Stockscom Report for Sunday Oct 14, 2001

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

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

 

 

 

Market Synopsis

 

By Tuesday of this past week, we had clear Lindahl sell signals on the Nasdaq and the S&P with the Nasdaq appearing to be the weaker of the two markets. Wednesday saw forceful market action that pushed aside the sell signal and replaced it with a buy signal. Often in cases where a signal gets squashed by a powerful move in the opposing direction, it’s common to see this strong follow through in that same direction. And in retrospect we should have considered that markets had been so severely beaten down since September 11 that a powerful rebound in the opposite direction was to be expected. The same rebounding force was solidly in charge through the end of the week despite the lower finish on Friday.

 

The story of the week (and Friday) was the retail sales figures for September, which demonstrated just how low sales had plunged after the attack of September 11^th. The 2.5% drop was much greater than anticipated and this news coupled with new anthrax scares had investors diving for cover early in the day. But the market’s current sentiment proved too robust and much of these losses were recouped throughout the day.

 

All this brings us to the current week and while we would like to agree with the many pundits and analysts who believe that recovery has begun, we feel certain that this isn’t the case. The economy has doubtlessly entered a recession brought on by a complete bust in business investment, characteristic reaction to huge over-capacities in many sectors. The efforts of the Fed to jump-start the economy by opening the spigot controlling money supply has largely been ineffective (except to avoid recession) and now the fiscal initiatives launched by the federal government will mark the newest attempt to get businesses on-track and spending. But the chart is showing a V-shape and there is not a single chance that recovery for this economy will be reproduced graphically using the letter V. At some point in the near future, the markets will move from their overbought state and there will be a test of the September lows.

 

It is noteworthy that the fiscal initiatives espoused by the government will only serve to exacerbate the problem of over-capacity by encouraging more production when the solution should be one based on reducing the overhang in industrial capacity.

 

Our Stock Picks

 

In order to clarify one of our stock picks from last week, GPU is currently being merged into First Energy (FE) with final approval expected soon whereby each share of GPU will be exchanged for 36.50 in cash or equivalent value in shares of FE (current price is 34.56). In addition, there is a dividend payable to shareholders of GPU just before the deal will be consummated, of $0.545 per share. Consequently, we consider the option of holding GPU to be better than FE at this time.

 

Of the new recommendations last week, BCE and SO appear poised for capital appreciation. Both have consolidated around current levels and are making motions as if beginning breakouts.

 

Many of the recommendations from last week are characterized by high dividend yields, which drive a wedge of support under the prices to maintain them when markets get a little rocky. Since we don’t consider this rally to be the start of any sustained movement, these high dividend issues should weather most storms.

 

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 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	8.50	B
02/01/01	Acm Government Opportunity Fund	AOF	7.99	9.01	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	9.80	B
10/08/01	BCE	BCE #	22.80	23.51	B+
10/08/01	Gold Fields ADR	GOLD	4.97	4.62	B
10/08/01	GPU Inc	GPU	40.60	39.50	B
08/27/01	Health Care REIT	HCN	25.85	25.78	B
12/18/00	Kinder Morgan *	KMP	25.00	36.34	B
10/08/01	Moore Corp	MCL #	8.45	8.43	B
10/08/01	Petro-Canada	PCZ #	26.00	26.82	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.46	B
10/08/01	The Southern Co.	SO	25.73	24.55	B+
12/18/00	Trans Canada Pipelines	TRP #	11.19	13.11	B
02/12/01	US Treasury 20 Year Bonds	USZ	103.01	105.12	B

·       Rolled from the March contract and price adjusted

*   Split 2:1 – 09/04/01