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Stockscom Report for Sunday Apr 14 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

In 1932 the Dow Theorist, Robert Rhea wrote, "There are three principal phases of a bear market: the first represents the abandonment of hopes upon which stocks were purchased at inflated prices; the second reflects selling due to decreased business and earnings, and the third is caused by distress selling of sound securities, regardless of their value, by those who must find a cash market for at least a portion of their assets... Each of these phases seems to be divided by a secondary reaction which is often erroneously assumed to be the beginning of a bull market..."

 

If we break these three phases down to fit recent history in the Nasdaq market, we find that the first phase corresponds neatly to the period of March to May 2000 when the first plunge on the Nasdaq occurred. As Rhea wrote above, this first cycle represents a rethinking in the purchase of grossly overvalued stocks and certainly the Nasdaq qualified in that regard. The rally from May to July of 2000 was the first misinterpretation of a bull market beginning.

 

The second phase downward of the bear market occurred from August 2000 until Sept 2001. One might argue that the phase ended in April 2001 from whence another pronounced rally began, however using the definition offered by Rhea, this second phase reflecting decreased business and earnings, matches more accurately the period ending in September 2001.

 

At this moment, we are in the midst of the second rally (wrongfully accused of being another bull market) begun in September 2001 and by some indications, after an initial pop higher and some consolidation, chart action suggests that the rally really isn’t over and could experience further increases in prices in the very near term.

 

Assuming that we’re right, investors should be conscious that the most profitable strategy to use in such a volatile environment is to invest based on the overall direction of the market, which is naturally, the strategy used by Stockscom through the years. Furthermore, if one believes that this is once again, a bear-market rally, investors must be ready to stand aside or sell short if and when the market turns once more. The final plunge, referred to as the third phase by Rhea, is characterized by distressed selling. This phase is the most painful as even solid blue chip companies are sold heavily in an effort to raise cash and consequently this drop could hurt your stomach.

While this week was marked by the toppling of the Venezuelan government, tonight there are reports that the same President and his government were re-established. Oil prices, which had moved sharply down on the news Friday, are expected to rebound strongly Monday. And oil prices were held responsible for the jump in inflation numbers for wholesale prices, which was released on Friday. Finally the initial consumer confidence figures were also released Friday and they showed a small drop from March. More economic data is due next week including the CPI numbers and the Leading Economic Indicators and the reporting season begins in earnest with the likes of Microsoft and Intel due to release.

 

Technically, this latest drop in all three major markets appears to be finishing up. The Nasdaq Composite remains well above its low of February despite the Nasdaq-100 tumbling through its own corresponding low, the Dow has firm support in the upward channel line connecting its lows since September and the S&P has remained well off its own lows of February. With stochastics extremely low giving an immense oversold reading, there is every reason to believe that we are now on the cusp of another rally and a break from the retracing. The Dow is leading the charge after the most current period of basing action culminated in a Lindahl buy signal at the end of the week. In the case of the Nasdaq and S&P, their positive finishes Friday were not enough to signal a turn on their charts, but price action suggests a bottom is close at hand.

 

 

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:

 

LIHRY. Lihr Gold has suffered tremendously these past few sessions and as such we move to pare this position.

 

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	8.28	H
03/11/02	Adaptec	ADPT	13.89	14.57	B+
10/08/01	Agnico-Eagle Mine	AEM #	10.85	14.00	B
03/11/02	Caterpillar	CAT	59.08	57.97	H
03/18/02	Dupont	DD	48.70	46.94	B
10/22/01	Glamis Gold	GLG #	3.28	5.68	B
10/08/01	Gold Fields ADR	GOLD	4.97	10.49	B
08/27/01	Health Care REIT	HCN	25.85	31.82	B++
03/18/02	Johnson & Johnson	JNJ	64.70	62.67	B
10/22/01	Lihir Gold	LIHRY	10.94	13.00	SELL
03/11/02	Modis Prof. Srvcs	MPS	7.75	9.65	B
03/04/02	Moore Corp	MCL #	11.50	13.86	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.40	H
03/04/02	Quadramed	QMDC	9.38	9.10	B
03/11/02	United Tech	UTX	75.32	72.79	B