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Stockscom Report for Sunday Mar 24 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Markets appear to be taking a break on a light news week. While interest rates were left unchanged, the Fed acted as expected by modifying their bias toward future interest rate changes to neutral from accommodating. Inasmuch as markets are driven by sentiment and psychology plays such a large part in the daily price shifts, this announcement laid the groundwork necessary to prepare traders for the eventual tightening move expected sometime in the future. But much depends on economic activity.

 

The Fed governors correctly pointed out that the replenishment of inventories was the main factor in the present economic expansion, but to have a sustained, healthy expansion, final demand must increase. With the almost certain end to home mortgage refinancing and zero-rate financing of automobiles rapidly approaching, the ability of consumers to carry a disproportionately large part of the economy on their shoulders will be severely tested. Ultimately, an increase in final demand will be determined by whether business investment picks up, which at this point in time has yet to occur. The problem is particularly acute in the tech sector where planned capital expenditure hasn’t ceased to decline and one after another, tech companies make downward revisions to their earnings guidance for future quarters.

 

One factor certain to be verified more closely in the coming months is the capacity utilization figure, which is around 74% now. If this figure remains below the 82-83% level during the early stages of the recovery, there is less likelihood of an interest rate increase coming, however a move above this level could indicate a rise in final demand.

 

This week being a 4-day workweek has investors expecting more of the same low trading volumes combined with low price volatility. This week also marks the unofficial beginning of another earnings warnings season so traders will remain cautious especially those holding tech stocks. After Lucent and Oracle’s warnings last week admitting that sales were a thing of the past, tech-stock traders are reluctant to take a stand even in support of those tech companies reputed to be healthy. Moreover with a Fed no longer biased toward interest rate cuts, investors feel nervous that the recovery in place could lead to higher interest rates as early as the next Fed meeting in May.

 

Looking at the charts, the Nasdaq and the S&P 500 had double reversals to the downside late this week, but this is balanced with the support of the 25-day moving average line, which seems to be the boundary against further downward price movement. Channel lines also dictate that a rebound should be in the works, however as mentioned above, a shortened week with little news is unlikely to generate a pop in stock prices. The Dow didn’t have a double reversal though it did signal a probable end to the retracement by returning to the bottom of the upward leaning channel. 

 

 

Our Stock Picks

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

 

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.

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.40	H
03/11/02	Adaptec	ADPT	13.89	11.84	H
10/08/01	Agnico-Eagle Mine	AEM #	10.85	12.70	B
03/11/02	Caterpillar	CAT	59.08	57.13	H
03/18/02	Dupont	DD	48.70	47.80	B
10/22/01	Glamis Gold	GLG #	3.28	5.03	B
10/08/01	Gold Fields ADR	GOLD	4.97	9.88	B
08/27/01	Health Care REIT	HCN	25.85	27.85	B
03/18/02	Johnson & Johnson	JNJ	64.70	64.85	B
10/22/01	Lihir Gold	LIHRY	10.94	15.90	B
03/11/02	Modis Prof. Srvcs	MPS	7.75	8.48	B
03/04/02	Moore Corp	MCL #	11.50	12.80	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.57	H
03/04/02	Quadramed	QMDC	9.38	8.95	B
03/11/02	United Tech	UTX	75.32	72.85	H