Stockscom Report for Sunday Feb 10, 2002

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

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

Market Synopsis

The Lindahl sell signal on the Nasdaq that we mentioned last week proved to be a forbearer of events to come as indeed the Nasdaq tumbled a not so meager 5% on the week. The S&P and Dow also sold off and in fact, most bourses around the world declined significantly last week. A rebound from the highly oversold condition was expected and arrived about 90 minutes before traders went home for the weekend. This strong closing price reversal late in the day usually signals a momentum change and therefore the trade Monday is expected to be positive.

Looking at the bigger picture using weekly and monthly charts, all 3 major indexes continue to demonstrate weakness. Long-term support is well below current levels and a return to the September lows would not be terribly surprising. The Nasdaq is the weakest of the three; conversely the Dow seems to be in a long consolidation period moving sideways. The one common denominator among all three is the chart showing institutional money leaving the markets over the last several weeks. Much of the money residing on the sidelines is waiting for valuations to reach attractive levels. But with companies sporting P/E ratios usually associated with high growth firms, attractive valuations are scarce.

This week will see the release of new data on consumer spending, which will be watched closely for signs of continuing strength. The consumer has shown a phenomenal ability to keep spending despite the worsening economic conditions.

There is however, one sector that will not be joining the “consumer spending” party - the automotive sector is expected to be one of the hardest hit sectors in this quarter due mostly to purchases made in the 4^th quarter of 2001 as zero rate financing ran rampant among Detroit’s Big Three. According to the Federal Reserve Board’s records, consumers took on an additional $19 billion in new debt (undoubtedly due in large part to new cars) in the month of November alone. More recently, a survey of people and debt showed that 24% of consumers adding debt in January, did so because their income had fallen and they were borrowing to pay their debts.

Our Stock Picks

The stop losses of $7.80 on AOF and $11.20 on MUO are maintained.

The stop on ADPT was triggered during the week meaning that we were exited at $17 for a gain of 33%. Mid-week, we changed the stop for FE to $37.00 and this held up well. With the sell-off this week, we prefer to err on the side of caution especially given the high susceptibility of stocks to crash in this bear market environment.

Also mid-week, we called to exit from the following equities: FMKT, HOLX, MCL, and ABER. Again the reason being that during a volatile bear market, it is better to err on the side of caution. Now at the end of the week and with a different perspective, it appears likely that all of these shares including ADPT but not including FMKT, were experiencing normal retracements after having moved up rapidly the last few sessions. We may re-initiate positions in any or all of these issues in the future depending on how the retracements look and the general outlook for stocks.

The gold shares recommended several weeks ago are rising sharply now as the price of gold soars in the futures markets. Many analysts have predicted that gold will quickly reverse and come right back to its starting point. But the charts tell a different story – they are telling us that money continues to flow into these shares, specifically the unhedged gold producers such as GOLD and GLG, and that retracements are being bought.

Our short sale on MSFT is going well but there was a closing price reversal on Friday and this may indicate a temporary support level. However, it is likely that the downward trend will continue in the new week as traders ponder the article in Barron’s this weekend relating to MSFT’s high valuation and its insistence on using pro-forma accounting for press releases. The article depicts MSFT’s true P/E as being closer to 100 or about double the widely used figure. The charts suggest that real long-term support lies near the $40 level.

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

Short sells