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Stockscom Report for Sunday June 16 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

While the markets plumb the depths on an unwavering search for the bottom of this bear market, we may have at least touched down on a temporary landing with Friday’s action. Stochastics have been oversold for some time now with virtually no respite. If it seems like markets have been falling non-stop this year, it wasn’t exactly due to an overactive imagination. In fact, the Nasdaq has fallen every week but six since the beginning of the year and the S&P 500 has fared equally well. Most of the losing weeks have occurred in the past three months so the drop has seemed much more intensive during that period.

 

But the question is whether or not we’ve reached a bottom and the answer is probably not. A temporary one, perhaps, but the truth of the matter is that with the S&P and Nasdaq so close to their September lows, few traders wished to miss the opportunity to jump in at a potential bottom. Certainly the manner in which the markets fought back and the power they displayed to erase the immense early losses was impressive, but this was a knee-jerk reaction to reaching the lows and paid only lip-service to the news of the day.

 

There were two groups of numbers released on Friday, which were noticeably absent from discussion of the rebound. The first was the industrial production numbers showing a small increase of 0.2% in the month of May coupled with a capacity utilization figure of 75.5%. In and of itself, the figures support those who believe that recovery will be extraordinarily weak especially with a capacity utilization of 75.5. In order to see recovery, there has to be a significant pickup in production and by consequence, the utilization figure. With a quarter of the factory floor idled in this economic turbulence and no indication that a significant change has begun, there is little reason to believe in a strong recovery.

 

The other numbers are the always-important University of Michigan consumer confidence mid-June measures. These were much ignored on Friday when market reaction was virtually non-existent despite the fact that the number showed a steep slide of 6.1% to 90.8 from the end of May figure of 96.9. With so much attention paid to these figures, it is inconceivable that this ignorance will last for long. For so many months, analysts have been surprised by the resilience of the consumer in the face of economic turmoil, but now there are signs that consumers are tightening their wallets and certainly some sense of that was evident last week with the report that retail sales dropped 0.9%.

 

Looking more closely at the indexes to get a better sense of the action, we see that only 25 of the 100 stocks that compose the Nasdaq 100 were able to put in a positive performance last week as well as 5 of 30 Dow stocks – the one constant for both being MSFT (the other 4 managing to break above the even line from the Dow were WMT, PG, KO, MMM). Microsoft is definitely a leader for both indexes but it remains to be seen if it can single handedly guide the indexes higher. And Microsoft has its own demons to deal with – more specifically, its inability to surge beyond the $70 mark. While we are tempted to add it to our buy list, we feel that the chances are great that it will crash once more into a wall of resistance somewhere before it gets to this point.

 

Our Stock Picks

The stop losses of $7.80 on AOF and $11.20 on MUO are maintained.

 

 

New Buy Recommendations:

 

FBR

LCI

We make two new recommendations this week that exhibit uncommon strength and should continue to make new highs in 2002 regardless of how the indexes move. Both have similar characteristics with rising OBV on monthly, weekly and daily charts and both are making new highs on a weekly basis.

 

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	9.11	B
10/08/01	Agnico-Eagle Mine	AEM #	10.85	14.90	B
10/22/01	Glamis Gold	GLG #	3.28	8.35	B
10/08/01	Gold Fields ADR*	GFI	4.97	12.37	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.68	H

 

*Gold Fields changed their symbol to GFI from GOLD