Stockscom Report for Sunday Jan 12 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

The euphoria of January, of a new year, is still upon the markets. While there are some that believe strongly that how goes the first week of January, goes the month of January, these last few years have been anything but normal for stock markets. With losses on all three major indexes in the past three years and most other global markets, many believe that it is inconceivable to have another losing year in stocks and base their decision solely on the law of averages. But investors must learn that this is a secular bear market occurring after one of the longest periods of economic growth and prosperity in equities. The bubble has burst and as such, the excesses of the previous bull market must be wrung out. The best example of this being the enormous capital investment of the telecom companies now paralyzed by large debt burdens and overcapacity. With a slowing economy, the aforementioned overcapacity and a consumer bent on saving now, the ability to raise prices is virtually non-existent and consequently, these companies are suffering from a squeeze in profits. Still analysts line up and forecast rising equities for 2003 much like they forecasted last year’s performance. And it might happen too, but with corporations shifting gears to invest less capital in an effort to earn a measurable return from the capital already invested, we would not be surprised if this year ended on the same note as the previous three. As for January’s performance leading the year, recall that the rise in equity values in January 2001 marked the high point of equities for the year.

 

In our quest to solve the mystery of which direction, markets will follow, we rely on the charts, but also certain economic data weigh on the decision. One reliable indicator that we prefer as a signpost for recovery is the industrial capacity figure, which has barely budged in the past twelve months and has no definable trend currently. Another is the ISM purchasing managers’ surveys, which have proven to be a remarkable weather vane on the economy when used to uncover trends over several months. In January so far, the tremendous move of late was triggered in fact, by the release of the December survey from the ISM. The report contained an unexpectedly large increase in orders and dramatically shifted sentiment for the beginning of 2003. But was that order number accurate? Some analysts are arguing that this increase was based simply on an inordinate amount of defense-related orders in preparation for war with Iraq. Only future releases of the report will reveal if that is truly the case.

 

Despite the rising gold prices, the unusual situation of rising equity prices at the same time should continue this week. While certain key stocks such as Dell and GE look very toppy at these levels, both the broad indexes as well as the tech sector appear set to maintain the upward march. And in spite of the oft-changing direction on the daily chart, there is reason to believe that money is being put to work in the market as indicated by OBV. Even the release of December’s unexpectedly weak employment report has done little to dampen the enthusiasm for owning stocks this early in the year.

 

New Buy Recommendations:

 

We add two recommendations this week – the first is the major telco in Canada, BCE, whose chart is breaking out from a broad eight-month pennant and is supported closely by the 200-week moving average on the weekly chart. We have every reason to believe that this stock is heading significantly higher on the breakout. The second is Echostar (DISH), one of two firms offering television via satellite in the US. Their attempt to buy out their competitor Hughes may have failed, but in resolving that issue and removing the cloud of confusion, investors have applauded the action by buying DISH - massively. Having been sold so low over the past three years, it could move up substantially. On the monthly chart it has found strong support with the 40-month moving average.

 

BCE #

DISH

 

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.

Date of Entry	Name	Symbol	Entry Price	Current Price	Action Rating
07/29/02	Amgen	AMGN	43.80	50.44	H
12/16/02	Glamis Gold	GLG #	10.40	12.06	B
12/16/02	Gold Fields	GFI	14.68	14.45	B
12/16/02	Goldcorp	GG #	12.75	13.01	B
12/16/02	Harmony Gold	HMY	16.98	17.50	B
12/16/02	Hecla Mining	HL	4.74	5.16	B
10/21/02	Petsmart	PETM	19.95	18.17	H
10/21/02	CP Ships	TEU #	12.20	14.58	H