Stockscom Report for Monday May 26 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

Market Synopsis

Memorial Day weekend was very memorable in 2001 since it almost neatly marked the height of the spring rally that year and from which a long steep slide began. While we can't possibly be sure of a similar fate for the markets this year, it is worth remembering that history does have an odd way of repeating itself.

 

One major aspect that is common to both time periods is the bullish run in stock prices that has probably run its course and few traders are willing or brave enough to pour more money into shares that have moved quite substantially these past few weeks. Certainly some sectors have outperformed others by a wide margin and may continue to do so, however the broader market as represented by the S&P 500 is well into overbought territory on weekly charts and is due for some retracement. Recent movement on the daily charts suggests that the top was put in place on May 15^th and the failure to extend the gains in the past few trading sessions has only served to confirm the downward shift. Generally though we are cautious at this moment about either selling short or buying long and ideally we would much rather wait in order to observe which direction will dominate remembering, in fact, that this is the month of May when the old adage advises us to sell and go away.

 

Looking at the individual charts of the Dow Industrial Index of 30 blue chips confirms our S&P broader market ideas. The vast majority of the charts appear weak and have a tendency to be either rolling over or failing at important resistance levels. Having expended all their energy to climb to these levels, there is no more gas in the tank. The one exception, and perhaps the only reason that the Dow 30 performed as well as it did this past week, was Altria, formerly Phillip Morris, whose shares were snapped up from Tuesday through Friday tallying a smart gain of 26% on the week. The run on Altria was reactionary based on the surprise decision in a Florida court to overrule the alleged responsibility of Altria for the lung cancer death of a smoker. (The decision could significantly eliminate the liability risk element to tobacco shares.) Nevertheless, the Dow cannot mount a rally on the basis of this one company especially when one looks at barometers such as Microsoft and GE and sees weakness coupled with high P/E ratios.

 

But let's put away the charts for a moment and ponder what exactly is Corporate America doing at this moment because isn't that where the smart money is? If corporate executives are buying, wouldn't we want to join in because they obviously know something that we can't ever know until the press release comes out. Alas corporate insiders are selling – massively. In the first two weeks of May, executives sold $1.8 billion worth of stock even while the public was rushing to buy more. To put this into perspective, these two weeks saw selling exceeding any one particular month this year and is poised to put May as the second month in the past twelve to actually surpass the five-year monthly insider sales average of $2.4 billion. Corporate insiders also bought stock, but so far in May, their purchases amounted to a paltry $66 million.

 

In fact, this annual selling spree is actually nothing new. Corporate insiders have been drawn like moths to light to abide by the old adage, “Sell in May and go away”. In May of 2002, there was $3 billion of stock sold and in May of 2001, the total was $2.5 billion. What makes this year's selling more sensational was the fact that it's double the amount of any other monthly amount and we were still only halfway through the month. If insiders are cashing in their chips, shouldn't the public?

 

New Buy Recommendations:

 

None. For now we neither add nor subtract from these positions as caution seems to be the correct rule of thumb.

 

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	7.32	B
05/12/03	Cott Corp	COT	20.02	19.76	B
03/05/05	Encana	ECA #	33.66	36.38	B
03/04/03	Energen Corp.	EGN	30.68	33.52	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	32.95	B
03/05/05	First Niagara Fin G	FNFG	12.59	13.52	B
04/21/03	LCI	LCI	13.60	16.75	B
04/28/03	TransCanada Pipe	TRP #	15.85	17.64	B