Stockscom Report for Sunday Dec 30, 2001

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

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

Market action has been customarily slow the past few sessions as many traders take time off for holidays. As the actual volumes fall, the volatility in prices jumps as institutions perform the annual/quarterly rite of window-dressing. During these times, prices paid can be higher than would normally be the case, however the flipside of this action is the probability of falling prices after this period, increases.

Once into the new year, the possibility exists that the  “January Effect” will take over and drive indexes even higher. Given that the rally has already added several percentage points since the lows reached in September, the consequential valuations of these companies may very well be unsustainable. Projected future profits are often miniscule or non-existent yet valuations are predicated on double-digit growth rates for the majority of stocks. It is a strange irony that what drove the market down only a few months ago is now considered acceptable behavior.

Delving into the charts, all three, the Dow, the S&P and the Nasdaq-100, clearly indicate that the line of support for most of the past three months has now become the boundary of resistance. So, despite the recent rises in the markets, we should be prepared for a downturn in the markets in the near term.

Overall 2002 remains full of question marks. While durable goods orders came in lower this past week, the breakdown in numbers was better than expected since the drop was due mainly to military transport orders. But Friday’s action was dominated by the news that consumer confidence soared during the month of December. Careful attention is paid to this statistic as a barometer for the American consumer and it remains to be seen whether this abundance of confidence has been translated into holiday season sales for retailers.

Regardless of these numbers, two elements are needed to generate a strong recovery. The first is a significant increase in business investment. No full recovery is possible if capital expenditure continues to dry up. Lower taxes and insignificant interest rates should encourage businesses to invest, which, up until now, has not happened. The second element is lower unemployment. The unemployment rate has to stabilize and then turn around, to build sustainable confidence in consumers and thus encourage them to make big-ticket purchases. Expectations are for a continuing climb in the rate when unemployment figures are released later this week.

Our Stock Picks

AOF and MUO have dropped with the rising bond yields of late and in order to prevent further losses, we are putting stop losses of $7.80 on AOF and $11.20 on MUO. At this time, they both appear to be recovering to some degree so we prefer to wait and see if they’ll continue.

SO managed to recover nicely and seems to have completed its retracement/test of the lows. We’re continuing to wait for BCE to do the same.

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.

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