Stockscom Report for Sunday Oct 5 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Nasdaq resolves to the upside

 

Market Synopsis

 

Strong bull market rallies often extend well beyond any reasonable estimation of their length or to paraphrase Mark Twain, the report of its death is an exaggeration. This week's action is undoubtedly proof of that statement. Simply put – just when markets look prepared to tumble, a turnaround occurs that surprises most observers.

 

Markets began the week looking considerably tired and by mid-week, they had retraced some of the recent losses, but Friday's jobs report put an end to that scenario. The September employment report showed an unexpected growth of 57,000 jobs in non-farm payrolls with increases across the board except in manufacturing. One of the largest sector increases was in temporary help businesses, which added 33,000 new jobs and thus there is a certain lack of confidence surrounding the reliability of these job additions. Too we find it ironic that there's an increase in jobs if the weekly first-time claims for unemployment remains stuck around 400K, a level usually associated to job losses.

 

Earlier in the week, the Chicago Purchasing managers report and the national ISM report gave investors a peak of what is to come with surveys showing continued growth both in orders and production, but what surprised analysts was the apparent slowdown in this growth. This shift was much more pronounced in the Chicago report leading many to discount the news as a mere regional affair.

 

As for the indexes, the Nasdaq Composite bounced near the support line located near 1780 this week thus putting off for now any possibility of violation. The S&P 500 and Dow Jones gave up much of their strong gains from Friday, settling near the middle of their respective ranges and this we perceive as a negative though early gains could nullify that qualification quickly enough. Also on the S&P and Dow, there is the beginning of a broadening top formation (opposite to a triangle) beginning in the month of September and if this were to continue, it would represent a negative for the markets moving forward as these formations are usually resolved to the downside.

 

As for our own shares, AES and CHU performed exceptionally well considering how the broader markets progressed. Our gold shares, BGO, lost, as did most gold shares with Friday's large drop in the price of gold bullion. The decline in the price was normal and overdue resulting from a situation where too many traders were long gold and in an absence of buyers, it only took a measured amount of selling to start a tumble. Protective stops were reached in the futures markets triggering new waves of selling. This occasional cleansing is a healthy means by which the market rights itself. Gold will likely benefit from the continued selling of US dollars vis-à-vis other currencies and the perceived risk of further problems in the global economy.

 

New Buy Recommendations:

 

CTXS – Citrix Systems is a company that we have held previously and with Friday's gap higher, we see reason to believe that this profitable company is beginning another leg up. The tech company is an oddity of sorts since it offers extremely good potential at an approximate P/E ratio of only 32 for 2003 earnings.

 

ALGN – Align Technology has a patent protected system to straighten teeth using a plastic apparatus instead of metal. The product is finding wide favor and displacing the use of braces. By year end, quarterly income should begin to show profits and more importantly the technicals are suggesting that a breakout from recent consolidation is imminent.

 

DRIV – Digital River provides online store capability for a variety of businesses. Technically, the large move on Thursday coupled with the gap up on Friday sends a strong signal that new highs are approaching and that the retracement has resolved itself.

 

TEU # – CP Ships is one other stock that we've held in the past. A recent retracement has just about completed and presents a new opportunity to buy in with the promise of another new high. There are indications here that price has some catching up to do with apparent buying momentum.

 

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.

 

Our complete list of stops is now part of the table below.

 

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	Stop	Action Rating
09/29/03	AES	AES	7.50	7.94		B
08/25/03	Bema Gold	BGO #	2.15	2.44		H
09/29/03	China Unicom	CHU	8.18	8.91		B
05/12/03	Cott Corp	COT #	20.02	24.17	22.98	B
09/08/03	Sapient	SAPE	3.72	4.04	3.40	B
04/28/03	TransCanada Pipe	TRP #	15.85	18.63	17.40	H