Stockscom Flash Report - Wednesday May 23, 2001

Publisher: Colin Alexander (613-745-5593) Editor: Ken Wilson (450-691-4617)
Subscriptions and Administration: Pierre Fichaud (1 866 487-9711)

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Despite the substantial drops in all three major markets today (the Dow Jones, the S&P 500 and the Nasdaq), our recommended holdings performed admirably. Nevertheless, the first two markets showed distinct signs of weakness falling below their Friday's close. The Nasdaq due to its strong performance on Monday was able to close above Friday's close though it too displayed significant weakness.

In the case of the Nasdaq, it appears to have hit head first into the resistance level of 2250. While it succeeded in passing through it momentarily (Monday and Tuesday), the risk to reward is heavily weighted in favor of a descending market at this time. And since this market is the most volatile and is currently in an overbought state, the potential for a strong move downward increases. Don't forget we are approaching the warnings season again for second quarter profits and in similar fashion to the first quarter, we expect a tremendous amount of warnings to put downward pressure on the market.

One additional wildcard that was thrown in today was the defection of Jim Jeffords, a senator from Vermont, from the Republican party in order to sit as an independent. Now the Senate is no longer evenly divided between Republicans and Democrats and consequently the uncertainty could generate market action resembling the carnage in the Fall when uncertainty befell the presidential election and the markets especially the Nasdaq slid uncontrollably into an abyss.

Overall, we interpret this action as normal cyclical market action which will probably continue for several more months before any sign of bull recovery appears on the horizon. The bear market will continue to show its head around here with its characteristic zigzagging downward movement punctuated by occasional strong bear market rallies.

We advise our investors to remain cautious and refrain from initiating new positions. We are not calling for a movement to cash but without a doubt the yellow flag is being waved. Depending on portfolio balances, some investors should consider selling a portion at this point to protect profits.