Stockscom Report for Sunday Mar 16 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

Market Synopsis

 

Much as we discussed last week, there's nothing else to consider these days, but war. War will begin probably sometime in the next 14 days on a night where no moonlight shines for the night-adapted equipment of the Allies presents such a superior force that resistance will be minimal, if at all. Widespread rumors suggest already that Iraqi forces in the periphery, the least well-equipped and the first to be attacked, will surrender immediately rather than face the threat of almost certain annihilation.

 

Markets are dropping overnight as first Tokyo then other Asian markets react to President Bush's ultimatum. Already in North America, futures contracts are seeing the Nasdaq-100 trading down around 15 points while the S&P 500 futures are down around 10 points. Commodities such as crude oil and gold are resuming their bullish tendencies as fear sets in of further global turmoil. The US dollar is falling against most major foreign currencies putting the brakes to a short-lived rebound in its value at the end of the week.

 

In such extreme situations, investors should not be adding to or initiating new positions. Indeed even though the Dow Jones, Nasdaq and the S&P produced some inspired bullish moves at midweek, all bets are suspended given the action on the weekend. And except for the Nasdaq that has a chart that's noticeably stronger than the other two, we are more likely to see some testing of the October lows and probably failure in both the S&P and the Dow.

 

The Nasdaq, however, still displays interesting and unusual strength despite the sell-off of the past few weeks. Though nothing is certain yet, technically we may be witnessing the beginning of some basing action in the technology index. Naturally the crash in tech stocks has been widely felt and was much more sudden than with the broad indexes which have slowly meandered downward in comparison to the abrupt fall on the Nasdaq. Stocks such as Amgen and Qualcomm have strong charts demonstrating little effect of the implied market risk. Inherently, this is, and will continue to be, a stock-pickers market.

 

Even if we assume that the war will be of a short duration, there are simply too many potential outcomes and situations that could impact the US economy that we cannot begin to estimate the results. What we do know is that:

-        given the ultimatum decreed on the weekend, now more than ever, it is likely that the cost of such war operations will be assumed by the US and not shared amongst Western allies.

-        euphoria from victory will be brief as the realization that the economy has not changed fundamentally sinks in.

-        the Federal Reserve and Mr. Greenspan will need to find other means to explain the weakness in the economy instead of relying on the threat of war. Companies do not make capital expenditure decisions based on the threat of war in militarily-weak countries.

-        the severe lack of consumer confidence is a function not so much of war as it is a function of unemployment and rising oil prices. The price of gas rose 18.8% in February according to the Labor Department statistics released on Friday. Home heating oil was up 25.2% and volumes increased sharply due to the unusually cold winter. Consumers are more in tune to their wallets than they are to potential wars half a world away.

-        with Venezuelan oil fields severely crippled by the long strike, Kuwaiti oil fields in the north due to be shutdown and Iraqi oil fields unlikely to be producing anything for some time, there is less likelihood of a sharp drop in the price of crude or its derivatives similar to the situation when the Gulf War began in 1991.

-        interest rates will probably be cut once more and deflation remains a concern as the PPI index would have fallen 0.3% in February had it not been for the increase in energy costs.

 

We retain our gold holdings in such an environment as an insurance policy against the falling US dollar, inflation risks, and of course, war. This insurance policy like many others has cost us dearly, but in the oddity that is the gold market, we saw increases by midweek in the gold shares preceding increases in the price of bullion and the most recent drop in the price of actual gold took it to within a sliver of the 200-day moving average, which is often the support level for bullion.

 

New Buy Recommendations:

 

None.

 

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
03/04/03	Energen Corp.	EGN	30.68	31.17	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	30.17	B
12/16/02	Glamis Gold	GLG #	10.40	9.85	H
12/16/02	Gold Fields	GFI	14.68	10.80	H
12/16/02	Goldcorp	GG #	12.75	10.36	H
12/16/02	Harmony Gold	HMY	16.98	12.55	H