Stockscom Report for Sunday Mar 30 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

Market Synopsis

 

We spoke of risk last week and we saw both sides of the coin this week. There was the risk of holding positions at a time of war and the risk that the moment one exits a market is the time that one should be getting into that particular market. To whit, we saw markets sell off on news that the much ballyhooed war strategies conceived to rapidly conclude a war in Iraq, have gone up in smoke (no pun intended). And we saw what may perhaps be a strong rebound in gold shares after we had exited our positions only days earlier proving once more the theory that the moment that the decision is made to exit a market, is the time that one should actually be in the aforementioned market.

 

The current environment is extremely volatile and must be approached with a large measure of wariness. As a broad perspective of the markets, the signals offered by the major indexes are, at their most hopeful, mixed, but more than likely to have a downward tendency. Specifically, the S&P and the Dow Jones continue to be pressured from above, as resistance proves too strong. The downtrends begun more than three years ago remain in effect regardless what the popular media may have one believe. Conversely, the Nasdaq has been the market to send the most mixed signals for while the downward trend has stopped, there is still no sign of a breakout to the upside and we could be witnesses to an extended period of prices caught in the steel grip of price ranges.

 

The war effect on share prices is real and must not be underestimated. Too many comparisons have been made recently with Gulf War I raising people's expectations of a Nineties-style bull run in equities. This is not 1991 again. Stock prices are not depressed, earnings are not rising, and the war won't be concluded with soldiers quickly returning home. The cost of Iraqi-occupation will exacerbate already rampant budget deficits and induce more government borrowing. An Allied victory will almost certainly cause a rally in share prices, but this too will be ephemeral once the realization is made that consumer confidence will have remained in the doldrums and the expansion in the economy is not nearly as strong as forecasted.

 

Though entirely too simple, we often use the domestic auto industry as a road sign for the general economy and certainly there is some merit in evaluating it in terms of GM, Ford and Daimler-Chrysler. Sales are down sharply for the first three months of the year even as incentives continue to be piled on. Consumers have been saturated with these incentives and the addition of new ones now has no incremental effect on the car buying decision. The end result is that production is being slashed for the second quarter, as all three must direct efforts to reduce the increased inventories on dealers' lots. These planned production cuts will most certainly show up in increased unemployment numbers thereby discouraging more consumers from spending, as job worries become their predominant concern.

 

Even if we're totally wrong about the economy, share prices will probably not lift much from current levels. Seasonality weighs heavily on stock prices around this time of the year when April often brings in new lows and the old adage, “Sell in May and go away” becomes reality. True, there are often rallies but these are usually situations where stocks have become so oversold, a rally ignites purely from short-covering efforts of professional traders. One must wait until October arrives to see rallies that are more lasting and significantly more profitable.

 

While we continue to look for equities that have the potential for unusually strong gains despite the economy, we are attempting to identify areas, which we feel, will provide the fundamental basis for increased earnings. We believe that the natural gas industry is one such area with demand growing more quickly than supply and another area is the regional banks, which will benefit from the increased savings rate already occurring as consumers ratchet down their spending. One other area that we are exploring now is the electricity producers such as AES and Dynegy, a group that has been decimated by the likes of Enron and accusations of price fixing by the state government of California. Though we aren't prepared to recommend positions yet, we are considering this.

 

The bullish move in gold share prices on Friday was quite significant and may be indicative of renewed buying. We hesitate though to jump in since there was significant damage done to the charts and this could simply be a major short-covering move. Overnight, the price of gold is up once more above the $335 per ounce level and this will be deemed supportive of higher share prices however.

 

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	31.90	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	30.49	B
12/16/02	Glamis Gold	GLG #	10.40	9.31	SOLD
12/16/02	Gold Fields	GFI	14.68	10.00	SOLD
12/16/02	Goldcorp	GG #	12.75	10.05	SOLD
12/16/02	Harmony Gold	HMY	16.98	11.90	SOLD