Stockscom Report for Sunday July 29, 2001

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

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

Surprise announcement: JDS Uniphase admits it overpaid for some of the assets purchased in the past year!

GDP slows to a crawl – is a recession looming?

Notable Stocks This Week

This week’s star performer was JDS Uniphase, which announced an $8 billion loss for the quarter and a terse “no comment” for projections of its future performance. Now under the regulation concerning fair disclosure, this is quite acceptable behavior and we’re sure that small investors can take heart that the large investment houses on Wall Street have no better direct information than they do on the once titan of the telecommunications industry. JDS added that they were proceeding with a writedown of approximately $44 billion of goodwill and assets attributed to the purchases of the past year and that they would be cutting an additional 35% of their workforce.

Coming in a close second for performer of the week status was the once mighty Amazon.com, which is seeing what we’ve been predicting for some time now. The consumers are not spending as much as they were and this is hitting the bottom line. Earlier this year, Mr. Bezos boldly proclaimed that Amazon.com would have an operating profit at the end of the year. Now that claim is proving to be the shambles that we believed it was. Whether or not they were even going to make a profit on the operation is a moot point when one considers the enormous charges that would reduce this to a loss regardless.

What does this all mean for investors? The simplistic answer is to avoid technology shares, but it is noteworthy that some big names have actually seen their stock prices rise this year including Ebay and Microsoft so we must be wary of generalizations. Any potential investment in this sector must be recognized as being part of a group whose propensity to rise is invariably weak and that its major trend continues to be downward. Many companies in the tech sector suffer simply because of guilt by association. 

Market Synopsis

On a technical basis the markets continue to churn in a trading range with a downward bias. The S&P 500 has displayed weakening upside reversals in two of the last three weeks and we are watching carefully as it moves closer to the 200-week moving average level. A break to the downside of the MA would give a clearer signal of weakness. On the upside, potential is limited to around 50 points, but realistically, this is hardly likely given its weak state.

As for the Nasdaq, the potential upside is more of a long shot. The downward trendline limits the Nasdaq to a rise of approximately 40 points from its close on Friday. More likely to happen is the recognition this week that capital spending on technology, which has taken a pounding since the beginning of the year, will not be making a V-shaped recovery in the second-half of this year and consequently, investors will pull more money from the market. We fully expect a new low to occur in the Nasdaq between now and the end of the year with the timing probably being October/November coinciding with the tax-loss selling that will occur.

Similarly, the Dow Jones continues to weaken and with the most recent trendline in place (this one is measured from the May peak of 11,350), we see upside potential being in the order of approximately 100 points higher than Friday’s close.

Once the markets properly digest the news that GDP was only 0.7% in the second quarter and that consumer spending, while increasing by 2.1%, is trending down, then reality will hit. These numbers are proof that we are seeing the beginnings of a recession and not, as some would us believe, that we are coming out of the dark tunnel of a slowdown and moving into the light of economic growth. Overall, the bottom line is that there is little chance of seeing a summer rally in 2001. 

Our Stocks

We continue to look at other stocks to short as they are far more likely to succeed than any purchased stock. Though some charts look very good for certain stocks, we hesitate to give our buy recommendation due to the overwhelming tendency of the markets to fall further from here. In such a climate, cash is sometimes the best asset to hold.

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