Stockscom Report for Sunday Nov 10 2002

Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

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

Market Synopsis

Our objective as always is to visualize in which direction the equity markets are heading. We analyze the data using a variety of tools, but principally moving averages, stochastics, and MACD charts. Perhaps the most important element for us is the timeframes that we choose. Certainly monthly, weekly and daily timeframes don’t constitute rocket science nor state secrets, but they remain surprisingly simple compared to other technical analysts’ tools wrapped up in financial jargon that only a PhD in economic modeling could understand.

Monthly charts succeed in bringing home the broad macro perspective of the equity markets. If we take, for example, the Dow Jones monthly chart, we see stochastics turning up from a very low, borderline-oversold condition that hasn’t been seen since late-1998 and before that late-1990. Or, in other words, market conditions are rarely seen in such a favorable position with respect to stochastics. On-balance volume provides some support in the sense that its chart has not turned from such a negative juncture since 1984 and in comparison, appears remarkably similar. With OBV however, the fast line is still rising and working to cross the slow line and it isn’t until we see the crossover that our level of confidence really gets a boost.

Using the weekly charts, we find similar results; OBV is rising sharply and appears poised to take out the August high of 9077 as a logical first step of the recovery process. Despite this past week’s reversal, no bullish trends were broken along the way and we expect a fast turnaround since stochastics are still within the normal range and don’t pose a serious threat.

Once we get to the micro stage of the analyses, our predominant view of the market is already developed and the micro or daily chart becomes a tool for near-term market timing. The overbought stochastics are the overriding influence in the market today and as it sells down to the 8300 level, the support pressure should be sufficient to provide the launch pad for the next leg up of this rally.

The Nasdaq monthly chart is arguably the most interesting of all three majors. A channel line is drawn from the market’s peak in early-2000 until the present day and one quickly realizes that we are possibly on the cusp of breaking through this very long trendline which has proven to be a formidable force on the way down. The stochastics and OBV are similar to the ones seen on the Dow charts, but the most striking feature is the monthly reversal that has rapidly taken the Nasdaq up to the channel line and, once the immediate overbought stochastics on the daily chart have eased, should still have enough power left in it to break through this important trendline. A move toward 1500 should be a solid enough break to finally put down this bear market trend.

On our individual recommendations, we find some that warrant particularly close attention. Namely AMGN, which has been hit by analyst downgrades and now is supported by the 200-week moving average. We recommend putting a stop-loss of $43.00 on this because, while the chances for support are good at the 200-week moving average, a dip to $38 is not out of the question.

A similar situation can be seen with MME where the recent dive is making us wary of holding this stock. Seen from the perspective of the weekly chart, we have the impression that this could be normal action as it pertains to this stock. Nonetheless, we put a stop-loss on this at the low for the week, $31.40

One stock that we’re less concerned with is Amylin Pharmaceuticals which reached an all-time high this week taking out the previous highs in 1992 and more recently in 2000.

For all equities except the sell recommendation on FBR, we have placed a hold due to the retracement that markets are experiencing currently. Given that we expect it to resolve quickly and that the bull rally will continue, we remain optimistic with these equities.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

FBR – this stock is making ever lower highs and while the lows may not be sinking, we feel that upside potential is low with the strong perception that brokerage firms will be seeing many job cuts shortly in an effort to boost profits. Share prices and profits are under pressure from the reduction in trading activities and lack of new issues brought to market.

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.