Stockscom Report for Sunday Nov 18, 2001

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

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

 

 

 

Market Synopsis

 

All three majors have made a remarkable comeback since the attack on Sept 11. On the day before the attack, the Dow was at 9606, the Nasdaq Composite was at 1695, and the S&P-500 was at 1093. Today we have the Dow at 9867, the Nasdaq at 1899 and the S&P-500 at 1139 – the markets have completely retraced their losses from that fateful day and then some.

 

Market	May peak	Sept trough	Difference	Percent retracement
S&P-500	1316	945	371	52%
Dow	11350	8062	3288	55%
Nasdaq	2328	1387	941	54%

 

This table shows the power of the most current rally from the depths of the trough in September. All losses from that time have been cut in half and what isn’t evident from the table is the manner by which this was accomplished – almost straight up virtually non-stop. At this point, it’s necessary to recognize that markets do not go straight up and that we should expect some retracement of this recent rebound.

 

Technically, stochastics on the markets continue to show that all three are heavily overbought and that fast OBV (On-balance volume) is declining but slow OBV is continuing to rise. Of the two indicators, usually stochastics is the more reliable and some reaction is likely to occur from the overbought nature of the markets.

 

Fundamentally, nothing has really changed – unemployment seems ready to move higher over the coming months, industrial production continues to fall and any recovery won’t occur until the second half of 2002 at the earliest.

 

With recovery delayed and expected to be weak, P/E ratios are now priced to perfection for many companies. As an example, the composite P/E ratio for the S&P is currently 31 – at the trough in September, it was 26 and this is supposed to be a bear market! There’s little doubt that we haven’t really seen the bottom in this bear with price action like that.

 

What have changed are external forces. This week we saw significant signs that the military operation in Afghanistan is succeeding with former leaders on the run and second, the glut in oil supplies brought on by the slowing global economy has come home to roost. Failed attempts to build agreement involving both OPEC members and non-members have effectively driven prices to new lows. As a consequence of these issues, bond prices quickly began dropping as yields soared in expectation of a recovery sometime next year and an expected reversal in monetary policy. Now it’s anticipated that interest rates will be forced to rise in order to rein in the loose money supply. Meanwhile the cheaper oil and the flight from bonds could extend the rally in equities for several more sessions before the buying fever settles down.

 

Our Stock Picks

 

We continue to believe that gold is worth buying as much on the merits of a new bull run as a hedge against the global economic slowdown.

 

Petroleum prices suffered immensely this week and as such we recommend selling Petro-Canada and Kinder-Morgan. Kinder-Morgan could possibly work its way back quickly but in terms of risk/reward, we believe that it’s worth it to cash in our chips at this time.

 

With the drop in bond prices, we see no recovery in sight for ACG and so this too should be sold. The AOF is also a bond fund but barely moved last week due to its holdings which tend to be of a longer-term than ACG and with high coupon interest.

 

New Buy Recommendations:

None.

 

New Short Sales

None.

                                                                                  

Stock Positions to Sell/Exit:

 

ACG

KMP

PCZ

 

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	8.13	S
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.89	B
10/29/01	Adaptec	ADPT	12.81	15.00	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	9.33	H
10/08/01	BCE	BCE #	22.80	23.71	B
10/08/01	FirstEnergy *	FE	32.96	34.45	B
10/22/01	Glamis Gold	GLG #	3.28	3.22	B
10/08/01	Gold Fields ADR	GOLD	4.97	4.57	B
08/27/01	Health Care REIT	HCN	25.85	24.98	B
10/29/01	Immunex Corp	IMNX	25.50	26.02	B
12/18/00	Kinder Morgan **	KMP	25.00	34.55	S
10/22/01	Lihir Gold	LIHRY	10.94	11.06	B
10/08/01	Moore Corp	MCL #	8.45	7.96	B
10/08/01	Petro-Canada	PCZ #	26.00	22.79	S
02/01/01	Pioneer Interest Shares	MUO	11.95	11.99	B
10/08/01	The Southern Co.	SO	25.73	23.60	B

 

*    FE purchased GPU – prices reflect share exchange of 1.2318 shares of FE for each GPU share

**  Split 2:1 – 09/04/01