Stockscom Report for Sunday Oct 28, 2001

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

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

 

 

 

Market Synopsis

 

We continue to be surprised by the strength of this rebound especially in the tech sector, which is under enormous pressure to produce profits. The common belief is that we are witnessing a V-shaped recovery and that investors are looking beyond the valley to the next bull market, but we prefer the role of contrarians.

 

This week will bring important tests to all markets, as the release of a wide variety of economic data will provide much fodder for market digestion. Most reports are expected to show the painful hit that the US economy took on Sept. 11; reports such as GDP, unemployment and consumer confidence, and the manner in which the markets react will give an important indication of its resilience.

 

On the charts, we see the S&P still rising within its down trending channel, however it did manage a milestone this week by closing above its daily close of Sept 10 for the first time thus completely filling the gap left open at the attack. The Nasdaq had already cleared that hurdle and only the Dow now remains. It is noteworthy that the S&P could continue its recent strength and rise to the neighborhood of 1160 and still be contained within the channel.

 

In the case of the techs, this recent strength of the Nasdaq has propelled it beyond the range of its channel slightly and this is another reason we expect the index to slow down and retrace in the coming weeks. While we had expected to see a rally moving towards year-end, we would have much more confidence in the market action if we saw retracement of this extremely powerful move after the attack in September. As chartists, our confidence levels increase when W-bottoms and W-movements can be traced, but in the case of the Nasdaq, we have only seen the V. Normally, V-bottoms occur during the course of a bull market when an unforeseen event occurs which startles the markets and is judged to be adding immense risk to near-term pricing. Events such as these trigger selling and a healthy retracement of recent gains while also permitting the time necessary to properly evaluate the effects of the event on equities.

 

The difference here is that the economy has been in a death-spiral for the past year and the attack only added to the damage already accumulated. Indeed some companies have reported that they are now seeing some flattening in their revenue streams while other companies, especially those with any connection to telecommunications, such as JDSU, have depicted the next three months as a continuation of the black hole that has pervaded their company. Even those that claim to be targeting profits are talking in glowing terms of recording profits of a couple of pennies per share thus giving them astronomical P/E values.

 

Our Stock Picks

 

We are carefully monitoring the price action of our picks. While some volatility is to be expected in the gold shares, we have no intention of blindly holding onto them if prices fall to unacceptable levels.

 

New Buy Recommendations:

We are cautiously adding two new recommendations this week:

 

ADPT – Adaptec has been consolidating for the past six months below the $12.50 level but this past week finally managed a breakout above this key level. 

 

IMNX – Immunex is a biotech company with a very promising treatment for arthritis already accepted by the FDA. They plan to increase sales significantly over the next 12 months and this is reflected in the most recent price action of its stock. From April till September, the share price consolidated in an area below $18, but over the past few weeks has begun an important breakout, which has taken price to over $25.

 

New Short Sales

None.

                                                                                  

Stock Positions to Sell/Exit:

 

TRP – we are selling this due to the unusual price action this week, which saw the pipeline inexplicably lose several cents per share. Its stock price dove through both 25 and 40-day moving averages over three sessions.

 

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	8.67	B
02/01/01	Acm Government Opportunity Fund	AOF	7.99	9.05	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	9.39	B
10/08/01	BCE	BCE #	22.80	22.85	B
10/22/01	Glamis Gold	GLG #	3.28	3.31	B
10/08/01	Gold Fields ADR	GOLD	4.97	4.68	B
10/08/01	GPU Inc	GPU	40.60	39.75	B
08/27/01	Health Care REIT	HCN	25.85	25.96	B
12/18/00	Kinder Morgan *	KMP	25.00	37.00	B
10/22/01	Lihir Gold	LIHRY	10.94	11.34	B
10/08/01	Moore Corp	MCL #	8.45	8.12	B
10/08/01	Petro-Canada	PCZ #	26.00	26.15	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.60	B
10/08/01	The Southern Co.	SO	25.73	24.19	B
12/18/00	Trans Canada Pipelines	TRP #	11.19	12.44	B
02/12/01	US Treasury 20 Year Bonds	USZ	103.01	107.22	B

·       Rolled from the March contract and price adjusted (in 32nds)

*   Split 2:1 – 09/04/01