Stockscom Report for Sunday Apr 13 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

Market Synopsis

 

The war was for most intents and purposes completed last week. True, there is still some sporadic fighting in small-town Iraq, but Iraqi forces are sufficiently decimated or AWOL that the threat of weapons of mass destruction is substantially diminished. Perhaps the hard part is just beginning as the Iraqi people began complaining of the lawlessness, the looting and the inaction of many American troops still fearful of the odd sniper or two. Moreover, the lack of food, water and electricity means the country must endure further hardship as aid and military groups work to re-establish the various connections and provide help where needed.

 

Estimates for the rebuilding of Iraq vary widely and are in the billions notwithstanding the oil infrastructure alone, which has been without proper maintenance for many years due to the tight trade embargo imposed on Iraq by the UN. The bombing during this war successfully targeted not only government and military installations, but also electricity generation and transmission facilities. While most of the bombing was undertaken with precision guided smart bombs and cruise missiles, there were undoubtedly cases of missed targets and damage wrought that weren't in the original plan. Iraqi weapons were also responsible for part of the damage as obviously the mistakes are unlikely to have been committed by only one side.

 

As we mentioned in last week's newsletter, the overnight rise on last Sunday was a victory-tinged rally that quickly fell apart once trading began in earnest on Monday morning. To emphasize the importance of that move and to demonstrate forcefully the direction that the market would proceed to take was made more and more clear as the week wore on. Monday's fall or one-day reversal was followed by a double reversal of sorts over the next four days culminating in Friday's closing price reversals on all three major markets.

 

On the weekly charts, stochastics, not heavily overbought, are turning down for all three indexes and this indicator rarely fails to define the overall trend in the short (several weeks) term. Despite the optimism and confidence that we have making that prediction, we don't see this period as a particularly good time to sell equities short. This is truly a market of stocks in a secular bear market cycle that we haven't yet managed to pull ourselves out of. For those caught unawares, a market of stocks is a term used to describe a stock market whose market risk is virtually balanced between bulls and bears and therefore the only gains possible are those attained when following a strong trend in place for the individual stock.

 

It is quite ironic that the weekly charts are demonstrating some weakness just as the likes of Microsoft and Intel will be reporting this holiday-shortened week. Analysts suggest that Microsoft's earnings will be weaker than expected and that the corporation will signal that earnings expectations should be reduced for the rest of the year.

 

If we assume that lower profits are also in the works for other corporations, it follows that the potential for future capital investment will be severely reduced leading to a further extension in the period of slow growth. This lower investment also means that job growth will continue to be anemic and the economy's dependence on the consumer will not let up, which only strengthens our go slow argument.

 

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	31.94	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	30.35	B