Stockscom Report for Sunday May 4 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

Market Synopsis

Fundamentally, the stock market has virtually no place to go if we are to believe the latest economic indicators. Besides the new factory orders, which came in with a monthly increase of 2.2% reported for March, there was nothing bullish in the news. And even those factory orders could have been picked apart since the predominant features were the increases in orders for military equipment (no surprise there) and increases in consumer non-durables, neither of which is very reliable from one month to the next.

 

The unemployment figures, though better than expected, revealed what everyone knew already – that joblessness is a growth industry and therein lies the most important aspect: there doesn't appear to be any slowing down in job losses, but rather the last eleven weeks has seen a worsening of the situation with the important 400,000 level of new weekly unemployment claimants being breached each of those weeks. One other tidbit of information that the unemployment report indicated was that claimants were having more difficulty finding another job. The average duration being unemployed for April was 19.6 weeks up sharply from March's 18.0, which itself is higher than the figure of a year ago, 16.3 weeks.

 

Finally the April ISM numbers released on Monday gave a failing grade to the economic portrait with another drop, this time to 45.4%. Anytime this index is below 50%, it represents a contraction in economic activity both now and in the immediate future. So despite the fact that the war in Iraq was winding down and dangers were abating, purchasing managers polled for the ISM report reckoned that they still didn't see reason to ramp up production.

 

But indexes still climbed the proverbial wall of worry and finished the week with a technical buy signal on the Dow Jones; this was the single most important technical indicator of this week. The signal came on Friday when the Dow broke out of its ascending pennant to the upside and set up a test of its January high of 8869. Rationally speaking, there is little reason for the indexes to be so bullish, but they are and we must heed that information. From this point on, there is much resistance both on the Dow and the S&P 500. In particular, the S&P faces resistance from 930 to approximately 960. Stochastics on the weekly and daily charts are well into overbought territory so advances at this point will be hard to come by without some measure of retracement.

 

Thus, the question is can the markets sustain this advance? The fact that the breakout occurred virtually assures that there will be some follow through on the Dow Jones. Recent history has shown that there have certainly been some strong rallies in May with 2001 being the most recent occurrence and even in 2002, there was the briefest of rallies. However, much like the old adage about selling in May and going away, the majority of stocks that rallied during these periods failed along with the indexes.

 

New Buy Recommendations:

 

We add two recommendations this week building upon previous themes, which going forward merit our attention for they display not only technical strength, but are supported by bullish fundamentals.

 

FNFG – First Niagara Financial Group – the new recommendation builds on the concept of small profitable banks. Technically, the stock began a breakout this week from a consolidation phase on the weekly chart, which began around October of 2002. A clear signal such as this always provides a reliable starting point for trading stocks and by choosing a small bank, we lower the risk potential of the move given the very bullish sentiment of the sector.

 

ECA # - Encana is one of the largest oil and gas companies in Canada and as such it plays along with one of our philosophies that exposure to natural gas companies is desired for the very bullish supply/demand fundamentals in the natural gas industry are unlikely to change for quite some time. Encana, formed via a merger of Alberta Energy and PanCanadian, struck a new all-time high on Friday and by doing so, resolved itself to moving up perhaps even at a faster clip now.

 

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
04/21/03	AES	AES	4.43	6.89	H
03/04/03	Energen Corp.	EGN	30.68	32.57	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	32.69	B
04/21/03	LCI	LCI	13.60	14.79	B
04/28/03	TransCanada Pipe	TRP #	15.85	16.05	B