Stockscom Report for Sunday Jan 13, 2002

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

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

Brother, can you spare $1.65 trillion? That was the amount of total consumer debt as of the end of November – it’s probably a tad higher now that Christmas has past. It actually had a growth spurt in October and November 2001 when consumers piled into car showrooms and mortgage offices and increased the total debt load by about $31 billion. And as every newspaper and media outlet has pointed out, consumer confidence remains high so there’s nothing to worry about. The consumer will continue to spend and consequently an economic recovery will began to take shape. Or not.

To put this into some perspective, debt payment is 14.3% of take-home pay now, the highest level since 1986, and that would be assuming that everyone keeps their job, which in the current juncture is far from certain. While December’s unemployment showed some slowing down in the rate of job loss, it remains an economy shedding jobs, not adding them.

Ford wasn’t helping this statistic on Friday when they announced job cuts numbering around 35,000 for their global operations. What they didn’t mention is the number of job cuts that would be triggered by their cut of 35,000. Directly affected by the cut in production are the suppliers to Ford – companies such as Lear and Magna, large parts suppliers, who will be forced to trim their payrolls as a logical consequence of the reduced production.

Even the Fed Chairman Alan Greenspan has doubts about the recovery that people are hypothesizing about. His speech on Friday signaled that the Fed has probably not stopped cutting interest rates when he indicated that recovery was subject to substantial risk factors. He also recognized that consumer spending on cars and refinancing of mortgages have occurred at an unsustainable pace.

All three major markets appear to be coming to terms with this reality. A clear cresting action is happening on both the S&P and Dow stretched over several weeks while the Nasdaq is becoming a market with two faces. On the one hand we have the Nasdaq 100 index, the largest 100 non-financial companies by market cap that are listed on Nasdaq, and then there’s the Nasdaq Composite, which is a combination of 4,091 companies trading on the Nasdaq system. The ND 100 reached its post-September 11^th peak on December 6^th and has been trading lower since with a failed attempt at a new high on Wednesday this past week. Conversely, the Nasdaq Composite reached an intraday high of 2098 on Wednesday and hit its post-Sept 11^th peak (closing price) on January 4^th. The general implications of this are that investors are deciding that the major bellwether stocks such as Cisco, Microsoft and Intel don’t represent bargains anymore and therefore they are searching for companies providing better value.

As we mentioned last week, we’re monitoring the VIX volatility indicator and this week we have a definite bottoming on the slow curve and it is poised to cross the fast line, which if history is a good indicator, serves as a signal to sell the index once crossed.

Our Stock Picks

The stop losses of $7.80 on AOF and $11.20 on MUO were not triggered (though in the case of MUO, came extremely close). We retain these stop losses and continue to monitor closely what transpires.

Gold has made a nice breakout this week much the way we’ve predicted and consequently our gold shares have risen up strongly. We believe upside potential on these issues continues to be tremendous.

New Buy Recommendations:

We’re expanding our searches and looking for smaller stocks out of the mainstream and associated spotlights. We’ve come up with these three issues this week:

Micronetics Wireless (NOIZ) – This stock is breaking out of a consolidation of several months and probably heading for a 52-week high. Due to its volatility of late, we put a stop-loss of $3.80 on it.

Aber Resources (ABER #) – Similar situation to the previous stock; ABER appears to be making a new breakout and ready to set a new high.

Hologic (HOLX) – This stock is now making a new 3-year high and is poised to move higher.

New Short Sales

None.

Stock Positions to Sell/Exit:

Modis Professional Srvcs (MPS) – We recommend selling MPS based on indicators such as OBV which show a distinct distribution pattern of late that doesn't appear to be reversing. Additionally MPS broke down through the 25-day moving average signaling a change in direction on the daily chart.

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