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Stockscom Report for Sunday Mar 10, 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Equities continued the powerful advance from a week ago and show signs of at least continuing to outperform over the near term. Similar in nature to the post 9/11 action in equities, chart action has rapidly become overwhelmingly bullish and it’s worth remembering that during periods of strong buyer momentum, theoretical ideas of valuations are temporarily set aside.

 

Friday’s unemployment report was quite surprising for the drop instead of the much-anticipated increase in the jobless rate. This news came at the same time as Challenger and Grey, the placement firm, released data showing that corporate layoff announcements had been virtually sliced in half from January to February. Almost overnight, the critical job situation, which is often looked to for signals on the economy, suggests that the pace of job creation has surpassed all expectations.

 

While equities should continue to exhibit strength in the short term, the reality remains that this recovery is not expected to be as strong as previous ones. In the past, recovery from recessionary conditions meant that at least one facet of the economy had extraordinary growth. But looking at this one, we have no consumer pent-up demand waiting to explode – consumer spending has been one reason that this economic downturn has been short and relatively mild. There isn’t a real estate boom beginning – houses have sold extremely well throughout the past several months as interest rates fell to the lowest levels in decades. Business spending is still practically non-existent and shows no sign of surging in 2002. Corporations attempting to conserve cash resources have postponed decisions on capital expenditure and, as is often the case, a major portion of the planned spending comes from information technology budgets. Therefore, if we accept this premise, it follows then that the sharp increase in the Nasdaq this week is fraught with danger only serving to push valuations to unjustified levels.

 

On the index charts, there are several points/lines of resistance worth discussing. Starting with the Dow, the individual stocks such as Caterpillar and United Technologies (recommended below) demonstrate powerful upside moves that have been going on in the past and show no sign of abating. But the Dow chart itself stalled after Monday this week and barely moved afterwards, which may simply be a sign of consolidation after the most recent run-up.

With respect to the S&P, there is resistance at the level of 170-1175 where in December and January, similar rallies failed to push through. Now the third attempt has begun and if this were to fail once more, a strong sell signal would result.

 

Finally, in the case of the Nasdaq, the previous high, hit on January 4^th, is around the level of 2060 and this would be where the strongest resistance to further moves upward lies.

 

Our Stock Picks

 

New Buy Recommendations:

 

CAT – Caterpillar. We recommended this stock several months ago for a short period of time and now with the added confidence of the last several weeks and a clear signal of recovery, we are recommending its purchase once more. Chart action suggests that this stock could rise to the $80 mark.

 

UTX – United Technologies – While this stock too has been performing exceptionally well since the tragedy of Sept 11, it also shows no sign of relenting.

 

ADPT – Adaptec. We are recommending once more ADPT as the chart signals that the retracement has ended and a strong move much further than the previous one, could be starting.

 

MPS – Modis Professional Services. Another stock that we bought and sold not that long ago, is again being recommended. Similar to ADPT, the chart suggests that the retracement has finished and a strong move upward has begun.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We were exited from our short sell on Microsoft at the stop. We are retaining the short on Ciena however. 

 

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 Opportunity Fund	AOF	7.99	8.60	H
10/08/01	Agnico-Eagle Mine	AEM #	10.85	11.26	B
10/22/01	Glamis Gold	GLG #	3.28	4.33	B
10/08/01	Gold Fields ADR	GOLD	4.97	7.32	B
08/27/01	Health Care REIT	HCN	25.85	27.51	B
10/22/01	Lihir Gold	LIHRY	10.94	14.55	B
03/04/02	Moore Corp	MCL #	11.50	12.52	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.55	H
03/04/02	Quadramed	QMDC	9.38	9.50	B

 

Short sells

 

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
02/25/02	Ciena	CIEN	7.69	9.27	S
01/22/02	Microsoft	MSFT	66.61	64.25	Covered