Saturday January 24, 2015

$SPY, $STUDY, The Alpha One Model continues to perform as designed, up in excess of $13m YTD from the starting portfolio balance of $60m.  The lion share of the gain has come from the hedging activities which use intraday trading of Options to offset market swings which may impact the portfolio holdings.  The model holdings are now at Long 52% with Cash of 48% which is slightly lower than the recently raised recommendations generated by the Asset Allocation model which are at 75% Long and 25% Cash.  There are several names on the current Watch list that I will be watching in the coming week, albeit with a conservative eye.

The technical condition of the market improved last week as evidenced by the Alpha Market Model summary.  The OTC returned to a Buy Status but all four members still carry a neutral opinion. The first two weeks of the earnings season have been lackluster with only the OTC carrying a positive YTD return. The overall technical indicators are telling us that near term downside is likely to be limited. For the next week it is up to the tech companies to brighten the earnings picture – MSFT on Monday, AAPL and AMGN on Tuesday, FB on Wednesday, and AMZN and GOOGL on Thursday. Overall, the short term momentum favors the bulls. However, we are in earnings season, as we know it is up to earnings to determine each stock’s fate.

Last week the scenario set up by the technical indicators was slipping into bearish territory but at the end of the current week the scenario has reversed course finishing mostly bullish territory.  Confirming the change of direction was a new all-time high by the NYSE Advance/Decline line and an expansion of the NYSE new 52-week highs vs. new 52-week lows. This week’s jump was expected as the market has rallied on every instance of quantitative easing. However, the outlook is still cloudy looking out over the next week or two. While low interest rates continue to keep a floor under the market, earnings season has been mixed and the fall in oil related stocks is weighing on the broader market.

If the market stalls over the coming week or two it could still be susceptible to a further pullback based on high valuations due to the cuts in fourth quarter earnings. As was mentioned last week, volatility should continue going forward. The next FOMC meeting convenes on Tuesday and Fed chairperson Janet Yellen will give an update on our economy. If the Fed hints at a bump in rates (unlikely), investors could use the change in language on the economy as an excuse to take profits.