Stockscom Report for Sunday Nov 30 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

·Closing out 2003

Market Synopsis

Market indexes ended the week higher and this wasn't terribly surprising given that this was a holiday week and as mentioned last week, markets often rise to the occasion. For the year now, the Dow is ahead by 17%, the Nasdaq by 47% and the S&P 500 by 20%. With only one month to go, the chances are very good that for the first time in three years, the indexes will post yearly gains. Investors must be content with that but what most news media fail to mention is that the US dollar index has dropped 13% in that same time reducing, for example, the real gain on the Dow Jones to a meager 4%. To put it another way, while Dow companies sweated to generate a return of 17% on the index, a clever investor could have purchased a riskless bond based in euros and gained 15% on the currency alone without counting the interest.

The week promises to be another busy one for analysts. We have no doubt that there will be a continuation of the good news as the flood of fiscal and monetary stimulus all year long has proven to be an unbeatable combination. Specifically, on tap this week is the ISM numbers for manufacturing and services on Monday and Wednesday respectively. And Friday, we await the probable good employment report, which will be viewed as a gift from the White House for this holiday season.

As we look forward to next year, we ask ourselves whether this stimulus will sustain itself and we have difficulty believing it will. Much like a party, this year of easy money, has to be concluded at some point and the clean up must begin. While we're certain that the Bush Administration would attempt to extend the party until the November elections, the greater likelihood is that the Federal Reserve will sense the need to end the party before that time by raising interest rates. Most analysts have predicted higher rates either in the spring or summer of 2004.

A spate of interest rate hikes would certainly put a damper on the frenetic pace of economic activity such as we saw in the 3^rd quarter of this year. The larger question is whether it would trigger a recession and this is related directly to the question of sustainability. Much of the economic activity in 2003 has been spurred by increased consumer spending in the US, (which itself, was grounded in the tax cuts and rebates doled out earlier in the summer), homeland security, and military expenditures. By raising interest rates, the Fed succeeds in reigning in consumer spending, but likely cuts off business investments, one of the key elements to a sustainable recovery. 

Last week we opined that the Nasdaq was heading south though we added the caveat that this being a holiday shortened week, there may be delay in the final action. The substantial move higher this week has caused us to rethink the possibility. We believe that breaking through the support line has caused real damage but that the final proof would come if the Nasdaq fails to generate a new high close. Already the index is nearing the high close reached on November 6 and now the question is whether it passes through or, alternatively, does it complete a head and shoulders pattern and consequently put additional selling pressure on the other indexes? With only one month left in the year, there is evidence that buying has slowed considerably and without the push of new buying, the indexes will be subjected to a new bout of selling as funds choose to cap their gains for the year.

One other factor that shouldn't be ignored is the possibility that the European Union commences retaliation this week for the still unrescinded US steel tariffs. More news on trade wars will only be perceived as a negative for the economy and put additional pressure on equities.

New Buy Recommendations:

Steelcloud (SCLD)  We had this stock in our recommended list earlier this year and now we are reinitiating it as a recommendation. The past several weeks have seen it consolidate its move to this level and now with the weekly chart showing the beginning of a breakout to higher ground, we believe the time is ripe to buy shares. On longer-term monthly charts, the November bar is an outside bar to the upside confirming the move.

Gold shares should benefit on a move above $400. On Wednesday, the December contract for gold futures reached a high of $402/ounce before falling back. It truly is only a matter of time before the $400 level is breached on a closing basis. Additions to gold stock positions could be executed at that time.

New Short Sales

None.

Stock Positions to Sell/Exit:

Without recommending this evening, we would mention that we are monitoring CHU and SAPE closely as the general tech sector is suffering. Truly this is a stock pickers market and the upside at this point for the indexes and more specifically the Nasdaq seems minimal. When the likes of MSFT and IBM have charts that are effectively short sale potentials, there is little hope for the majority of tech stocks.

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
11/13/03	ABB	ABB	6.14	6.24		B
09/29/03	AES	AES	7.50	8.87	7.41	H
08/25/03	Bema Gold	BGO #	3.08	4.15		B
11/10/03	BP Prudhoe Bay	BPT	23.11	24.10		H
09/29/03	China Unicom	CHU	8.18	9.59	8.00	H
05/12/03	Cott Corp	COT #	20.02	26.03	24.90	H
11/03/03	Ivanhoe Energy	IVAN #	4.99	4.35	3.75	H
09/08/03	Sapient	SAPE	3.72	5.70	4.75	H
04/28/03	TransCanada Pipe	TRP #	15.85	21.63	20.38	B+
11/03/03	Wheaton River	WHT #	2.36	2.84		B

• 
  New stops in BOLD
  * Stop on a closing basis
  ** Buy if above entry price