Stockscom Report for Sunday Oct 12 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Earnings season begins
• Equity markets continue their ambiguity

 

Market Synopsis

 

The markets got an unexpected boost this week from signs that unemployment may finally be waning. Weekly first-time claims for unemployment dropped to 382K, well below the key 400K level, which represents the psychological border between job growth and job losses. Naturally there is one caveat to these numbers and that is the need often to make rather material revisions week after week. But while it ignited an intraday rally on Thursday, by the close of Friday, the markets had given up much of that gain in a bout of cautiousness ahead of a very busy week of data. This week there are releases pertaining to retail sales, industrial production, earnings, inflation and consumer confidence to name a few. And this is besides the quarterly earnings reports that begin this week.

 

Technically, this rally remains the best recovery money could buy. The massive stimulus injected into the economy has managed to create a new miniature bubble with Nasdaq about 73% above its low reached one year ago. The S&P 500 and the Dow Jones are ahead by 35% and 34% respectively proving that indeed even the broader market has marked significant gains. As for the rally in tech, perhaps one should rephrase the question, that is, are tech companies bracing themselves for a 73% boost in net income in order to justify their share prices?

 

On the charts, even as the Dow, S&P and Nasdaq are inching higher, we look at other indicators that demonstrate that these indexes are becoming quite tired and although the rally has clearly not finished, there are evidently fewer buyers in this environment than there were a few months ago. In all likelihood, funds that were late getting back into the equities markets felt enormous pressure to return quickly as each period of selling was met by additional buying.

 

Internet companies have been the undeniable favorites in this rally with companies such as Amazon.com rising almost four times while watching its quarterly losses inexorably grow. In its June quarter, Amazon.com reported a net loss of greater than $43 million continuing its near-constant stream of quarterly losses since inception. At some point, reality will step back in and there will be no more buyers waiting in line.

 

As for our own shares, BGO rebounded nicely this week after losing several cents when the price of gold dropped. With further falls likely in the value of the US dollar and a consequent push of gold prices toward $400 an ounce, there is likely to be much greater upside potential. CHU shines as the belief grows stronger that cell phone usage in China will continue to expand exponentially. TRP broke to a new 52-week high on Friday and signaled that the four-month consolidation may be over as it resumes its upward climb. And SAPE appears committed to a new price level as it too reached a new 52-week high.

 

The shares we recommended last week, ALGN, CTXS, DRIV, and TEU performed well last week especially ALGN which jumped unexpectedly on Thursday on heavy volume reaching a new 52-week high and breaking out from a consolidation begun in June.

 

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.

 

New stops have been added to the list while others have been modified. Those that have blanks, are being carried unstopped for now. Please see our complete list of stops in 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	7.83		H
10/06/03	Align Tech	ALGN	13.46	15.60		B
08/25/03	Bema Gold	BGO #	2.15	2.70		H
09/29/03	China Unicom	CHU	8.18	9.07		B
10/06/03	Citrix	CTXS	24.31	24.53	23.17 *	H
05/12/03	Cott Corp	COT #	20.02	24.62	22.98	H
10/06/03	CP Ships	TEU #	21.49	21.03		B
10/06/03	Digital River	DRIV	29.88	32.28	28.97 *	H
09/08/03	Sapient	SAPE	3.72	5.00	4.00	B
04/28/03	TransCanada Pipe	TRP #	15.85	19.13	17.40	H

 

* Stop on a closing basis