Stockscom Report for Sunday June 10, 2001

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

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

Markets are moving sideways with some bearish tendencies developing

New warnings trigger irrational behavior

Market Synopsis

Stock indices early this week displayed surprising resilience in the face of on going and newly released data demonstrating once again the extremely fragile state of the economy. Most notable were the unemployment numbers, which in nominal figures closely compared to those of the early 1990's when the economy was in a recession. Granted, the work force has expanded considerably since then and as a percentage, the numbers remain lower than comparable percentages of that time, but we feel that this employment condition remains a threat that must be carefully watched.

One group feeling the immediate pain of the skyrocketing unemployment figures is the retailers who find that consumers are keeping their wallets in their purses. Notwithstanding the generally poor weather in much of the country during the month of May, many large retailers were forecasting a sharp contraction in sales and profits through the next few months.

With the global slowdown intensifying, more and more companies are laying off employees in order to rein in their costs and belatedly react to the sharp reduction in demand for their products. Without a doubt, the telecom industry is the hardest hit in this "New Economy" and we have noticed in our own high-tech backyard, reports of the sharp increase in repossessed Porsches and BMW's as well as a forecast that much of the office space taken up by these telecom firms in the past 2 yrs, could become vacant in the near future. The domino effect of this serious downturn could be disastrous for some regions with higher unemployment, lower consumer demand, lower corporate demand, and lower tax revenue. The ripples join together and make waves.

Even the chip stocks such as Intel, which did suggest that there was dim light at the end of a long tunnel, described the communication chip sector as a great unknown moving forward. We remain skeptical about any prediction of a V-shaped bottom or looking across a valley to the upward sloping market graph, but the markets certainly perceived this talk by chip manufacturers as bullish in nature and pushed the Nasdaq higher by mid-week. Our interpretation of the chip manufacturers comments is that chip production won't need to fall much further and that it will stabilize to a certain degree. However, pricing pressure continues to mount as demand remains slack and this in turn puts pressure on the profit figures of these companies. Right now, there is buyers out there, but only if the price is right.

Looking at the technicals of the Nasdaq, we see a potentially dangerous head and shoulders formation in the making. Unless the May high is taken out and we don't believe it will, this market has nowhere to go but down. Moreover, the weekly chart shows the index hitting a wall of resistance at the 25-week moving average and a market trending towards an overbought state. In sum, it would appear that the next step down is about to begin and you'll have to hold your seat because it could be a wild ride. Friday's close down of 49 points appears to be the signal of this step.

The S&P 500 chart action is almost identical to the Nasdaq formation. Again on the weekly chart (actually more clearly seen on the daily chart), we see the same head and shoulders formation and a strongly overbought condition. In fact the S&P has remained inside a downward sloping channel since the end of August 2000 and at this point it's at the high end of the channel thus appearing ready for another downward swing and perhaps an attempt for a new low.

As for the Dow Jones, the market remains range-bound and having hit a peak a couple of weeks ago, would ostensibly be heading downward as it has done several times in the past two years. It appears to be quite unhitched from the other two major indices and continues to follow its own sideways movement. But, we believe that this market could turn sour rapidly if market sentiment suffered under a new assault on the other two markets.

In both the S&P and the Dow, there are clear double downside reversals on the weekly graphs, which only serve to add the final nails to the coffin. The overall abundance of indicators leads us to deliver a sell recommendation on the general markets and more specifically the Nasdaq (through our sister publication Fivestar Futures), which we believe offers the best risk to reward scenario.

Recommended Actions

Our shorts performed very well this past week with JNPR finally owning up as the latest casualty of the business slump. We had found it difficult to believe that they had somehow avoided the tech wreck of recent times. With respect to MCD and KO, technically, they both hit their peaks two weeks ago and have responded by double weekly downside reversals of their own to stay stuck within their downward sloping channels, thus we consider this a healthy indication of an add to the current sell positions. Any risk of upside movement is minimal in both of these issues. A similar situation appears to be building for both C and AMZN though we would hesitate to offer the same recommendation at this point.

In the case of our longs, we express extreme caution moving forward and despite the fact that a couple of issues could be added to under normal circumstances, we refuse to offer this recommendation due to the overbearing technical indications of a bear slide beginning.

With individual stocks, we see SCIO finally reversed on the week and performed admirably regaining much of the lost ground and staying above our selling price. We believe that the retracement came to an abrupt stop and this should bode well for the coming week.

Other honorable mentions go to ALLY, which completed double weekly upside reversals and looks set to go higher and ACG, which appears to be gunning for a new leg upward.

TRP and PDS are both being watched carefully. In the case of TRP, we see a three-month period of consolidation meeting the 25-week average now and this should provide the impetus to start a new leg up. Also on the weekly chart, PDS has retraced to the low of the rising channel, which has contained it for six or seven months. If it breaks to the downside, we would recommend selling it at this point. But, we believe that there is a strong possibility that PDS will begin a new leg up due to the overwhelming evidence of energy drilling programs on going and planned for the future.

New Buy Recommendations:

None.

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.

·       Rolled from the March contract and price adjusted

Short Sales