Stockscom Report for Sunday June 17, 2001

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

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

Bearish tendencies become reality as all three majors dive

We prefer to stand aside and become spectators

Did they really say $19 BILLION?!?!?

Market Synopsis

As we cautioned last week, the weak technicals did breakdown this week in the face of more evidence of a further weakened economy and more warnings preceding the inevitable (lack of) earnings announcements. We see key failures in all three principle markets with the S&P500 and Nasdaq demonstrating failure at the highly resistant downtrend line. These two particular markets appear to be heading for major tests of the previous lows that were established in April 2001.

In the case of the S&P, assuming a break of the support line created by the previous low at the 1080-1090 level, we see long term support at the 920 level, which it dropped to in the Fall of 1998. A dive to 920 would represent a 40% retracement from its peak in the Spring of 2000, which when looked at from a long term perspective is actually quite a normal situation. This plunge almost pales when compared to 1974, which saw a greater than 50% decline from market top to market bottom that began in 1973.

As for the tech world represented by the Nasdaq Composite, the most recent low providing support occurred at the 1619 level, but we see the long term support line at 1357 reached in the Fall of 1998 as the more viable of the two supports. From top to bottom, the retracement here is 68% from the peak. There is no precedent for this magnitude of drop in the history of the Nasdaq market.

The Dow Jones, which we have described as being unhitched from the movement of the other two markets, displays a clear weekly Lindahl sell signal and with this downward movement should be in a position to test the low of 9100 that it hit in March. Long term support of the Dow is located around the 7400 level, which it dove to in the Fall of 1998 much like the other two markets.

The economic news released this week can be summed up as more doom and gloom. More layoffs were announced and production utilization rates were down to levels not seen since 1983. Factories continue to cut shifts as efforts are spurred to conserve cash and better match production to the lower demand. We continue to see a weakening economy and believe that major recovery in the stock market will not take place until the fourth quarter of 2002.

Telecom Hits The Skids (Again…)

Nortel gave us the whopper of the week with its announcement of an expected $19 billion loss for the quarter. Again this involved further layoffs (10,000) beyond those already planned (20,000) and a reduction in both production and business units. The takeovers of the past few years have certainly taken their toll on Nortel as an increasing number are being written-off completely and operations are mothballed. Part of their announcement was the detail that 8.8 million square feet of office and production space was being released. This reduction added to the job cuts habitually causes large ripple effects throughout the economy. We’ve seen in our own region small and medium-sized businesses, which supply the likes of Nortel, that are now reducing their production as a consequence of the slowdown. These companies have gone from three shifts to single shifts per day and new plants, that were built in anticipation of future production, lie dormant. The announcement related only to Nortel, but the effects continue to widen in their massive supply chain. This deceleration means higher unemployment, lower consumer and corporate demand, and increases in bankruptcies.

Other telecom companies making news this week included 360networks, which said it would be skipping its $10.9 million interest payment owed on Friday. This company is the latest casualty in the telecom battlefield and it appears likely that they will be heading for bankruptcy protection in the not-so-distant future. Already this year that club, telecom firms defaulting, has delivered a net default of $15.8 billion, which compares to $6.5 billion for all of last year.

Our Stocks

Last week we heard from one of our shorts, Juniper, and Friday we heard from another, McDonalds, who finally admitted what we had already guessed: the strong dollar and mad cow disease would be taking a big bite out of earnings. With all three markets heading downward, we continue to hold a steady hand with the pool of shorts.

We continue to watch TRP and PDS carefully. As we mentioned last week, TRP looks poised to move out of its 3-month consolidation as the current price meets the rising 25-week moving average. Certainly with the general malaise in the market, the dividend yield of 7.4% is a strong attraction. In the case of PDS, we see it as having completed its retracement and now it appears primed to continue its upward climb. Fundamentally, indications are that drilling activity is increasing across North America and the Bush Administration’s clear support for a continental energy policy should benefit drilling service companies.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

Reminder - Friday we sold our positions in:

ALLY

AMGN

QFAB

SKX

SCIO

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