Stockscom Report for Sunday Sep 23, 2001

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

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

Commentary

Everyone not in orbit this week knows that the markets experienced some of the worst performances on record. In the case of the Dow Jones, a similar percentage drop in value over the week has not been seen since 1940 and generally the markets are trading near the low values from 1998. We had long considered that these same lows would provide support to the indexes – 920 on the S&P, 7400 on the Dow, and 1350 for the Nasdaq Composite. But at this moment we are within striking distance of these marks both on the S&P and the Nasdaq. So where do we go from here? Do we still think these levels can provide meaningful support? Probably not.

In all likelihood, we’ll see some rallying on the three majors this week. But once the oversold pressure is relieved, the slide will probably resume. Ultimately, this rally will only serve to sucker a few remaining investors into buying before continuing to fall. The Nasdaq could test the 1200 level and the S&P could find support at 875. Looking ahead, it is quite likely that November could prove to be the month in which a more viable bottom is found.

There are several reasons for the November timeframe. First, it occurs after much of the tax-loss selling, second there is an abundance of thoroughly dismal information that will be released between now and November (much related to the terrorist attacks) and last, much of the uncertainty surrounding us will be lifted. This includes the threat of military action, other terrorist threats, government aid money (how it will be used/distributed), the actual clean-up, unemployment rolls, and hopefully some prognosis about business prospects in the short, medium, and long terms.

Do we see this as the ultimate bottom? Again the answer is probably not. Regardless of the much-talked about six-month lead time of the stock market, the fact remains that many businesses have no visibility of future earnings, consumers are weakening (as seen in the latest new housing report), and an entire industry, namely the travel industry, has just discovered what the tech industry saw in January – a complete drop in activity. It is important to remember that the travel industry entails, airlines, hotels, restaurants, jet fuel, and entertainment to name a few sectors affected. (Rental cars were purposely left out as some business people may choose to rent a car and drive to their destination instead of flying now). Once the travel industry stabilizes thereby removing a big chunk of uncertainty, we could see some true bottoming action.

Notwithstanding this ultimate bottom, we do believe that a rally in November could provide some trading opportunities, but the caution flag will always be up.

Moving forward, the terrorist attacks will cause dramatic changes in the economy.

-        Greater government spending on airport security, information technology, and security technology, as well as amounts spent to recover and rebuild at the sites affected.

-        Slower processing through airports of people and goods.

-        Slower processing through borders of people and goods

-        Increased inventory costs moving from Just In Time systems to Nearly On Time

-        Increased spending on information technology to replace material destroyed

-        Increased spending on disaster recovery

-        Cutbacks in spending on travel and entertainment

-        Increased use of videoconferencing

-        Faster migration to IP telephony

-        Increases in insurance premiums – probably industry consolidation as well.

Overall spending in the field of Information Technology should increase and by a percentage not foreseen a couple of weeks ago while travel and entertainment spending will be severely curtailed.

Our Stock Picks

We stay with our picks and choose not to buy or sell further.

New Buy Recommendations:

None

New Short Sales

None. Although tempting to add just about anything, the risk of a rally is real.

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

*   Split 2:1 – 09/04/01

Short Sales