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Stockscom Report for Sunday Mar 17 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Consumer confidence figures were released by the Univ. of Michigan on Friday and revealed a significant jump from the previous month, the value increased from 90.7 to 95.0, which when coupled with the better than expected rise in industrial production for the month of February of 0.4%, accelerates the recognition of the recovery. While this good news on the economic front contributed to gains on Friday for all three major indexes, the week was far less than perfect for the technology sector.

 

Two companies shared the spotlight this week, Lucent and Oracle and for reasons that they would prefer otherwise. To wit, there is an old adage that the leaders of one stock market boom are not the leaders of the next boom. Regardless of whether one believes that we are on the cusp of another boom or not, the evidence is quite striking that here are two companies that were titans inextricably linked to the great tech boom of the Nineties and whom are now undoubtedly the subject of large short positions.

 

Lucent waved a white flag in announcing that they still see no upturn in their business and aren’t expecting much before the last quarter of 2002. The large telephone companies, their biggest customers in previous years, have reduced their capital expenditure programs so much that their upstream suppliers are left with very foggy outlooks. Similar situations no doubt exist for the likes of Nortel, JDS Uniphase, Ciena, and Juniper while Cisco, which derives a greater percentage of revenue from corporate end-users, will be spared much of the fallout. 

 

Oracle for its part, released its results for the just-finished February quarter and while the profit of 9 cents per share was expected, management’s discussion of what the future holds for Oracle was something less than rosy. Sales of large-scale enterprise software such as theirs are in a slump as fewer companies are willing to make the (expensive) commitment to implementing such programs. With fewer human resources and sharply reduced budgets, most companies are abandoning all but the maintenance elements of their software systems.

 

So while all three indexes managed to tack on gains on Friday, for the week, it was a different story. Both the Dow and the S&P added a few points, but the Nasdaq lost over 3% after gaining 7% the week before. Glancing at the charts, we’re left with the impression that there’s much churning going on. This backing and filling around current levels serves to consolidate the recent gains and provides a resting area before attempts are made to take new steps up in price.

 

By most measures, stock prices on the S&P 500 are overvalued in terms of P/E ratios, but in a low inflation environment and during periods in which the profit margins are expected to increase strongly, the case can be made for justifying such high prices. One must remember that the stock market is predictive in nature and usually employs a timeframe of six months in the future on which to base prices. And six months is a widely accepted notion for the amount of time necessary before investors see an increase in corporate investment.

 

Our Stock Picks

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

 

We broadened our selection this week and we are adding a couple more Dow stocks.

 

New Buy Recommendations:

 

DD – Dupont – From its high reached in 1998, through the subsequent drop and then the consolidation/range-bound trading of the past two years, Dupont now appears ready to set that price action behind itself. The monthly chart shows a new close above the previous high within the range of the past two years and from all indications, the price won’t be stopping here. OBV indicates heavy buying pressure is pushing up the price a little now but probably much more in the near future.

 

JNJ – Johnson and Johnson – Regardless of the fact that JNJ has been one of the Dow leaders for some time, with the 40-month average now squeezing closer, it appears to be starting a new leg up with a steeper slope away from the previous consolidation. Certainly, the past several sessions have seen it gain a few points on the daily chart, but it’s in studying the monthly and weekly that we’re left with the impression that an even greater step up is occurring. The OBV and MACD charts serve to confirm these impressions.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We were exited from our short sell on Ciena at the stop.

 

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	8.92	H
03/11/02	Adaptec	ADPT	13.89	12.39	H
10/08/01	Agnico-Eagle Mine	AEM #	10.85	11.36	B
03/11/02	Caterpillar	CAT	59.08	59.79	B
10/22/01	Glamis Gold	GLG #	3.28	4.48	B
10/08/01	Gold Fields ADR	GOLD	4.97	8.01	B
08/27/01	Health Care REIT	HCN	25.85	27.45	B
10/22/01	Lihir Gold	LIHRY	10.94	13.71	B
03/11/02	Modis Prof. Srvcs	MPS	7.75	8.09	B
03/04/02	Moore Corp	MCL #	11.50	13.10	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.53	H
03/04/02	Quadramed	QMDC	9.38	8.83	B
03/11/02	United Tech	UTX	75.32	74.35	H

 

Short sells

 

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
02/25/02	Ciena	CIEN	7.69	10.50	Covered