Stockscom Report for Sunday Aug 12, 2001

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

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

Nasdaq, Dow reaching pivotal points

Expecting a near term rally

Market Synopsis

The uptrend previously announced was premature as both the Dow and the Nasdaq failed to sustain their upward movement and experienced hard down days on Wednesday this past week. The S&P 500 remained far below resistance of 1215 and therefore does not display the equivalent strength that the other two have shown.

But we are reaching a pivotal point in the near term for market indices. Currently the downtrending lines of resistance for both the Dow and the Nasdaq are meeting baselines of support and consequently the markets will be forced to breakout of near term chart patterns. For the Nasdaq 100, the numbers defining this range of resistance to support are 1610 and 1580 while the corresponding numbers for the Dow are 10,450 and 10,120. Unfortunately, while it is often difficult to predict which way they will break, it appears that in the near term, the breakout will occur to the upside as stochastics are strongly oversold for all three markets on the daily charts. Recent chart movements support this notion as several instances of similar oversold stochastics have been resolved by upside movements in all three major markets. In the case of the S&P 500 and the Dow, the charts are also finding support through rising OBV (on balance volume).

Longer term outlooks will almost certainly be negative for all three major markets as tax-loss selling will have a significant effect as we approach the autumn period of October and November. With the Dow down 3.5% (10,790 – 10,416), the S&P 5090 down 9.8% (1320 – 1190), and the Nasdaq 100 down a whopping 30.9% (2341 - 1617) for the year, the selling fever will be an inevitable end to a difficult market year. As always there will be a silver lining in this cloud and that is the equally inevitable bounce resulting from the subsequent buying pressure as fund managers move back into the market to dress up their performance figures by year end. This scenario presumes one wild card – that investors will be willing to participate and have their money managed in this same manner using mutual funds. If investors turn their backs on the markets and head for the exits, there will be mutual fund redemptions, which would cause the fund to dispose of some of the assets in order to pay the investor and consequently puts selling pressure on the prices of stocks liquidated.

We continue to survey the volatile environment carefully and aim to navigate through the potential minefield by recommending only very strong stocks with good fundamentals backing them.

Our Stock Picks

We managed to get some lousy entries in our recommended purchases from the last report. Having said that, all of these stocks recovered to a certain degree late in the week though CPWR is questionable as it closed near its 25-day moving average. We’ll carefully watch this one.

As we mentioned before, the markets appear to be gearing up for a near term rally and as such we expect these stocks to be participants. Viewed over a longer term, these stocks exhibit good sustainable chart action.

In a similar vein, the shorts we recommended covering gave us lousy exits. In the case of JNPR though, we needn’t quibble over a few dollars when we managed to earn almost a 50% return.

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