Stockscom Report for Sunday Dec 1 2002

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

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

Market Synopsis

The count is now 8-0 for "up" weeks on the Dow while the Nasdaq and the S&P 500 follow close behind with 7-1 positive weeks. While this rebound has been very strong driving the Nasdaq to an unlikely gain of 33% from its low reached on October 10, the inherent risks of retracement are naturally elevated as a consequence. The longer the streak persists, the greater the chances for a deeper nominal retracement. However in the interests of keeping things in perspective, last year at about the same time as now, the Nasdaq rose 12 of 14 weeks so one should not think that there’s no precedent for further extraordinary gains and, as a reminder, that rally was accomplished in the midst of a relentless bear market.

The most significant development in this week’s technicals is the Nasdaq’s attempt to cross the 200-day moving average, which in the case of the Composite index barely touched the line before falling back on Friday. The Nasdaq-100 index was more successful as its price range did manage to cut through the line before settling back by the end of the day. Truth be known, Friday is a poor example of its strength given that trading volumes were approximately half the normal amounts due to vacation time after the Thanksgiving Day holiday. Monday’s volumes will be closer to normal and will therefore provide a more accurate pulse of the indexes.

These surprising returns of late have not gone unnoticed by analysts at various brokerages who are keeping busy downgrading issues that they feel have moved too much, too quickly. Moreover, market sentiments as measured by put/call ratios on the S&P 500 or in surveys such as those undertaken by Consensus, are becoming overwhelmingly bullish and this is sounding a warning signal. Even VIX, the volatility indicator used by market technicians, bounced higher in the past few sessions. But the facts remain. The downtrend channel line on Nasdaq that produced much resistance on the way down from the market top in 2000 has been solidly breached in the past month, the August market peak was taken out by the advance of late, and now we arrive at the current challenge(r), the 200-day moving average. This last test could be the toughest battle yet as stochastics on the daily chart have now reached extremely overbought levels and a turn lower would be expected.

This past week all equity indexes found strength largely in two data releases, the first-time claims for unemployment benefits and the Chicago Purchasing Managers report. The former was the lowest figure in 21 months and drove investors’ hopes higher that the weak job situation was finally stabilizing while the latter report revealed an expansionary regional economy and a healthy new orders index. The Chicago report is a prelude to the National Purchasing Managers report which will be released Monday. Expectations are for an overall figure well over the 50% mark now with a new orders index in the neighborhood of 60%. The positive sentiment generated by strong numbers here could support the Nasdaq in its attempt to break through the all-important 200-day moving average.

Other data releases of interest this week are the Challenger, Grey numbers for announced layoffs though these numbers rarely move the market and the key November unemployment figures, which will be released on Friday morning. The latter figures always have an effect on the markets. Retail sales figures should be available on Monday as well and early indications are that retailers saw a 12% increase in sales (year-over-year) for the Thanksgiving Day weekend – a barometer of Christmas sales and consumer confidence.

With our own stock picks, we conservatively put a hold on all equities due to the strong possibility of retracement from these levels. Even though overbought, it would not be terribly surprising to see market indexes finish the week with a gain given the expectation for positive economic news. We retain stops in AMGN and STCO of $43.00 and $10.00 respectively. Certainly in the case of AMGN, the downside risk is substantially less at this point.

Some of our picks did exceedingly well this week including RINO, which released quarterly results above expectations and increased their own profit guidance for 2003; CHS, which set a new 52-week high; LCI, a generic drug manufacturer, which is growing revenues and profits enormously and benefited this week from a positive review in Investor’s Business Daily; and Inco, which profited this week from a new high in the price of nickel on world markets. Fundamentals for nickel are immensely bullish with demand exceeding supply and an apparent global recovery driving up demand for nickel, which is used in galvanized steel.

We sold our position in BMET and by week’s end this appeared to be the right move for it continued to move substantially lower. We were also exited from our position in MME, which hit our stop-loss during the week.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

MME was sold.

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.