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Stockscom Report for Sunday May 5 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Markets were anything but friendly toward bulls this week and this was typified in Friday’s bearish reaction to the release of the monthly unemployment figures for April that included a revision for March numbers. Essentially, the unemployment rate jumped from 5.7% to an even 6% and March numbers previously showing growth in jobs were revised downward to another loss in a long string of monthly job losses. Now the string of losses in job growth is expected to have been broken with the April figures, which were lower than expected but positive at +43,000.

 

The current market sentiment is both stubbornly bearish and complacent. The bearish tone is exemplified by various sentiment indicators demonstrating that the bulls have taken a break (or a vacation) and the complacency comes to us from the volatility index, VIX, which remains consistently low while indexes continue to plumb new depths. Whereas the sentiment indicator is usually taken as a contrarian tool, the very fact that the VIX has remained low resists confirming that notion. When there is a noticeable shift in market sentiment, the change is usually accompanied by a rise in the VIX indicator; a good example would be the turn in the markets in September 2001 when sentiment was immensely bearish and VIX was hitting a peak of 57. In the current environment of bearish sentiment coupled with low VIX, we expect the status quo to remain the trend in force at least until VIX begins to rise.

 

It appears more likely that Nasdaq will test its lows of September and fail. With the wilting US dollar, foreign investors are evidently rethinking their investments in the US market and easing their participation. The Nasdaq market is easily the most overvalued of all US markets and while the lure of potentially fabulous gains has kept many investors in tech markets, the reality of the present situation may be sinking in and the psychology changing. This distribution of shares is not restricted to foreign investors – even insiders have decided that the time is ripe to cash in some shares. The Vickers report on insider sales shows sales by corporate insiders have surged to 5:1 (versus purchases) on the Nasdaq.

 

The Dow and the S&P may hold above the lows of September though this is more difficult to predict. As investors grow more and more disenchanted with the Nasdaq, the recipient of the pullback will most likely be stocks on the S&P 500 since few US funds prefer holding cash or investing outside of the US.

 

The Fed meets on Tuesday this week and while no one expects a rate hike at this meeting or in the June meeting, the consensus is building that a rate hike will occur in August. We believe that with no increase in capacity utilization, ISM numbers trending back toward contraction, and continuing difficulties in the job markets, there will be no pressure on the Fed to hike rates before the end of the year.

 

 

Our Stock Picks

The stop losses of $7.80 on AOF and $11.20 on MUO are maintained. We add a tight stop loss on ADPT of $13.50 owing to the current market risk on Nasdaq. We’re watching our Dow stocks carefully expecting at a minimum that a mild bounce will occur with stochastics vastly oversold.

 

New Buy Recommendations:

 

None. Market risk is far too high to initiate new positions in anything but gold at this point. 

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We were exited from HCN at our stop of $27.50.

 

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	5.07	H
02/01/01	Acm Government Opportunity Fund	AOF	7.99	9.00	B
03/11/02	Adaptec	ADPT	13.89	13.70	H
10/08/01	Agnico-Eagle Mine	AEM #	10.85	14.92	B
22/04/02	Aspect Comms.		4.92	4.82	H
03/11/02	Caterpillar	CAT	59.08	54.00	H
22/04/02	Cobalt	CBZ	15.15	19.65	B
03/18/02	Dupont	DD	48.70	45.38	H
10/22/01	Glamis Gold	GLG #	3.28	6.63	B
10/08/01	Gold Fields ADR	GOLD	4.97	12.74	B
08/27/01	Health Care REIT	HCN	25.85	27.50	SOLD
03/18/02	Johnson & Johnson	JNJ	64.70	63.43	H
03/11/02	Modis Prof. Srvcs	MPS	7.75	9.09	B
03/04/02	Moore Corp	MCL #	11.50	14.05	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.64	H
03/04/02	Quadramed	QMDC	9.38	5.96	SOLD
03/11/02	United Tech	UTX	75.32	69.63	H