Stockscom Report for Sunday Sept 29 2002

Publisher: Colin Alexander Editor: Ken Wilson

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

Market Synopsis

While it appeared likely that a rebound had begun in midweek, it simply took two Dow stocks – Philip Morris and SBC Communications – to deliver curt warnings to drive down the index on Friday and largely reduce the effective strength that had been constructed Wednesday and Thursday. A third company, arguably the most influential in the Dow Industrials, GE, also had cautious statements about its prospects in 2003 and suffered a similar fate as the other two companies. In all, 29 of the 30 companies that are components of the Dow Jones average fell on Friday with the rare exception being KO, a company whose growth is expected to be in the low single digits and sells for 30 times earnings.

While the S&P 500 was also hit by fierce selling, the percentage drop was milder than on the Dow. As for the Nasdaq market, it managed to stay in positive territory until the afternoon and ended the week with a small loss. Though the Nasdaq Composite average settled below the July low and put into doubt the resolve of the support located here, it is worth mentioning that the Nasdaq 100 average is currently resting at very long term support going back several years.

As the leading percentage loser on the downside this week and with a chart that bears watching for it is perhaps the most horrendous-looking, the Dow should be paid particular attention at this time. Indeed there is a chance that the Dow could suffer greatly in the following weeks without reciprocal action from either the S&P or the Nasdaq markets.

It is mindful to remember that the Dow has managed to escape thus far the harsh treatment that the other two indexes have suffered, but even more importantly, one should be aware that the calculation of this index is quite different and could engender its own series of vicious effects. The Dow Jones Index is a price-based index, which greatly differs from others such as the S&P 500, which is a market capitalization-based index. When calculating the index move on any given trading day, the relative effects on the Dow index are skewed toward the member with the higher share price. In other words, a member such as 3M (MMM) with a share price of $112.55 has a greater influence over the movement in the index than does GE (GE) with its share price of $24.47 and this despite the fact that GE commands a market cap of $260 billion while the corresponding figure for 3M is $45 billion or roughly one-sixth the capitalization of GE. The danger is that high priced shares such as PG and MMM or even KO could drop significantly in a re-evaluation of their PE ratios and send the Dow through various long-term support levels.

With respect to our own trading, hindsight being perfect, perhaps we moved too quickly on exiting the pool of shorts but in retrospect, all indications pointed to greater gains as the week wore on. The sharp downward move on Friday was quite unexpected given that the indexes had begun to rebound from their severe losses of late and were easing away from the extremely oversold territory, which claimed them. Large daily price swings, however, have become commonplace as this market tries to find its legs for support.

As we’ve mentioned on several occasions, we continue to observe the price of an ounce of gold on world markets. This week, gold threatened to charge over the $330 mark and this is entirely significant because we’re almost certain that at the $330 mark sits several buy stops, which would be uncovered in the futures markets thus triggering further buying and a subsequent rise in the price of gold shares. Fundamentally, the problem remains that there are indications that gold consumption is down as Japanese increases are more than offset by central bank selling and the reduction in purchases of gold jewelry in India.

Two major items of interest this week that will be closely watched in the equities markets are the ISM report of purchasing managers intentions to be released on Tuesday and the September unemployment rate due out on Friday. Both of these reports should give some perspective of the current situation and clues on whether improvement in the economy is forthcoming.

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:

C, CAT, EK, UTX were all exited on Thursday morning (Sept 26) at the open.

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	9.30	B
07/29/02	Amgen	AMGN	43.80	42.00	H
08/19/02	Biomet	BMET	28.41	27.00	H
07/29/02	Friedman Billings Ramsey	FBR	9.30	10.15	B+
09/09/02	Lannet Co	LCI	10.30	9.92	B
09/03/02	Moore Corp	MCL #	12.11	10.00	H
02/01/01	Pioneer Interest Shares	MUO	11.95	12.00	B
09/09/02	West Coast Bancorp	WCBO	16.50	15.57	H

Short Sales

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