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