Stockscom Report for Sunday Oct 7, 2001

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

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

 

 

 

Market Synopsis

 

Though the week was marked by gains on the three major indexes, by week’s end they appeared to be reaching exhaustion. The one common thread among them was their failure to break the resistance of the 25-day moving average. The S&P came close when price exceeded the moving average on Thursday, but that close and Friday’s close were below the line.

 

Now with military action reported in Afghanistan, the markets could react unfavorably Monday morning. Early overnight trading on the indexes suggests that the market’s response to this action is muted albeit on the downside. With little fundamental reason for the markets to continue their advances, downside reaction becomes the predominant force and the risk of lower price levels increases.

 

The military threat notwithstanding, we continue to forecast a further drop in the indexes between now and the end of October. We are now in the final tax-loss selling month for funds and pressure continues to mount as assets are disposed of in order to dress-up the books. The nervousness caused by military action and the possibility of terrorist reaction will only add to this turmoil. We expect the indexes to test previous lows and perhaps support levels of 1998. This means watching for 1000 on the Nasdaq 100, 7400 on the Dow, and 980 on the S&P.

 

The latest jobless reports that were released on Friday bore witness to the effects of the terrorist attacks. In New York City alone, there was an increase of over 10,700 new claimants and more than 4,800 of them were directly related to the World Trade Center. Moreover, the job cuts announcements for the entire country numbered 248,000 in September versus 140,000 in August, but 81% of these were announced after the attacks took place.

 

Despite the efforts of Greenspan to use monetary policy in order to avoid a recession, we are in one anyway. The interest rate is at historic lows and the money supply has been increased substantially. Some of this increase will find its way into business investment, but the vast majority of these dollars rests on the sidelines, as companies are fearful of making financial commitments in a business environment where forecasts are difficult to make. At some point this excess capital will need to be swept back up by the Fed.

 

Our Stock Picks

 

We covered our stocks held short this week and despite our negative sentiment about the market, we are making a small foray into the bear pit. We recommend that investors trade lightly at this time keeping at least 50% of capital in cash instruments.

 

New Buy Recommendations:

AEM # - good chart action but still appears undervalued compared to peers such as NEM

BCE # - price seems ready to move higher after consolidating

GOLD – similar to AEM and helps to spread risk

GPU – good capital growth for electrical utility – supported by 25-week moving average

MCL # - rising company back from the brink

PCZ # - integrated oil company – moving averages providing support especially 40-week

SO – breaking out from 6-month consolidation

 

(Stocks marked # are eligible as Canadian content in Canadian RSP funds.)

 

New Short Sales

None.

                                                                                  

Stock Positions to Sell/Exit:

 

None. We exited our remaining shorts at Thursday morning’s open.

 

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 as Canadian content in Canadian RSP funds. Otherwise there is a 30 percent restriction on foreign stocks held in these accounts.

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
02/01/01	Acm Government Income Fund	ACG	8.07	8.63	B
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.73	B
08/27/01	Health Care REIT	HCN	25.85	25.68	B
12/18/00	Kinder Morgan *	KMP	25.00	36.85	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.48	B
12/18/00	Trans Canada Pipelines	TRP #	11.19	12.97	B
02/12/01	US Treasury 20 Year Bonds	USZ	103.01	105.50	B

·       Rolled from the March contract and price adjusted

*   Split 2:1 – 09/04/01

Short Sales

Date of entry	Name	Symbol	Entry Price	Current Price	Action Rating
03/21/01	Amazon.com	AMZN	10.38	7.09	Covered
08/20/01	Calpine	CPN	29.27	27.90	Covered
12/18/00	Coca-Cola	KO	54.00	45.00	Covered
03/21/01	McDonalds	MCD	25.60	28.92	Covered