Stockscom Report for Sunday April 29, 2001

Publisher: Colin Alexander (613-745-5593) Editor: Ken Wilson (450-691-4617)

Subscriptions and Administration: Pierre Fichaud (1 866 487-9711)

 

Oils and oil service companies continue to look great

Quiet week overall in the markets

 

Market Synopsis

 

Despite the GDP figures published on Friday that announced an unexpected measure of 2.0% growth in the US economy for the first quarter, there continues to be evidence of a weakening in certain sectors. In fact, the strength of these numbers seems more likely to be attributed to home sales and light trucks demonstrating that while companies may have problems finding credit, the American consumer always has the ability to find the eternal fountain of cold cash for borrowing.

 

While home sales could be seen as a natural sign of the dubious work performed by Allan Greenspan to lower interest rates, the large increase in light trucks (read: 7-passenger vans and SUV's) is not likely to be sustained over the next six months. Already there have been reports of GM and Ford cutting back production and employing various marketing strategies to reduce the inventories. Our view remains that one can only purchase so many of these vehicles to satisfy those transportation needs.

 

In most other areas of the US report of GDP, growth was either miniscule or essentially declining. This performance coupled with the continuing slate of layoff announcements, shows up in the large drop in consumer confidence as measured by the Conference Board. In sum, the 2.0% growth was an anomaly and doesn't really represent the economic weakness that's spreading. We believe that banking, financials and insurance sectors haven't really begun to reflect this weakness and this alone explains our stubborn commitment to shorting Citigroup.

 

Looking at the markets, we find individual issues showing good strength but that the underlying downtrend of the markets pushes the inherent risk levels to points much higher than what we're comfortable with. In the case of the S&P 500, the downtrend line of resistance has reached the 1290 level, thus with the current measure of 1253, we see very little upside to this broad measure of US markets.

 

In general, there seems to be a quiet lull in the action before markets make a concerted thrust downward to a lower level. As we mentioned last week, the Dow Jones has yet to demonstrate a significant breakdown. It continues to trade in a broad range that it's been bound inside of for the last two years. And in the case of the Nasdaq, the little correction last week may have unwound enough of the near term overbought condition to permit at least some further upward movement.

 

It's worth noting that one wild card in this market action is Argentina. The country of Argentina is grappling with a growing debt problem stemming partly from pegging its currency to the American dollar and partly from government fiscal policy. Fears of another Mexican peso crisis or Asian currency crisis are undoubtedly on the minds of the Fed governors. As with the last crisis begun in Asia, the Fed would feel compelled to loosen the purse strings and increase the money supply to avoid credit crunches. A scenario such as this could provoke another serious drop in the markets with fear and uncertainty the supreme rulers.

 

 

Recommended Actions

 

We are making one cautious recommendation this week and that is Skechers (SKX), a growing shoe company with a presence in over 100 countries. Their rapidly expanding ventures in Europe could drive earnings far beyond their own estimates. This past week they released first quarter earnings, which proved to be more than 50% greater than estimates and they are reported to be stealing market share from the likes of Nike. In a weaker economy, this company might see even greater sales due to their fashionable line of shoes, which have retail prices much lower than the competition.

 

As it is a cautious recommendation given the current market conditions, we propose that anyone purchasing shares should begin with a small position.

 

Again this week saw some notable upward movements in Occidental Petroleum, Ultramar, and Kinder Morgan. In fact, all three of these continue to hit new yearly highs and could still move higher in the near term.

 

The two shorts that we wrote about last week, Amazon.com and Juniper, have, as we predicted, demonstrated weakness or perhaps a better word would be exhaustion. Amazon.com announced a lower loss than the consensus estimates and still the stock price lowered by the end of the week. So in spite of the company announcement of the improvement and the more rapid approach to profitability, more people chose to dump the shares. 

 

New Buy Recommendations:

Skechers (SKX)

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

None

 

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a
20pc restriction on foreign stocks held in these accounts.

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
02/01/01	Acm Government Income Fund	ACG	8.07	7.97	H
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.10	H
12/18/00	Alberta Energy Co.	AOG #	42.63	49.59	B
12/18/00	Kinder Morgan	KMP	50.00	69.35	B+
12/18/00	Occidental Petroleum	OXY	21.88	29.80	B+
02/01/01	Pioneer Interest Shares	MUO	11.95	11.55	H
12/18/00	Precision Drilling	PDS #	33.19	42.28	B+
12/18/00	Trans Canada Pipelines	TRP #	11.19	12.00	B
12/18/00	Ultramar Diamond Shamrock	UDS	28.38	45.43	B+
02/12/01	US Treasury 20 Year Bonds	USH	104.21	104.21	B

·        Rolled from the March contract and price adjusted

Short Sales

Date of entry	Name	Symbol	Entry Price	Current Price	Action Rating
03/21/01	Amazon.com	AMZN	10.38	15.27	S
03/21/01	Citigroup	C	44.31	50.91	S
12/18/00	Coca-Cola	KO	54.00	47.00	S
03/21/01	Juniper Networks	JNPR	53.00	55.02	S
03/21/01	McDonalds	MCD	25.60	27.11	S

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