Stockscom Report for Monday Sep 3, 2001

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

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

Fall colors will predominate – the reds especially

Watch out for tax-loss selling

Market Synopsis

Second quarter GDP came in stronger than we expected – it rose 0.2%! Accordingly we have avoided dipping at the recessionary well for now. In actual fact, the economy has unfolded much the way we have predicted with no recovery begun to date, rising unemployment, and an inexorably long drop in stock prices. This week’s market action was no exception as all three majors continued their downward march and now have recorded year to date losses of 8% on the Dow, 27% on the Nasdaq Composite and 14% on the S&P. Stochastics are very oversold at this point and could cause rallies to form for no apparent reason meaning that volatility is potentially quite high. Despite the possibilities of a rally, we contend that rallies are simply a new excuse to sell more.

One notable point to be made is that the S&P plummeted through its 200-week average and closed below it for the first time since 1982! Our sister publication Fivestar Futures recommended selling it this past week and that trade continues to be profitable.

Many expect that the NAPM numbers due out Tuesday will demonstrate a strengthening economy with a figure around 43 points. It is worth mentioning that anything below 50 constitutes a contracting economy not an expanding economy. Simply put, there is very little anecdotal evidence that we are approaching anything resembling a recovery.

Globally the story remains the same. In Europe, the slowdown continues unimpeded and the ECB seems to be coming around to the conclusion that the future is not as rosy as they first thought. They cut short-term interest rates (for only the second time this year) by a quarter point this week commenting that the weakness in the US was having a spillover effect in Europe. Apparently they call this “news”. As for Japan, the Nikkei managed to tumble to a 17 year low today and appears to be headed lower. Both of these economies rely heavily on the US as the final destination for their products. If the economy is bad in the US, they’re left with nowhere else to turn.

We are now in September and with it comes the propensity to record tax losses. With heavy losses on the books, we expect this season to be exceptional as people rid themselves of losers to take advantage of the tax benefits. (Associated to this is the potential for vastly lower tax revenues than predicted in government budgets this year). Subsequent to this, we expect a sizeable rally to occur that should provide us with some tradable moves on the upside.

Our Stock Picks

We stay with our picks and choose not to buy or sell further. The strong dividends are obviously helping keep up the values of these stocks.

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