Stockscom Report for Monday Sept 2 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

The quiet before the storm. Ironically, this would be the best description of the current markets on this Labor Day. September is historically a month to forget as performance is usually mediocre at best. This month should be no exception with corporate pre-announcements having already started and in substance, are leaning toward the negative side of the ledger more often than we’ve seen in recent quarters. But the slew of data to be digested is the real reason for the storm clouds alluded to above.

 

Tuesday morning will see the release of the Purchasing Managers Index numbers and judging by the numbers in the Chicago PMI release on Friday, it appears likely that there will be notable signs of improvement in economic activity. However, the employment part of the index was troubling with a worrisome contraction and this is hardly a sign of an impending bull market. Contraction in employment immediately brings up thoughts of a tighter-fisted consumer and the distinctly unpleasant effects that would cause.

 

Later in the week, data on manufacturing shipments, inventories, orders and productivity will compete with arguably the most important – the August employment report.

 

While we do not spend our time attempting to forecast the data to be released, we do give a general view of our expectations. The trend at this moment would appear to be in the direction of a slowdown in the recovery. Recent data through the summer months has shown a relentless deterioration in the recovery that began earlier this year and comments from corporate executives reveal nothing of the much-anticipated rebound that government officials never cease to advocate. Not even the Fed has been immune to this unabashed cheerleading from the sidelines with Fed governors lately giving speeches arguing against the need for further rate cuts.

 

Unfortunately, many people (evidently from all walks of life) quickly forget that the excesses of a bubble economy fueled by irrational exuberance are not resolved in a few months of recession. And this being September, means we’re even less likely to see the beginnings of a strong rebound. Though the charts still indicate that the near term trend is upward, we have yet to break through resistance on longer-term charts to confirm the existence of a recovery.

 

At this moment, the stock indexes are giving us the signal to wait and watch. Stochastics are now descending into oversold territory while 25 and 40-day moving averages provide some measure of temporary support. More importantly the lower channel boundaries of the upward moving trends have not been breached and support will have to be seen here or else the risks become weighted in favor of a return to the July lows.

 

If we look at longer-term charts, the Nasdaq 100 will need to break through the 1080 level to give us the confidence that a recovery is truly taking shape and the S&P 500 must pop through the 1000 level. As it stands today, we are still moving inside a downward sloping channel and thus we refuse to suggest that the bear market has truly ended.

 

With ambiguity in the charts, we remain on a cautious alert. Even now, some of the early leaders in this latest rally are becoming the early dogs unable to pass through the overhead resistance and falling away as a result.

 

The stop losses of $7.80 on AOF and $11.20 on MUO are maintained. For BMET, we continue to use a stop-loss of $25.50 and for JNJ, a stop-loss of $50.00

 

New Buy Recommendations:

 

MCL # – We’ve had MCL as a buy at other times and again we revert to winning companies such as this one, which have proven that they know how to prosper in very difficult times. MCL passed through a significant retracement in the past couple of months and in so doing, saw its stock pass from weak hands to strong hands. On the weekly chart, there are indications that a larger move is about to begin and we have essentially a buy signal on the daily chart.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

Our stop of $29.00 on SYMC was triggered on Friday and we exit from this position. As we had mentioned, there had been a floor created at that 29.00 level and having passed through it, the chart suggests that price could drop significantly further.

 

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	9.31	B
07/29/02	Amgen	AMGN	43.80	45.03	B
08/19/02	Biomet	BMET	28.41	26.86	B
07/29/02	Friedman Billings Ramsey	FBR	9.30	10.88	B+
08/19/02	Johnson & Johnson	JNJ	55.01	54.31	B
02/01/01	Pioneer Interest Shares	MUO	11.95	11.68	B
07/29/02	Symantec	SYMC	32.81	29.00	SOLD