Stockscom Report for Sunday July 13 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Broad market indexes have begun to show distinct signs of tiring and while an exception could be made for the tech-heavy Nasdaq, the likelihood is strong that this week's earnings reports become catalysts for profit-taking. And if the company results don't trigger a reaction, the heavy slew of mostly-June economic data will.

 

Charts on both the Dow-30 and the S&P 500 clearly show the buying momentum that predominated markets through spring is dissipating. The peaks reached on June 16-18 for both indexes haven't been repeated since that time and thus without a new high, the bull rally quickly unravels. Certainly a bullish trader could argue that it's only time before another new high is set, however the charts weighing price and volumes traded have begun to turn down. Naturally, the one caveat to all this is that if the companies reporting earnings this week manage to surpass expectations then the potential for further stock market gains grows considerably. But this is not very likely given that of the 1000+ quarterly pre-announcements tracked by First Call, 52% were negative, 26% were positive and the rest were on target. A 2:1 ratio of negative to positive warnings isn't the stuff required to re-ignite a stock market rally. Included in the companies reporting this week are Dow-members: Citigroup, GM, JNJ, United Technologies, Microsoft and Intel.

 

As mentioned before, the Nasdaq has been the lone standout but nevertheless, if the market risk is elevated enough that the Dow and the S&P suffer losses, the Nasdaq too will be re-evaluated lower too as a consequence. In the case of the Nasdaq, the potential is there for greater percentage losses as well since this particular market is prone to volatility and P/E multiples are already sky high.

 

As for the broader Dow and S&P markets, price bar formations are beginning to form Lindahl sell signals on the weekly charts. Combined with overhead resistance from the 25-month moving average on the monthly charts, the pressure right now appears to be containing price movements from violating these points. This is an unusual pattern since it's the Nasdaq that has in the recent past taken the lead and shown the way for all indexes, but here at this moment in time, the broader markets are hinting strongly at retracement while the Nasdaq has set a new recent high and its charts demonstrate none of the weakness so apparent on these others.

 

While earnings and economic data will continue to trace a picture of whatever recovery is in store, we can also rely on Alan Greenspan to add some spice to this week's market action with his semiannual trip to Washington to give testimony on the economy. This Q & A begins on Tuesday and undoubtedly stock traders will hang on his every word attempting to interpret his rather obtuse responses.

 

New Buy Recommendations:

 

None. We repeat our statement from last week. If markets indexes weren't so suspect, we would be tempted to buy Microsoft at this point. MSFT managed to breakout from its long pennant last week and after retracing and testing the gap settled Friday above $27.25, which was the entry that we were looking for. The problem remains that we feel market risk is much too great right now to add buy recommendations.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We applied some stops to some of our holdings in our previous report in anticipation of increased volatility.

 

LCI – This stock has proved once more to be an excellent trade as it jumped to over $25 and any threat of being stopped out at $18.74 is unlikely now.

 

TRP – We managed to stay in this trade but only by the thinnest of margins. At this point, the retracement appears to have completed its move and the share price is now recovering. We will keep the stop however at $17.40.

 

 

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
05/12/03	Cott Corp	COT #	20.02	22.48	B
03/05/05	Encana	ECA #	33.66	36.14	H
03/04/03	Energen Corp.	EGN	30.68	33.45	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	37.42	B
03/05/05	First Niagara Fin G	FNFG	12.59	14.48	H
06/02/03	IMAX	IMAX #	7.74	9.03	B
04/21/03	LCI	LCI	13.60	23.32	H
04/28/03	TransCanada Pipe	TRP #	15.85	18.18	H