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Stockscom Report for Sunday Apr 7 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

More hints and allegations that a recovery is on the way marked the week that was. With March having completed, we were treated to reports on purchasing managers’ actions and intentions while Friday gave us the highly anticipated unemployment numbers for the month.

 

The first of these reports, the ISM numbers gave a solid shot in the arm to those arguing that we are in the midst of a recovery. The strong indication was the index survey of purchasing managers, which bolted to 55.6 in March from February’s level of 54.7 marking the second consecutive month of above 50 readings. At this level (above 50), the index represents an expansion of the economy.

 

The closely monitored New Orders index part jumped up to 65.3 from 62.8 in February. This level is the highest it’s reached since January 1994 and apparently has some Federal Reserve officials worried that it only represents the massive restocking of inventories, which had been drawn down significantly over the past few months. Without follow through in the coming months, the concept of a recovery in progress will be put into doubt.

 

Friday’s release of unemployment figures was a mixed bag. The rate bumped up 0.2%, however the non-farm payrolls jumped 58,000, which coupled with the revised numbers from February showed a small increase in jobs for the past two months. Nonetheless, even a flat line is considerably better than continued wider job losses, which had been the prevailing tone plaguing the economy after the events of September 11^th.

 

Having established the presence of a recovery, the question on most investors’ minds then is why are the indexes so technically weak. The answer lies more or less in two areas. The first is that many equities are priced way beyond perfection – only approximately one-third of the companies trading on the Nasdaq expect to record a profit in this fiscal year. The P/E ratios, which have taken on so much meaning since the tech wreck began, are pricing in recoveries of over 30% growth per year. The second reason is that the warnings season has been especially hard on the tech sector with company after company confessing to a weakening or non-existent demand for their products.

 

One other possibility being touted these days for the weakness in equities is the Enron factor. Now more than ever, companies are consciously putting a conservative face on their earnings to avoid any suspicion of wrongdoing and to prevent even the scent of impropriety.

 

Technically on the Nasdaq, the fierce move to the downside on January 22 saw price crossing the 40-day moving average and we’re still seeing the effects of this move over two months later. This important event marked the point where the average changed its vocation from support to resistance for the Nasdaq market. While the first attempt to cross back over on March 11 was mildly successful (in fact, it closed at the 50-day moving average instead), two more attempts since that time have failed at or just below this line of resistance. The Nasdaq will continue to be vulnerable to further drops until the notion of a bottoming-out of earnings gains wider acceptance or until price targets (for mutual funds) on the downside are met.

 

As for the S&P, the 25-week moving average is providing some measure of support and this could actually be the one element that prevents the index from falling further. On balance volume appears ready to start turning on the daily and stochastics are very much oversold.

 

The Dow is the strongest of the three indexes and with Friday’s positive close looks almost certain to have completed a retracement. Stochastics are oversold but turning and price is turning up at the bottom boundary of an upward moving channel stretching back to 9/11. On balance volume is supportive of higher prices having bounced hard from the sell-off that occurred Wednesday.

 

 

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	8.43	H
03/11/02	Adaptec	ADPT	13.89	12.66	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	12.99	B
03/11/02	Caterpillar	CAT	59.08	57.36	H
03/18/02	Dupont	DD	48.70	46.50	B
10/22/01	Glamis Gold	GLG #	3.28	5.50	B
10/08/01	Gold Fields ADR	GOLD	4.97	9.74	B
08/27/01	Health Care REIT	HCN	25.85	29.15	B
03/18/02	Johnson & Johnson	JNJ	64.70	63.05	B
10/22/01	Lihir Gold	LIHRY	10.94	15.00	B
03/11/02	Modis Prof. Srvcs	MPS	7.75	8.35	B
03/04/02	Moore Corp	MCL #	11.50	12.68	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.30	H
03/04/02	Quadramed	QMDC	9.38	8.32	H
03/11/02	United Tech	UTX	75.32	72.80	B