Stockscom Report for Sunday Sept 22 2002

Publisher: Colin Alexander Editor: Ken Wilson

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

Market Synopsis

We continue to express extreme caution when discussing the direction of equity markets in general. Despite Friday’s action to reverse the trend of the past few sessions, the preferred direction remains down. Normally, we might have expected some follow through given that Friday saw daily reversals on both the S&P and the Dow, but with the revelations this evening that Qwest would restate $950 million in revenues and costs for swaps of optical-network capacity, this potential appears to be much less likely.

It is worth remembering that Friday was also the last trading day for index futures as well as the expiration date for options and this contributes to what is normally a much more volatile day than usual. However, this Friday wasn’t at all volatile with trading ranges relatively tight considering those enforced expirations.

Chart action is still quite bearish with stochastics pressing further into oversold territory after this, the fourth straight week of declines in the indexes. Each time fast OBV advances close to the slow OBV line, we see it reverse course and drop away quickly. From this we surmise that the market is not likely ready to build any sufficient strength to forge a significant rally.

For the market to march forward, there needs to be greater visibility of significant recovery in the economy and there are simply too few signs that this is occurring. The latest four-week moving average of first time claims for unemployment shows a growing joblessness problem that is going to seriously affect consumer spending if it doesn’t reverse course soon.

As for indications on the economy, this week brings very little with only Friday’s release of the final calculation of second quarter GDP, however there is the FOMC meeting on Tuesday to decide on overnight interest rates. Virtually all analysts believe that the Fed will stand pat on 1.75% and not cut the interest rate, but there are many who believe that the meeting in December might involve cutting rates.

What is likely this week is more pre-announcements of earnings misses. With the third quarter rapidly coming to a close, more companies will feel the pressure to warn if they suspect lower profits or greater losses.

We persist in watching the price of gold on world markets with an ounce now valued at around $324 for the December futures contract. The high for this contract was reached in June of this year at around $330. If a new high is set with a price well beyond this high water mark, we would seriously consider new purchases of gold equities. Thus far, every attempt at a new high has failed miserably, however with renewed fears of violence and war in the Middle East and with failure to sustain a modicum of recovery, more investors are turning toward the yellow metal once more and price action in the futures markets reflects that reality.

In the case of our stocks, most of the longs took hits this week as markets shifted downward, but the shorts provided a hedge against those losses by also dropping and at a greater percentage. We were exited from JNJ on our stop of a close below $52 and this appears to have been the correct response given that the chart looks immensely weak and could fall further in the days ahead.

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.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

JNJ. We were exited from JNJ after it closed below $52.00 Thursday.

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	9.40	B
07/29/02	Amgen	AMGN	43.80	41.72	H
08/19/02	Biomet	BMET	28.41	28.09	B
07/29/02	Friedman Billings Ramsey	FBR	9.30	8.99	H
08/19/02	Johnson & Johnson	JNJ	55.01	51.96	SOLD
09/09/02	Lannet Co	LCI	10.30	10.10	B
09/03/02	Moore Corp	MCL #	12.11	11.07	H
02/01/01	Pioneer Interest Shares	MUO	11.95	11.81	B
09/09/02	West Coast Bancorp	WCBO	16.50	15.29	H

Short Sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
09/22/02	Caterpillar	CAT	40.65	37.87	S
09/22/02	Citigroup	C	29.39	26.83	S
09/22/02	Kodak	EK	28.30	26.63	S
09/22/02	United Technologies	UTX	57.75	58.23	S