Stockscom Report for Sunday July 22, 2001

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

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

Cheap PC’s for sale – final liquidation!

Time for quarterly reports and future indications

Market Synopsis

Psst!… Want to buy a computer? The long overdue announcement came on Friday that for the first time in 15 years quarterly personal computer sales worldwide dropped. (They’ve actually dropped for the last 3 quarters in the US). And with inventories still high, tons of available capacity for producing more, and pricing pressure most notably coming from Dell, the end is not near. Naturally, the same goes for semiconductor chips where the glut means there are more than a few to sell to anyone willing to buy. All told, we’re about to see the best possible time to ever buy a PC.

Incidentally, those PC purchases or any other purchases for that matter are just what the federal government and Mr. Greenspan are dearly hoping for especially with those wonderful tax rebate checks going out. The busy consumer is all that separates growth in the economy from recession. If the consumer continues to spend, and that is a big IF, then the chances favor missing a recession. The growing problem is that unemployment has not shown signs of stabilizing and/or falling and consequently, the rising number of layoffs exacerbates the weakness in the economy through the attrition of consumers. It is our belief that this recovery will be so protracted that the threat of recession remains real and omnipresent.

The major successes of the recent economy have been houses and cars. Now we see a slowing down of rate cuts by the Fed and, having experienced such a deep decline, anyone tempted to act on these rates will probably have done so already. Retail sales over the next few months will probably begin to show real signs of severe deterioration, which coupled with more layoffs, could plant the seeds of fear of job loss and a further clamping shut of wallets. The consumer is hardly likely to sustain the economy until business investment begins to pick up significantly.

Technically the markets are showing some weakening strength with the Nasdaq and the Dow hugging resistance levels on the weekly and daily charts, which if surpassed, would be significant. But given the abundance of lowered projections and thick fog clouding the corporate ability to visualize the future, we predict some easing in the market indexes over the coming weeks as institutions back off once again from investing too heavily into this volatile situation.

Of the three major markets, the Nasdaq appears to be the weakest link in the chain. On the heels of another reversal week, it continues to follow closely the resistance line directly above it on the weekly chart and hasn’t the conviction to cross that line. When analysts everywhere are looking at essentially the same lines on the graph, the resistance line becomes a barrier and a visual cue of a self-fulfilling prophecy.

This past week was a harbinger of things to come. Announcements were made from many sectors and notably few professed a belief that the good times were returning. Certainly there are always companies that put a positive spin on the health of their companies, but most seemed to be satisfied with donning a dour conservative tone in their reports to investors. (Microsoft was perhaps an exception by repeating their annual habit of lowering expectations for the coming year while recording current quarterly revenue and sales that exceeded most estimates.)

Our Stocks

Most share prices of the stocks we own or sold changed very little over the past week. Boeing continued to move in the wrong direction, but now appears ready to settle back after rallying a couple points. On the long side, the closed end bond funds each rallied in expectation of further rate cuts.

Looking over other shorts, we see that Amazon has stabilized and perhaps exhausted this most recent climb while technically it still has yet to seriously damage any trend and is now hitting resistance directly above.

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
30 percent restriction on foreign stocks held in these accounts.

·       Rolled from the March contract and price adjusted

Short Sales