AlphaProfit Newsletter: June 2010 Indicator Update

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AlphaProfit Newsletter: June Indicator Update
June 1, 2010

Dear Valued Subscriber,

The Core and Focus model portfolios will be repositioned for the evolving market environment after the markets close on Wednesday, June 30. To help you closely track the model portfolios, we will publish the Repositioning Alert by 12:00 p.m. Central Time on June 30 in the Subscriber Login area. We will notify you via e-mail when the Repositioning Alert is published on the web site.

Prior to repositioning the model portfolios, we are not making any changes to the sector and industry recommendations or the model portfolios. The current model portfolio compositions as well as exchange-traded fund (ETF) and mutual fund recommendations are available in the Subscriber Login area of the web site. View Current Model Portfolio Composition (login required)

Market Developments

Bearish sentiment dominated the month of May. The S&P 500 lost nearly 8% and the MSCI World Index of 24 developed nations lost almost 10% marking their worst monthly decline since February 2009.

Global markets succumbed to repeated selling pressure as investors reacted to negative news headlines from Europe and Asia. Continued concerns over the fiscal situation in Europe and the possibility of a contagion heightened by the bailout of Greece, the takeover of regional savings banks by Spain's central bank, and the downgrade of Spain's sovereign debt rating pervaded through the month.

Investors were also unnerved by the partial ban on short sales of some securities in Germany, rising tensions between North and South Korea, and an unexplained 1,000-point intra-hour plunge in the Dow Jones Industrials on May 6.

Looking beyond the equity markets, the euro came under substantial pressure and plunged below levels seen since 2007. The flight to safety pushed the yield on U. S. Treasury bonds to 3.06%, the lowest since April 2009.

Against this backdrop, positives such as a better-than-expected April employment report, tame inflation numbers, and upbeat earnings reports from the retailing sector were basically ignored.

Two events triggered sharp rallies as short sellers rushed to cover: One following the announcement of a 750 billion euro ($1 trillion) bailout package from the European Union and the International Monetary Fund to preserve financial stability in Europe and the other following China's reassurance that it was committed to maintaining European investments.

Recommendation Change in Auto

We are adding shares of Asbury Automotive Group to the AlphaProfit Auto Basket for ETF Investors. Asbury shares have fallen victim to May's bear market declining 15%. The Georgia-based auto retailer is executing well having exceeded analysts' first quarter EPS estimates by 80%. Asbury's shares trade at a high single-digit multiple vis-à-vis the prospect of EPS growing nearly 45% in the next year.

We believe risky Asbury shares can rebound if the market environment improves in June. To make room for Asbury, the position in the other three basket constituents is adjusted. The AlphaProfit Auto Basket now includes Asbury Automotive (ABG, 10%), Autoliv (ALV, 30%), Honda Motor (HMC, 30%), and Johnson Controls (JCI, 30%).

Fidelity Select Automotive remains a preferred investment for playing the auto thesis.

Sector Portfolio Indicator and Market Outlook

May's sharp sell-off has placed the broad U. S. equity averages in an oversold territory on a near-term basis. We believe equity prices can attempt to stabilize in the current range and stage a rally. We however have concerns on both the magnitude and duration of this potential rally.

Our concerns can be summed in two words: slowing growth. Leading economic indicators suggest that economic growth in the U. S. is sputtering. The Conference Board's index of leading economic indicators fell 0.1% in April marking the first decline since March 2009. Manufacturing activity in May as measured by the Chicago purchasing manager's index has retreated from a five-year high reached in April.

While Europe's problems may not necessarily spread, we believe the U. S. will feel the impact. U. S. economic growth is likely to moderate in the upcoming months making further improvement in the employment picture slower-than-desirable.

We rate the AlphaProfit Sector Portfolio Indicator 'Wait'. Should a sizeable rally materialize taking the S&P 500 above 1,130, we encourage you to sell portions of equity holdings to raise the cash level to between 7% and 32% based on investment objective and risk tolerance. The recommended cash level represents an increase from the 5% to 30% range currently recommended. (On May 28, the S&P 500 closed at 1089.41.)

Model Portfolio Performance

The AlphaProfit model portfolio returns as of May 31, 2010 are as follows:

	May 2010	YTD*	1 Year	3 Year	5 Year	Sep. 2003 Incep.
Focus Model Portfolio	-6.4%	7.2%	27.7%	-30.3%	8.3%	63.3%
Core Model Portfolio	-7.1%	5.7%	31.5%	-20.9%	15.7%	48.1%
DJW 5000 Total Mkt. Index	-7.9%	0.0%	23.7%	-21.5%	6.6%	33.8%

* YTD refers to December 31, 2009 to May 31, 2010 period

Stock recommendations will be included in the June Report due for publication on the 12th.

We welcome your comments.

Best regards,
Sam Subramanian PhD, MBA
AlphaProfit Investments, LLC
Ideas. Insights. Results.
http://www.alphaprofit.com

Notes: The AlphaProfit Sector Investors' Newsletter™ is for information purposes only. AlphaProfit Investments, LLC is not soliciting any subscriber to buy or sell any security. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. The products mentioned herein may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Before buying or selling any mutual fund, exchange-traded fund, security, or investment, read the prospectus carefully. For securities held in brokerage accounts, read the broker's specific terms and conditions which apply to trading of the securities. AlphaProfit Investments, LLC cannot and does not give any assurance that the present or future model portfolio changes will be profitable. Past performance is not a guarantee for future results. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the mutual fund companies, brokers or entities connected with the exchange-traded funds mentioned in the newsletter. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of this newsletter. No part of the AlphaProfit Information may be reproduced or re-transmitted in any manner without written permission of AlphaProfit Investments, LLC.