Click here to go to the StocksCom.com website

 

Stockscom Report for Sunday May 19 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

This week began much like the week before ended - in volatile fashion. Stock prices jumped across the board as a successful test of the low from the previous Wednesday helped enormously. Monday and Tuesday saw solid buying trends in place undoubtedly caused by a mixture of short-covering and perceived value in the cheaper priced stocks.

 

Still the S&P 500 is now trading at around a P/E multiple of 21 while the historical norm is 14 and the trough is often in the neighborhood of 9 coinciding with the recession-ending pit of despair. However, the recession is different this time say the economists and various analysts. They believe this recession, the weakest in over a decade, is not likely to be marked by a double-dip which is one where a nascent recovery stalls and recessionary forces retake control. Clearly the chances favor the double-dip since 5 of the past 6 recessions have witnessed some form of slowdown or pullback once recovery was thought to be in place.

 

Two very good indicators for the future state of the economy are help-wanted advertising and capacity utilization. In the case of capacity utilization, there have been only slight increases in the past few months and currently the level for April is 75.5%. This figure is far below the normal value for an expanding economy demonstrating a tremendous slack in manufacturing capacity. And as for the help-wanted index, an index that compiles all the data pertaining to available jobs advertising, it has been steadily falling even while the professed recovery was underway. These two indicators taken together signify that a double-dip is a strong possibility since manufacturing capacity remains high and advertisements for jobs has persistently fallen despite all efforts to revive industrial production, namely through interest rate cuts.

 

We are now in the period of May to October when stock indexes, historically, have their lowest returns but this does not exclude the possibility of a strong rally in prices. Indeed summer rallies are quite common occurrences, however we believe that market action favors a substantial dip into a September/October low as recovery concerns persist.

 

Technically in the near term, Nasdaq is heading higher but will meet heavy resistance first at the 1790 level representing the 40-day moving average and second at the 1875 mark signifying the 200-day moving average. Having broken through the same support levels in January and with no strong recovery on the horizon, any expectation of breaking through resistance levels may be premature.

 

For the S&P, resistance will be met near the 40-day moving average, which in the case of the S&P, falls around the 1125 level, but in the case of the Dow, resistance at the 40-day moving average was broken this week and will now use this line as its first measure of support.

 

 

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
22/04/02	Acclaim Entertain.	AKLM	5.79	4.82	H
02/01/01	Acm Government Opportunity Fund	AOF	7.99	8.72	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	15.45	B
22/04/02	Aspect Comms.		4.92	4.70	H
03/11/02	Caterpillar	CAT	59.08	54.79	H
22/04/02	Cobalt	CBZ	15.15	18.95	B
03/18/02	Dupont	DD	48.70	46.59	H
10/22/01	Glamis Gold	GLG #	3.28	8.25	B
10/08/01	Gold Fields ADR	GOLD	4.97	14.85	B
03/18/02	Johnson & Johnson	JNJ	64.70	61.47	H
03/11/02	Modis Prof. Srvcs	MPS	7.75	8.84	H
03/04/02	Moore Corp	MCL #	11.50	13.78	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.55	H
03/11/02	United Tech	UTX	75.32	70.30	H