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Stockscom Report for Sunday Apr 28 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Two numbers were awaited on Friday, the first was the GDP number and the second was the consumer confidence figure for the month of April as compiled by the University of Michigan. The unexpectedly strong GDP figures announced early in the morning would normally have been a catalyst for some rallying but that was the certainly not the case this day. Its failure to provide support early on in the trading day was an ominous indication for how things would progress throughout the day. With the addition of consumer confidence figures illustrating a marked drop in the sentiment of consumer, the slide was on in earnest. The powerful outside down day has set the stage for further downside risk for all markets however quantifying where support lays remains difficult. In the immediate near term, some semblance of a rebound is to be expected.

 

The strong market retreat had effects across all major markets including the S&P Midcap 400 and the Russell 2000. But the chart damage was predominant in the Dow and the S&P where the Dow now appears to be on a collision course with its February lows while the S&P cratered at its February lows leaving the September lows as the next target. Is further collapse possible on a fundamental basis? Yes, it certainly is if one considers that the P/E ratio for the Dow Industrials is still priced to perfection at 27.50 and the P/E ratio of the S&P is an astronomical 43.59. The fact remains that for all the talk and analysis about how companies are meeting expectations or exceeding them, one must remember that these expectations were severely cut in the profit-challenged environment that we find ourselves in.

 

For now, we have been reminded once more that we are in a bear market and indeed the most important fundamental question for investors is whether or not we are in a secular bear market. The real answer is it’s impossible to say until time has passed. What is certain is that with a falling US dollar, foreign investors are unlikely to stay invested in the US if losses from currency translation become excessive, very little new money is finding its way into equities meaning that the same money is chasing more investments, business investment has dried up and still shows no sign of life, and consumer demand is likely to soften as houses and cars become less attractive. All of the above will continue to put pressure on prices in the markets and especially as we enter the slowest period for growth during the year, which are the months from May to October.

 

Equal in reaction to the sinking markets is the strengthening belief in gold and to a lesser extent silver. The combination of military activity in the Middle East, social unrest in places such as France and Argentina, the fear of economic collapse in Japan, and the simple realization that recovery in North America will be a weak drawn out affair have attracted people to the yellow metal as a tangible store of value in an uncertain world. Much as we’ve touted throughout the past few months, gold is technically in a secular bull market and we saw evidence of the benefit of owning gold shares in portfolios all week long.

 

 

Our Stock Picks

The stop losses of $7.80 on AOF and $11.20 on MUO are maintained. We add a stop loss on HCN (subjected to a downgrade by a brokerage firm) of $27.50 at the close.

 

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

QMDC. This stock released quarterly results after the market closed on Thursday which were evidently less than expected and the stock price was hit hard on Friday as a consequence. At this point, it is trading now below support levels so we move to pare it.

 

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
22/04/02	Acclaim Entertain.	AKLM	5.79	5.00	H
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.68	H
03/11/02	Adaptec	ADPT	13.89	15.13	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	14.90	B
22/04/02	Aspect Comms.		4.92	4.62	H
03/11/02	Caterpillar	CAT	59.08	54.15	H
22/04/02	Cobalt	CBZ	15.15	16.00	B
03/18/02	Dupont	DD	48.70	43.90	H
10/22/01	Glamis Gold	GLG #	3.28	6.45	B
10/08/01	Gold Fields ADR	GOLD	4.97	13.40	B
08/27/01	Health Care REIT	HCN	25.85	27.85	H
03/18/02	Johnson & Johnson	JNJ	64.70	63.61	H
03/11/02	Modis Prof. Srvcs	MPS	7.75	9.15	B
03/04/02	Moore Corp	MCL #	11.50	13.95	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.62	H
03/04/02	Quadramed	QMDC	9.38	5.80	SELL
03/11/02	United Tech	UTX	75.32	68.35	H