Stockscom Report for Sunday July 27 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

July is most certainly going to end with a bang. This week sees the release of data on purchasing managers' intentions, July's job situation and the first stab at second quarter GDP estimates. These key data coupled with this past week's surprising return to bull rally mode means that the stock market reaction is likely to engender even greater volatility than usual.

 

Friday's week-ending move sent a sharp warning signal to those of a bearish persuasion. The bull might be catching a nap at times, but never underestimate its ability to wake up hungry as investors poured money into stocks on a second straight day of positive economic data - the catalyst for buying. Indeed the drop in first time weekly claims for unemployment might have been caused by less than accurate seasonal adjustments and the rise in durable goods orders may have been partly due to impending strikes in the auto sector, but the charts don't make it a point to lie.

 

While we may be tempted to regard the data with suspicion arguing that one month does not make a trend, we are conscious that a trend must begin somewhere. For certain, the July unemployment report due out on Friday will at least answer one of the question marks and the surprisingly large drop in first time claims will be initially tested on Thursday with the weekly numbers and on Friday with the monthly figures to confirm or deny this potentially shifting trend. Either way, stock markets will react even more fiercely than is usual this time around.

 

We always begin our analysis with a look at the charts of the three principle stock indexes and while the last couple of weeks indicated that money was being taken out of stocks, this week displayed a reversal – a marked increase back into stocks. Moreover, the Dow Jones and S&P indexes are quickly approaching key levels, namely their previous highs attained in June (the Nasdaq having already conquered its June highs is put aside for now). If the Dow manages to set a new high with a close above 9352 and the S&P reaches north of 1015, it would mark the beginning of an extension to the bull rally that began this past spring. But there is one caveat to all this: The data due for release on Thursday and Friday this week will either prolong this rally much further or cut it off at its knees.

 

Naturally one could say that the Nasdaq hasn't been subjected to the same forces, as there has been virtually no sustained period of selling since the rally began and that in itself is a bullish characteristic. By Friday though, the market sentiment generated by the release of this economic data will most likely be powerful enough to either begin a significant bout of selling or cause an extension to the strong rally.

 

We are also keeping a close eye on the VIX volatility indicator and it is worth mentioning that something unusual is happening. Friday's close was the lowest close in over a year and landed along a trendline that extends back several years. In the past this trendline has served as support from which new rallies often began and a rally in the VIX translates to falling markets. 

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

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.

 

IMAX – We want to apply a stop of 7.95 on this stock to prevent any unnecessary losses.

 

 

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	22.62	B
03/04/03	Firstfed Fin. Corp.	FED	30.55	36.97	B
03/05/05	First Niagara Fin G	FNFG	12.59	16.07	B
06/02/03	IMAX	IMAX #	7.74	8.60	H
04/28/03	TransCanada Pipe	TRP #	15.85	18.13	H