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation Recommendation – AAS Model Portfolios are allocated between 50-75% cash and 25-50% long.

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

Top AAS Rated Major Market – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

Top AAS Rated Sector for Alpha – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

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

Google, Inc. (GOOG 5/29/07)

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

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

Apple Inc. (AAPL 4/24/07)

Cummins Inc. (CMI 1/31/07)

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

Nash-Finch Co. (NAFC 2/21/07)

Novatel Wireless, Inc. (NVTL 1/4/07)

CommScope, Inc. (CTV 1/29/07)

Top AAS Rated Short Stocks for Alpha

RTI International Metals (RTI 5/1/07)

Brush Engineered Material (BW 5/1/07)

Hovnanian Enterprises Inc. (HOV 12/21/06)

Rogers Corp. (ROG 12/6/06)

Volt Information Sciences Inc. (VOL 3/26/07)

Alpha and the Week Ahead

2007-06-24T19:07:00.000-04:00

The coming week will likely experience a continuation of the recent volatility - but with a heavy dose of economic reports scheduled for release, we’re expecting to see the indexes close marginally higher for the week. Most investors will be waiting for the outcome of the Federal Reserve's interest rate meeting on Thursday, as well as personal income and spending reports, home sales and manufacturing activity throughout the week. The direction of bond yields, which have been on the rise lately, will be a key factor with the yield curve normalizing this past week from a flat slope over the past several months.

With oil prices closing above $68 a barrel and renewed apprehension surrounding the sub-prime market calamity, it’s not surprising that the markets sold off on Friday. The devastating collapse of two cross-collateralized Bear Sterns hedge funds resurrects an issue many investors had put on the back burner: whether the market has experienced the full extent of the sub-prime mortgage debacle. Furthermore, strikes on Nigerian oil fields coupled with the beginning of “driving season” are pushing oil prices higher, which the American consumer isn’t fond of.

At quarters end, professional investors begin to worry about last-minute jolts to their portfolios. And, as always, companies whose upcoming results won’t meet analyst expectations begin to confess their shortcomings. Even more telling in our opinion, is the large pool of corporate bonds which are awaiting issuance over the next several weeks. Concerns are already brewing over how easily the market can swallow the awaiting pool. This potentially means that Private-equity firms, which have shored up the much of market this year, may struggle in their future attempts to raise funding if any of the pending bond sales go poorly.

Hopefully you’ve noticed the returns of the AAS Model Stock Portfolio - up 11.24% year-to-date as compared to the benchmark S&P 500 Index which is up 5.94% for the same period. We’re quite happy with the results so far, especially considering the portfolio has been only 50-75% allocated for much of the year. We’ve also developed a long-short equity portfolio listed below. This strategy is up 6.62% since the introduction on May 29^th as compared to the benchmark S&P 500 Index which is down -1.02%. We’re exceedingly excited by this approach not only because of its strong performance so far, but in its ease of use for AAS subscribers.

In light of last week’s declines, the only Major Market still rated an “AAS Buy” is the NASDAQ 100 (QQQQ). However, ten of the twenty-one sectors analyzed for alpha are still rated an “AAS Buy.” There was no change in the leadership over the past week with iShares Dow Jones U.S. Energy (IYE) maintaining its dominance followed by iShares Goldman Sachs Natural Resource (IGE) and iShares S&P Global Energy (IYM). Rounding out the top five are iShares Dow Jones Basic Materials (IYM) and Internet Architecture HOLDRS (IAH). The only sector analyzed that turned in a positive week was the iShares GS Semiconductor (IGW) which gained 0.20% for the week. The remaining members, while down for the week, all did better than the broad markets. Alpha-producing securities from the top sectors include:

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).

We continue to believe that it is best to remain conservatively allocated in line with the recommendation of the AAS Market Model which 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 1821. Of those reviewed, 357 are rated "Buy," 831 are rated "Sell" and 633 "Neutral”. While we remain conservatively bearish, our 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.

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 – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

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

Martin Marietta Materials (MLM 11/6/06)

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

Google, Inc. (GOOG 5/29/07)

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

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

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

Apple Inc. (AAPL 4/24/07)

Cummins Inc. (CMI 1/31/07)

Manitowoc Company Inc. (MTW 3/16/07)

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

Top AAS Rated Short Stocks for Alpha

Brush Engineered Material (BW 5/1/07)

RTI International Metals (RTI 5/1/07)

NBTY Inc. (NTY 6/7/07)

Simon Property Group Inc. (SPG 5/1/07)

Hovnanian Enterprises Inc. (HOV 12/21/06)

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

Mid-Week Alpha

2007-06-20T22:37:00.000-04:00

The U. S. Markets eked out small gains early in the week only to give them back and more yesterday as fear and uncertainty moved the markets into negative territory for the week. Investors just couldn't shake their bond and energy afflictions Wednesday, and the major indexes each ended down more than 1%.

Stocks were dragged lower as the price of crude oil fell from a nine-month high. Further exacerbating the decline is the concern that rising rates will slow down the buyout boom that has propelled the market this year, as acquirers will have to fund acquisitions with higher-cost capital. Additionally, investors fear that rising rates will further damage the already battered housing market, crimp consumer spending and slow corporate borrowing, all of which have fueled the rise in stocks prices.

The news of the pending demise of the two leveraged hedge funds carrying the Bear Sterns name which focus on collateralized mortgage backed securities added to the already choppy session. Questions surrounding the amount of leverage used in these investment partnerships, which focus to a large extent on the use of derivatives to accomplish the partnership goals, loom large for the markets.

On a sector basis, all were down for the session lead by Energy, specifically oil and natural gas stocks. Only the Consumer Service and Consumer Goods sectors showed any signs of optimism today and that came from the Automobiles and Airlines categories.

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 – Fidelity Nasdaq Composite Index (ONEQ 6/1/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Growth (JKH 5/29/07)

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

Top AAS Rated Long Stocks for Alpha

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

Martin Marietta Materials (MLM 11/6/06)

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

Cummins Inc. (CMI 1/31/07)

Apple Inc. (AAPL 4/24/07)

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

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

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

Nash-Finch Co. (NAFC 2/21/07)

Google, Inc. (GOOG 5/29/07)

Top AAS Rated Short Stocks for Alpha

Brush Engineered Material (BW 5/1/07)

NBTY Inc. (NTY 6/7/07)

Simon Property Group Inc. (SPG 5/1/07)

RTI International Metals (RTI 5/1/07)

Volt Information Sciences Inc. (VOL 3/26/07)

Alpha and the Week Ahead

2007-06-16T19:26:00.001-04:00

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).

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

Mid-Week Alpha

2007-06-13T22:56:00.000-04:00

Reversing Tuesday’s losses in dramatic fashion, the bulls led the markets higher yesterday and pushed the Dow to its daily biggest gain in almost 11 months. A flurry of reports indicated full steam ahead for the

U.S.

economy, led by a consumer seemingly indifferent to price pressures. As if that weren’t enough to propel the indexes higher, interest rates reversed course, closing below the psychologically significant 5.25% level.

With Friday being an options expiration day, we’re expecting more volatility in the markets for the rest of the week. In fact, we’re expecting elevated volatility on a global scale over the next few months for several reasons. As mentioned before, this market is not being fueled by fundamentals. Instead, the driving force is the abundance of liquidity (easy credit) which is fostering unprecedented levels of M&A and LBO.

With over $82 billion in deals for the month of May alone, PE firms are jumping on just about any opportunity they can, knowing that within months the liquidity will begin to dry up and such deals will be more difficult to close. Our concern and what we feel our subscribers should be concerned about, is what will happen to the market when it’s no longer propped up by the abundance of liquidity.

As such, we remain conservatively bearish at this time. We have concerns that the levels of risk manifest in the market are being ignored. We’re cognizant that liquidity will, in all likelihood, remain abundant throughout the summer, which will potentially foster more gains. Assuming nothing substantial occurs on the geopolitical landscape, or we don’t have another devastating hurricane season, it’s reasonable to expect a modest up-trend for the summer albeit with elevated volatility. We’re going to try to capture as much of that up-trend as possible while being positioned conservatively to minimize volatility.

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 1827. Of those reviewed, 448 are rated "Buy," 838 are rated "Sell" and 541 "Neutral”. We have lowered our recommended allocation in the Model Fund and Stock Portfolios to 25% invested and 75% in cash.

There currently exists a dislocation in the technical condition of the markets; we are now seeing a negative bias with regard to breadth and short-term market momentum. However, analysis of trading volume shows it has resumed its positive stance. This condition typically occurs shortly after a market bottom and a resurgence of the up-ward trend.

There are several interesting adjustments in the model fund portfolio’s, particularly with regard to the surfacing of the ProFunds Short Real Estate Fund (SRPIX) and the Rydex Dynamic Strengthening Dollar Fund (RYSBX). This is a purely-momentum based selection in response to last week’s weak market activity. Also noteworthy is the continuing reduction in the Model Stock Portfolio allocation due to loss prevention rules. We will continue to see sector rotation as the markets trade on M&A news and sentiment for the next few weeks. Once the second quarter earnings are released in July, we expect fundamentals to being to take over.

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 NYSE Composite (NYC 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 – 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)

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

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

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

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

Cummins Inc. (CMI 1/31/07)

Apple Inc. (AAPL 4/24/07)

Nash-Finch Co. (NAFC 2/21/07)

Marathon Oil Corp. (MRO 3/14/07)

Top AAS Rated Short Stocks for Alpha

Volt Information Sciences Inc. (VOL 3/26/07)

Rogers Corp. (ROG 12/6/06)

Simon Property Group Inc. (SPG 5/1/07)

Public Storage (PSA 2/28/07)

RTI International Metals (RTI 5/1/07)

Alpha and the Week Ahead

2007-06-10T17:36:00.000-04:00

The three day sell-off of last week is the result of a rapid rise in interest rates which accelerated as the 10-year Treasury bond touched 5.25%. Generally rising interest rates are a negative for the stock market, which is attested to by the recent deterioration in the technical condition of the market.

In our opinion, the most negative aspect of the sell-off was its broad base with the largest declines being experienced by the broader market indexes rather than the DJIA itself. This deterioration is reflected in the sharp decline in the number of AAS Buy Rated Markets, Sectors and Style boxes. Noteworthy, however, is that while the absolute number of AAS Buy Rated securities dropped to a low this past week, it is no where near the lows of March 2007 or October 2005.

Our AAS Sentiment analysis remains bullish, plus the independent sources which we follow continue to report that there remains a significant amount or liquidity on the side lines. This typically indicates that investors have yet to become fully invested in the stock market which historically happens just before a major top is formed.

Our view of the market momentum is that it has deteriorated significantly this week as the advance/decline lines for both the NYSE and the NASDAQ suffered significant declines. The decline in the various utilities indices is worrisome as they may be breaking a four-year bull market. All of the other technical indicators which we follow show no real improvement in the overall short-term technical condition of the three major indexes despite Friday’s rally. We continue to advise our subscribers to remain cautious.

The market internals were positive Friday; quite the opposite for the prior three days. Although this rebound did not make up all the weakness of prior days, it may encourage the Bulls to again buy into the hopes of a further bounce up.

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, 426 are rated "Buy," 793 are rated "Sell" and 609 "Neutral”. We have lowered our recommended allocation in the Model Fund and Stock Portfolios to 25% invested and 75% in cash.

Looking into next week, the equity markets should be led by the bond markets. With few economic reports due, the May PPI and CPI numbers scheduled to be released on Thursday will likely give investors an indication of the impact rising rates will have for the stock market. Expectations are for a rise in both core PPI and core CPI numbers. Should these releases exceed expectations, they would be Bearish for stocks, while low numbers would have a Bullish implication.

Our Top-Down approach shows only the NASDAQ 100 as an AAS Buy Rated major market at this time. Those interested might look at either the NASDAQ 100 Trust Shares (QQQQ) or Fidelity NASDAQ Composite (ONEQ) as investable alternatives. Further analysis points out that the Mid Cap Core and Growth styles are currently rated an AAS Buy along with the Small Cap Core style. Alternatives here can be found with iShares Morningstar Mid Core (JKG), iShares Morningstar Small Growth (JKK) and iShares Morningstar Small Core (JKJ).

Moving on we look at the various sectors which are currently rated AAS Buy. The leader this week is Energy both with domestically and globally. Here we see opportunities with: Bristow Group Inc (BRS), Hornbeck Offshore Svcs Inc. (HOS), USX Marathon Group (MRO), National Oilwell Varco Inc (NOV) and Forest Oil Corp (FST). ETF’s and Funds that work within the Energy Sector would include: Energy Select Sector SPDR (XLE), iShares DJ U.S. Energy (IYE), iShares S&P Global Energy (IXC), Fidelity Select Energy Service (FSESX), Fidelity Select Energy (FSENX), ProFund Ultra Sector Oil & Gas (ENPIX) or Rydex Energy (RYEIX).

The next AAS Buy rated sector is Global Telecom. Opportunities here may be found with: Cincinnati Bell Inc. (CBB), Sprint Nextel (S), Qwest Communication International (Q), Verizon (VZ) and AllTel Corp (AT). ETF’s and Funds that work within the Telecom. Sectors are: iShares S&P Global Telecom (IXP), Vanguard Telecom Services (VOX), iShares S&P Global Telecom. (IXP), ProFund Ultra Sector Telecom. (TCPIX) or Rydex Telecom. (RYMIX).

Basic Materials is the third strongest AAS Buy Rated sector. Here we list the following stocks that currently carry an AAS Buy rating: Cleveland Cliffs Inc (CLF), Castle A M & Co (CAS), Lyondell Chemical Co (LYO), Olin Corp (OLN) or Lubrizol Corp (LZ). ETF’s and Funds that work within the Basic Materials Sector include: Materials SPDR (XLB), Vanguard Materials (VAW), ProFund Ultra Sector Basic Materials (BMPIX) and Rydex Basic Materials (RYBIX).

Technology is the fourth sector this week. Here opportunities can be found with: MIVA Inc (MIVA), Novatel Wireless Inc (NVTL), Cree Research Inc (CREE) and Apple Computers Inc (AAPL). ETF’s and Funds that work within the Technology Sector would include Morgan Stanley Technology (MTK), iShares Goldman Sachs Technology (IGM), Fidelity Select Computers (FDCPX), Fidelity Select Software & Computer (FSCSX), ProFund Ultra Sector Technology (TEPIX) and Rydex Technology (RYTIX).

Industrials are the fifth and last AAS Rated Buy Sector this week. Here we find Barnes Group Inc (B), Cubic Corp (CUB), Vicor Corp (VICR), Shaw Group Inc (SGR) and KBR INC (KBR) at the top of the list. ETF’s and Funds that work within the Industrial Sector include iShares Dow Jones U.S. Industrial (IYJ), Vanguard Industrials (VIS), Fidelity Select Natural Resources (FNARX), Fidelity Select Paper & Forest Prod (FSPFX), ProFund Ultra Sector Industrials (IDPIX).

Short-Term Technical Indicators

Investor Sentiment

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

Asset Allocation Recommendation – AAS Model Portfolios are allocated at 75% cash and 25% long.

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

Top AAS Rated Major Market – Nasdaq 100 Trust Shares (QQQQ 5/31/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Mid Cap Core (JKG 5/30/07)

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)

Apple Inc. (AAPL 4/24/07)

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

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

Google Inc. (GOOG 5/29/07)

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

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

Marathon Oil Corp. (MRO 3/14/07)

Nash-Finch Co. (NAFC 2/21/07)

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

Whole Foods Market Inc. (WFMI 5/2/07)

Volt Information Sciences (VOL 3/26/07)

Simon Property Group (SPG 5/1/07)

Regeneron Pharmaceuticals (REGN 5/17/07)

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

Mid-Week Alpha

2007-06-06T23:31:00.000-04:00

As expected in light of the recent market weakness, the AAS Market Model remains Bearish as it has been since 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, 618 are rated "Buy," 677 are rated "Sell" and 533 "Neutral”.

In the previous newsletter, we indicated to our Platinum level subscribers that the recommended allocations in the Model Fund and Stock portfolios were to be increased to 75% invested and 25% in cash. We will be closely monitoring various indicators within our models, especially those targeting volatility and momentum, over the coming days. If we continue to experience broad-based weakening, we may substitute an inverse fund for the 25% cash allocation or perhaps raise cash levels back to 50%. Until then, we advise our subscribers to favor the lower end of the recommended allocation range.

The recent upward adjustment in our recommended allocation range was triggered by the improvement in the Technical Indicators which are followed by the model. Market Breadth has been generally positive of late. Advancing issues continued to outnumber declining issues as evidenced by the slope of A/D line. The shorter-term indicators of both Breadth and Volume, which are monitored by the model, are positive (although weakening) and the histograms of these indictors are more reflective of the August - September 2006 period than the spring sell-off last year. As you may recall there was a stalling in the markets last summer prior to the resurgence beginning in late July which took the S&P 500 to a double-digit gain for the year.

Other indicators show the market to be in an overbought status, and with relatively thin economic events this week the trading volume is likely to remain light, thereby exacerbating the daily volatility of the markets. We could continue to see some pullback over the next few days. In addition, we’re beginning to observe caution flags being raised by institutional analysts, notably from Morgan Stanley yesterday. If the big boys begin taking profits in mass and adjusting their portfolios for the summer, we can expect several days or weeks of declines.

U.S. stocks are having difficulty staying on their record run, due primarily to frothiness in the M&A / LBO sphere as well concerning economic reports. Since nature abhors a vacuum, traders are now focusing on conjecture rather than fact, which again creates more short term volatility.

Yesterday’s market action will most likely be reported by the media as a reversal in the direction of the markets fueled by growing inflation concerns. These concerns are driven by comments of both Fed Chairman Bernanke and Federal Reserve Bank of Cleveland President Pianalto concerning the fact that labor costs rose three times faster than the government's previous estimate last quarter. The comments sent stocks to their biggest two-day decline since late in the first-quarter of this year. In our opinion it would be premature to signal a reversal in the positive momentum of the market at this time without additional follow through or confirmation.

The market internals are definitively negative for yesterday. Decliners beat advancers by a 4 to 1 margin on the NYSE and by a 2 to 1 margin on the NASDAQ. About 85% of the volume was on the down side on the NYSE while about 75% of the volume was down on the NASDAQ. None of the major sectors were spared in the decline. Basic Materials and Utilities appear to have been hit hardest.

As might be expected, Bond prices climbed in the face of the decline in equities. The 5-year treasury rose to a yield of 4.934%, the 10-year Treasury note closed yielding 4.968% and the 30-year bond ended at 5.082%.

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 Small Cap Growth (JKK 5/21/07)

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)

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

Apple Inc. (AAPL 4/24/07)

Google Inc. (GOOG 5/29/07)

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

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

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

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

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

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

The Corporate Executive Board Co. (EXBD 12/1/06)

Whole Foods Market Inc. (WFMI 5/2/07)

Komag Inc. (KOMG 12/11/06)

Regeneron Pharmaceuticals (REGN 5/17/07)

Alpha and the Week Ahead

2007-06-03T00:53:00.000-04:00

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).

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)

Mid-Week Alpha

2007-05-30T22:56:00.000-04:00

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 – 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 – iShares Dow Jones U.S. Energy (IYE 3/19/07)

Top AAS Rated Long Stocks for Alpha

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

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

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

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

Apple Inc. (AAPL 4/23/07)

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

Chemed Corp. (CHE 3/8/07)

Fremont General Corp. (FMT 5/22/07)

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

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

Top AAS Rated Short Stocks for Alpha

Rogers Corp. (ROG 12/6/06)

Komag Corp. (KOMG 12/11/06)

Cambrex Corp. (CBM 5/4/07)

Whole Foods Market Inc. (WFMI 5/2/07)

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

Alpha and the Week Ahead

2007-05-28T22:24:00.000-04:00

Whether it was Alan Greenspan’s comments late in trading session Wednesday when he stated that the lofty level of the Chinese equity markets is unsustainable or investor's preparing for the long Memorial Day weekend, this week the Bull’s clearly elected to take their profits and go to the shore for a well deserved three day break.

In Friday’s slow pre-holiday trading session, stocks recovered some ground from Thursday’s declines aided by yet another wave of M&A activity which re-ignited positive moods among investors. The DJIA gained 66.15 points (+0.49%) to close at 13507.28. The S&P 500 gained 8.22 points (+0.55%) at 1515.73 while the NASDAQ rose 19.27 points (+0.76%) to close at 2557.19.

However, Friday’s gains were not enough to make up the losses from the previous four trading days. All three major indexes were down for the week. The DJIA had its seven week winning streak snapped, down 0.36% for the week. The S&P 500 declined 0.46% for the week after failing to break its previous closing record on multiple tries. The NASDAQ declined for a third straight week closing at and was off 0.05% for the week.

This week’s declines were also reflected in the continued weakening in the Technical Indicators which our Major Market Model follows. The NYSE advance/decline line was lower for a second week in a row. Although new highs continue to outnumber new lows on both the NYSE and the NASDAQ, the number of new highs continued to decline. A shift from large cap to small cap dominance is of significant importance to our model and the small cap Russell 2000 index outperformed other major indexes gaining 0.76% for the week.

Bond prices edged down Friday after this week’s news releases of new home sales, durable goods and jobless claims reports suggested the Federal Reserve will not cut interest rates in the near future. The five-year note fell 3/32 to yield 4.80 percent. The benchmark 10-year note slipped 5/32 to yield 4.86 percent and the 30-year bond was down 6/32 to yield 5.00 percent.

In currency trading, the Euro bought at $1.3430, down from $1.3460 late Wednesday. The greenback traded at ¥121.42, down from ¥121.65 in the previous session.

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 1831. Of those reviewed, 568 are rated "Buy," 687 are rated "Sell" and 576 "Neutral”. The recommended allocation in the Model Fund Portfolio’s is 50% invested and 50% in cash, while in the Model Stock Portfolio the allocations have been reduced as individual securities lose their directional trend or violate an internal Sell rule.

The tone for the coming week will be set by the heavy dose of the economic data scheduled to be released which will give investors something new to digest. The FOMC meeting minutes will be released on Wednesday. The Q1 preliminary GDP is due on Thursday. And the most important data for the week is probably going to be the May employment report due out on Friday.

A quick review of our AAS market analysis indicates that the Large Cap holdings are leading the market of late with Large Cap Value being the style of choice. However, interestingly we see Small Cap Growth again begin to emerge as a Style leader after having slowed down over the past several months. This supports the shift taking place in our market model mentioned above.

Currently we are rating six of the ten S&P Sectors as AAS Buy’s led by Energy Select Sector SPDR (XLE), iShares S&P Global Telecom (IXP), Industrial SPDR (XLI), Technology SPDR (XLK), Materials SPDR (XLB) and Health Care SPDR (XLV).

Alpha Generating Equities to look at from within these sectors include:

Telecommunications: Cincinnati Bell Inc. (CBB), Embarq Corp (EQ), Verizon (VZ), Qwest Communication International (Q) and Sprint Nextel (S).

Energy: W-H Energy Services Inc (WHQ), Hornbeck Offshore Services Inc. (HOS), Peabody Energy Corp (BTU), Bristow Group Inc (BRS), Ashland Coal Inc (ACI).

Basic Materials: OM Group Inc (OMG), Chaporral Steel (CHAP), Reliance Steel and Aluminum Co (RS), Lyondell Chemical Co (LYO) and Alcoa Aluminum (AA).

Industrials: Barnes Group Inc (B), Armor Holdings (AH), Woodward Governor Co (WGOV), Edo Corporation (EDO) and KBR INC (KBR).

Health Care: Cryolife Inc (CRY), Chemed Corp (CHE), Bausch & Lomb Inc (BOL), Schering Plough Corp (SGP) and PDL Biopharma Inc (PDLI).

Technology: Novatel Wireless Inc (NVTL), Phoenix Technologies Ltd (PTEC), Acxiom Corp (ACXM), Maximus Inc (MMS) and Commscope Inc (CTV).

Current ProFund mutual funds that match up with these sectors would include: ProFund Ultra Sector Oil & Gas (ENPIX), ProFund Ultra Sector Telecom (TCPIX), ProFund Ultra Sector Basic Materials (BMPIX), ProFund Ultra Sector Industrials (IDPIX) and ProFund Ultra Sector Pharmaceuticals (PHPIX).

Several Fidelity funds which are currently rated AAS Buy and are from within these sectors include: Fidelity Select Energy Service (FSESX), Fidelity Select Telecommunications (FSTCX), Fidelity Select Natural Resources (FNARX), Fidelity Select Materials (FSDPX) or Fidelity Select Chemicals (FSCHX).

The Rydex family currently has only three members which are rated AAS Buy and are from within these alpha generating sectors including: Rydex Energy Services (RYVIX), Rydex Basic Materials (RYBIX) and the Rydex Telecommunications (RYMIX) fund.

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 – Diamonds Trust, Series 1 (DIA 5/3/07)

Top AAS Rated Style-Box for Alpha – iShares Morningstar Large Cap Value (JKF 5/3/07)

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)

CPI Corp. (CPY 1/23/07)

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

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

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

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

Apple Inc. (AAPL 4/24/07)

Chemed Corp. (CHE 3/8/07)

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

CIGNA Corp. (CI 1/29/07)

Top AAS Rated Short Stocks for Alpha

Chicago Mercantile Exchange (CME 3/15/07)

Public Storage Inc. (PSA 2/28/07)

Cognizant Technology Solutions Corp. (CTSH 4/2/07)

Rogers Corp. (ROG 12/6/06)

Komag Inc. (KOMG 12/11/06)

Review of Last Week’s Top AAS Rated Stocks