Stockscom Report for Sunday Nov 17 2002

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

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

Market Synopsis

The stock market indexes have proved to be very resilient in the past few weeks preferring to rally in the face of bad economic news and certainly Friday was no exception. Acting much like any one of the tech stocks during the bull market, the markets initially reacted with fear to the PPI numbers for October, which showed inflation soared with the biggest increase in almost two years. That information plus the drop in capacity utilization and lower industrial output combined to put all three majors on the defensive once markets opened for trading. It wasn’t until advance consumer confidence figures were released by the Univ. of Michigan and showed an unexpected increase that markets began a steady climb higher. With closing levels at or above the even line, there is no arguing that we are looking at a strong rally to be reckoned with.

But how long can it carry on? Clearly, these numbers are an indication of current weakness, not strength, yet the markets appeared ready to take the consumer confidence figures as the true barometer for economic growth potential moving forward. Sadly these consumer confidence figures will probably not translate into sales for retailers this coming holiday season for a couple of reasons. First, some early surveys have already determined that average consumer spending on gifts will be drastically reduced from last year. According to one such survey by Consolidated Credit Counseling Services, a nonprofit debt counseling organization, nearly 55 percent of the 850 respondents to the nationwide poll said they would spend less than they did last year. Of those, 56 percent said they would spend up to 20 percent less, while 28 percent said they would spend 20 percent to 40 percent less money than they did in 2001. And the second reason is that the port strike on the west coast has put tremendous delays on shipments many of which were undoubtedly filled with items intended for holiday buyers. The delay for vessel unloading may be minimal at this time but the bottleneck has now moved inland.

Now many people will argue that the stock market is predictive in nature and that it represents conditions six or nine months into the future. They use this argument as the basis for justifying a stock market rally such as the one we’re experiencing. Unfortunately, there are few numbers released which reliably predict future conditions to back up the market psychology, though the Purchasing Managers numbers (ISM) has an orders index which is often quoted as indicative of future trends. And the four-week average of new weekly unemployment claims is often used to spot the trend in the unemployment rate. In the case of the former, the most recent ISM report revealed an increase in the orders part of the index and being above 50 percent meant that it was expanding while in the latter, the most recent four-week average of new unemployment claims passed under the 400,000 level. Nevertheless it cannot be disregarded that the overwhelming majority of reports being released demonstrate that conditions have deteriorated quite materially in the past several months and we must see a rebound in these numbers if we are to believe what the stock market is telling us.

Of the charts, the Nasdaq index is undoubtedly the strongest chart currently, but we see there’s long term resistance at levels just above. On a weekly basis, all the indexes are strong but appear to be topping out - a sign of fatigue. We continue to look for some retracement in the gains made since the October lows.

As for our own shares, AMGN rebounded over the past week though we’ll still pay close attention to it and MME began a comeback as well. The stop-losses of $43.00 and $31.40 respectively, are retained for the moment. Exiting from FBR was timely as Friday’s markets saw shares in FBR dip substantially on the news that it would buy out an associated firm.

With respect to the tech rally, we have chosen to recommend three additional stocks whose charts are remarkable. Cognos (COGN) has resolved to the upside with a double reversal on the monthly chart and this, at the 40-bar (month) average line. Weekly charts support the recommendation and on the daily, price has bounced decisively up from the 25-day moving average. Citrix (CTXS) has doubled since it bottomed out four months ago. The base building lasted about three months and this month began a breakout. Daily charts indicate that new money is finding its way into this company’s shares. Finally, Qualcomm (QCOM) in a manner strangely similar to Cognos, has managed to find support at the 40-month average line. It should be noted that holding at long-term support lines is an excellent indicator as well as a good entry point when going long. More importantly for QCOM, this week’s bar is a large outside bar that crosses both the 40-week and 200-week moving averages.

New Buy Recommendations:

COGN #

CTXS

QCOM

New Short Sales

None.

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.