Stockscom Report for Sunday Dec 22 2002

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

With the holiday season upon us, markets will become increasingly volatile as traders and investors take time away and with this lack of liquidity, price ranges often exceed normal price movements over the course of an average trading day. As such we tend to disregard some movements and resist the temptation to act unless the chart signal has been building for quite some time. In general, trading will be slow this week due of course to the holidays and shortened trading hours.

 

If the charts are to be believed, it appears likely that the major indexes have topped out at around these current levels and any rallies could be cut short at the knees. Not only is there no reason to believe in a Santa Claus rally, there is, in fact, reason to believe that we are on the cusp of another significant drop and test of the October lows. The latest numbers this week confirm that recovery will be a long, drawn out affair. One of our favorite indicators is the industrial capacity utilization, which now stands at 75.6% for November, up from 75.5% in October, and by any interpretation strongly suggests that factories are not gearing up production. The capacity utilization figure has changed little over the entire year despite the acceptance by most analysts that recovery is occurring. The question then becomes, “Where?”

 

Looking at various components of the indexes, but especially Microsoft, one of the strongest companies there is, the chart is extremely bearish and price could easily fall another 20% from this level. And this company has a ton of cash that’s constantly growing. One is left to wonder about the comparative health of other less successful companies and the prospect of a rising market in the near term.

 

The corundum today is whether the rally off the lows in October is to be believed and relied on as the first stepping-stone of a broader market recovery. While there is anecdotal evidence of recovery in the economy, these signs are less convincing as time moves on and more data is revealed. Additionally, we have an uncertain future as possibility of war with Iraq looms large, the value of the dollar is in question, and the rising price of gas discourages consumers.

 

We added gold last week in response to these concerns and, naturally, because the charts dictated that we look once more at gold. While gold share prices quickly became overextended and retracement was expected and occurred, no serious cracks in the strength of the charts materialized. That gold achieved a new high, trading above the $350 level, is symbolic of its new strength. Perhaps the most remarkable characteristic of the gold shares is the tremendous increase in trading volumes, which also occurred in the spring when price was rising quickly. Meanwhile, some analysts have tied the rising price of gold to the weakening dollar vis-à-vis European currencies (gold is always priced in US dollars) and certainly the euro fx has appreciated markedly against the US dollar of late while still others see it as a safe investment vehicle in a deflationary environment.

 

In this past week, we retained AMGN, PETM, and TEU while adding gold shares to our portfolio. LCI was sold off as well as it touched the $17 stop-loss level. As mentioned before, sufficient liquidity in the market is a problem at this time of the year and, consequently, we trade very little over the next two weeks.

 

Owing to uncertainty, we still wish to apply a stop-loss on Amgen (AMGN) at $48.

 

Stockscom will publish a shortened newsletter next week. Have a safe and happy holiday period.

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We sold LCI in addition to the recommended exits once our stop-loss was reached.

 

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
10/28/02	Aber Resources	ABER #	18.90	18.17	SOLD
07/29/02	Amgen	AMGN	43.80	51.48	H
10/21/02	Amylin Pharma	AMLN	17.60	17.83	SOLD
10/21/02	Blue Rhino	RINO	17.10	17.44	SOLD
10/21/02	Chico’s Fas	CHS	19.55	21.25	SOLD
11/18/02	Citrix	CTXS	10.25	12.18	SOLD
11/18/02	Cognos	COGN #	23.16	22.19	SOLD
12/16/02	Glamis Gold	GLG #	10.40	10.90	B
12/16/02	Gold Fields	GFI	14.68	13.75	B
12/16/02	Goldcorp	GG #	12.75	12.23	B
12/16/02	Harmony Gold	HMY	16.98	16.80	B
12/16/02	Hecla Mining	HL	4.74	4.69	B
10/28/02	Inco	N #	20.05	19.60	SOLD
09/09/02	Lannett Co	LCI	10.30	17.00	SOLD
10/28/02	Masonite	MHM #	16.95	16.20	SOLD
10/21/02	Petsmart	PETM	19.95	17.34	H
11/18/02	Qualcomm	QCOM	39.91	37.90	SOLD
10/21/02	CP Ships	TEU #	12.20	13.54	H