Stockscom Report for Sunday Sep 14 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

Market Synopsis

 

Equity markets continue along their ambiguous path displaying none of the severe weakness that is often characteristic of stocks during the month of September. Certainly there has been some weakness in the major indexes of late, but these datapoints were quickly erased with strong market moves neutralizing the losses. Friday is a case in point on an intraday basis – the morning trading was predominantly negative with all three major indexes unable to gain a footing, but in the afternoon, a steady rise in equity prices helped push the indexes to small positive finishes.

 

Perhaps more surprising was the fact that Friday brought news that retail sales for August were significantly below expectations and the first reading on consumer sentiment for September had slid to 88.2 from 90.4. It was against this negative backdrop that stocks had rallied. This ability of the market to climb a wall of worry is one of the key elements in a strong stock market rally.

 

What interests us right now is the sustainability of the stock market rally. For although the markets finished higher on Friday, the week's trading was marred by deteriorating performance in both the broad market and to a lesser extent in tech stocks. The gaps left open from the close of Tuesday (Sept 9) on the Nasdaq and the Dow indexes have yet to be filled and could represent turning points. The daily charts of the Dow, Nasdaq Composite, and S&P500 also show rebounding OBV after the fall away from the gap, however this chart indicator remains inconclusive amid other indications that investment capital is potentially being withdrawn from equities. On MACD daily charts, the indexes are peaking and fast MACD is turning down and crossing through slow MACD, an event which often precedes lower prices on the charts.

 

Inevitably, the markets' direction will be resolved based on the quarterly results of companies such as FedEx due to be releasing their figures later this week. FedEx is often considered to be an excellent barometer of current business spending. Plus, we are just now bracing ourselves for the 3^rd quarter earnings warnings season, which gets underway this week.

 

Individually, our stocks have weathered a few storms but seemed to come out stronger, all except one – KRY. KRY, the gold mining company, released its feasible study this week for the very large Las Cristinas area of Venezuela and surprised investors with mining costs far greater than first believed. While the mine would be real and the 10.2 million ounces of proven reserves is ultimately a very significant find, the stock finds itself under pressure as investors bail out after determining that the higher costs would reduce its attractiveness in any takeover bid. Speculation had been rampant that GLG (Glamis Gold) would make a bid to takeover Crystallex thereby building its reserves. Now with the feasibility study out, there are doubts of that occurring. As mentioned below, we initiate a stop at $2.35.

 

We thought that TRP would break out last week, but by week's end it appeared doubtful. Now it seems more likely to remain in a holding pattern until the 25-week moving average catches up with the price bars.

 

The Chinese cellular company, CHU, ended the week with a startling gap up and a move higher. Indeed over 5 million shares were traded in an issue that averages 350K per day. There was no news to explain the surge in volume, however we put emphasis on this stock this week because of the likelihood of further increases in the days ahead.

 

 

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.

 

If the share price moves above 18.60, we would be inclined to add to our position. (It has and we recommended buying more shares at this level).

 

We applied several stops this week though none were hit. In the case of SAPE, the stop-loss should be at $3.15. For CHU, we want to apply a stop-loss of $6.85. For ABB, we put the stop at the close of Aug. 27, which is $5.23. Finally, for SCLD, we wish to apply a stop at $3.75. Now, we would like to add one more stop to the list. For KRY, we apply a stop of $2.35, which is extremely tight but is necessary given the price action of the past couple of days.

 

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
08/25/03	ABB	ABB	5.43	5.76	B
08/25/03	Bema Gold	BGO #	2.15	2.38	H
08/25/03	China Unicom	CHU	7.63	7.43	B+
05/12/03	Cott Corp	COT #	20.02	23.16	H
08/11/03	Crystallex	KRY #	2.28	2.43	H
08/25/03	PFSweb Inc	PFSW	1.64	2.34	B
09/08/03	Sapient	SAPE	3.72	3.67	B
08/11/03	Steelcloud	SCLD	3.55	5.20	B+
04/28/03	TransCanada Pipe	TRP #	15.85	18.59	B