Stockscom Report for Sunday Sept 15 2002

Publisher: Colin Alexander Editor: Ken Wilson

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

Market Synopsis

The equity indexes are in precarious positions at this point and there is an assortment of factors working against any further extension of gains made recently. By analyzing the charts, we find that some equities might have the strength to withstand the downward pressure and remain around current levels, however the vast majority of equities would be subject to selling and the odds certainly favor a return to the lows reached this summer at a bare minimum. Here we summarize some of these factors in no particular order:

The current month of September is renown for weak equities as is the following month. This could be due to tax loss selling that occurs or simply repositioning of portfolios as the end of the year draws near. Certainly market psychology plays a role in the absence of good economic fundamentals and this would be translated into a desire to be rid of some stock positions as near-term expectations worsened.

Second, according to Thompson/First Call, this quarter’s results will be much worse than expected months ago. Throughout the year, First Call tracks corporate pre-announcements on up-coming earnings and while the first two quarters of the year saw more positive pre-announcements than negative, the ratio has reversed as we move to close the third quarter of the year.

The third factor is a group of economic indicators such as the unemployment rate, interest rates, consumer confidence, and purchasing managers’ numbers contained in the monthly ISM report.

Ø While unemployment was down in the August report, there are new indications of further layoffs with companies such as Lucent and Boeing mulling job cuts in the very near future.

Ø In the case of interest rates, the Fed has no incentive to raise rates for at least four months and probably six, but a cut in the interest rate may still be possible after the FOMC meeting next week or after the one in December. Though little mention has been made of it, deflation is perhaps the more worrisome element that the Fed has to contend with. The Japanese experience with deflation throughout the nineties has given the world a giant economic experiment with which to study this phenomenon.

Ø Consumer confidence has held up reasonably well in the past few months but further deterioration in the stock markets coupled with an increase in unemployment could severely endanger that level of confidence, which would translate itself into reductions in retail sales figures.

Ø The latest report from the ISM indicated a still expanding economy but only by the slimmest of margins and if the contraction in the orders section of the report represents a barometer of future readings, then the economic recovery is on very shaky ground.

The fourth factor was covered last week and that is the strong potential for Gulf War II. President Bush addressed the UN General Assembly on Thursday this week and while no firm timeframe was given, the President made it clear that Iraq was in its sights with or without the approval of the UN. A conciliatory motion proposed by the US and other countries to permit weapon inspectors back into the country was rejected outright by the Iraqi government, which seems resigned to facing an attack by the US military.

Associated to this threat of war is the high cost of crude oil whose price has been hovering in the neighborhood of $30 per barrel as of late. A barrel of crude continuing to cost $30 will act as an impediment to increases in industrial production especially those whose cost structure is heavily dependent on the price of energy. Even without a war, there are fears that high prices could go even higher if there is no increase in output from OPEC producers who are meeting this week in Japan.

It is in this difficult environment that we add a pool of short sales this week. As a reminder, it is recommended strategy to short a pool of stocks rather than simply one or two issues.

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, but we are changing the stop for JNJ to a close below $52.00.

New Buy Recommendations:

None.

New Short Sales

United Technologies (UTX).

Kodak (EK).

Citigroup (C).

Caterpillar (CAT).

All of these Dow stocks look immensely weak having already rolled over and they are progressively searching at lower levels for support. Continued selling in these issues is expected as all suffer from acute problems: UTX from the drop in airplane production, Kodak from the revolution in cameras and film, Citigroup from its questionable loans and Caterpillar from the stalled economic recovery.

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	9.25	B
07/29/02	Amgen	AMGN	43.80	45.67	B
08/19/02	Biomet	BMET	28.41	26.93	B
07/29/02	Friedman Billings Ramsey	FBR	9.30	9.90	B
08/19/02	Johnson & Johnson	JNJ	55.01	54.14	B
09/09/02	Lannet Co	LCI	10.30	10.60	B
09/03/02	Moore Corp	MCL #	12.11	11.13	H
02/01/01	Pioneer Interest Shares	MUO	11.95	11.94	B
09/09/02	West Coast Bancorp	WCBO	16.50	15.84	B