Stockscom Report for Sunday Dec 7 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Nasdaq about to fall
• China demand rising

 

Market Synopsis

 

The pulse of the nation's manufacturing sector was released to news media on Monday and the prognosis was very good. The ISM survey of purchasing managers soared to a level of 62.8% for the overall index and specifically there were notable figures of 73.7% for new orders and 51% for the employment figure, which is the first time in many months that employment has seen expansion (a value above 50%). By Friday, however, analysts were left wondering how to explain the contradiction between these figures and the just-released numbers on November unemployment. Unemployment for November dropped to 5.9% but what surprised many people was that the anticipated number of jobs never materialized. Total job growth was measured to be a paltry 57,000 instead of the expected 150K. While the survey did expose the great increase in the labor force (+484K) as more people began the search for work, they also revealed a continuation of the persistent job losses, this month amounting to 17,000 in the manufacturing sector.

 

On Wednesday, the ISM services survey was released and this held no surprises given that numbers continue to demonstrate strength in all aspects of the services-based economy. But that good fortune was not enough to save the Nasdaq from a brutal fall in an outside day. While Thursday provided the Nasdaq with the opportunity to regain some of the losses, the after-hours analysts meeting with Intel and the company's mere confirmation of previously announced revenue targets amid a potential slow period ahead wasn't seen as supportive for tech prices in the short term. Once the Friday morning message on employment was transmitted, the indexes' fate was sealed.

 

The Nasdaq index daily chart is now quite remarkable. With Friday's down day, there is a clear head and shoulders pattern formed and we are right now located on the right shoulder and ready to fall away rapidly. We suggested that going into a holiday weekend that the indexes might not behave according to plan and we mentioned that without a new high, the Nasdaq would be in danger of falling. Price has now sufficiently pierced down through the upward trendline, but more importantly, in any previous occasion, a drop below the 40-day moving average was followed by a break to a new high, all except this last one. We now believe it's likely that a significant move lower on the Nasdaq is set to begin.

 

Nasdaq members such as Intel and Microsoft are already grappling with price charts that signal short potential as unfilled downside gaps put pressure on both. Now our expectations are that Nasdaq will drop in the days ahead but that a global recovery is being pulled along mainly on the sheer force of the wakening giant, China. One means by which this force manifests itself is in industrial minerals and materials, which have seen significant inflation in 2003 as Chinese manufacturing consumes greater amounts of raw materials. From copper for electronics to iron ore used in steel-making operations, the massive Chinese demand has introduced price pressures in competition for tight supplies. Prices for commodities such as silver, copper, nickel and gold continue to set new highs often on a daily basis. Below we discuss some new recommendations in this sector.

 

New Buy Recommendations:

 

BHP -  this is the large Australian mining concern with interests ranging from oil to gold and many in between. Wednesday, the price gapped higher and effectively left an island of several sessions since Oct 22. The new gap signaled a start to the latest move higher and with it being sustained with little range movement, we believe an entry would be appropriate at this point.

 

CNX – Consol Energy, a coal producer bounced off its 200-day moving average in trading this week and with Friday's significant move higher, we use it as the signal to buy.

 

N # – Inco's price began another rise late last week and with the small retracement this week, a Lindahl buy signal is now present and we trade on that. The price of nickel has been one of the biggest gainers in the industrial minerals sector this year and with tight supplies, there is no reason to believe it's finished just yet.

 

NANX – Nanophase Technologies engineers nano-sized solutions using nano-structured materials for industrial applications. Price recently bounced from the 200-day moving average and with last week's significant jump coupled with the small retracement, we have a Lindahl buy signal.

 

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.

 

ABB – this stock dropped suddenly on Friday with heavy volume but no news or available reason. Consequently, for now we will watch carefully as price now sits just above the 25-week moving average and we need to see if it finds support at this level.

 

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	5.15		H
09/29/03	AES	AES	7.50	8.13	7.41	H
08/25/03	Bema Gold	BGO #	3.08	4.08		B
11/10/03	BP Prudhoe Bay	BPT	23.11	26.48		H
09/29/03	China Unicom	CHU	8.18	9.45	8.00	H
05/12/03	Cott Corp	COT #	20.02	25.30	24.90	H
11/03/03	Ivanhoe Energy	IVAN #	4.99		3.75	SOLD
09/08/03	Sapient	SAPE	3.72	5.29	5.00	H
12/01/03	Steelcloud	SCLD	5.05	4.68		H
04/28/03	TransCanada Pipe	TRP #	15.85	21.18	20.38	B+
11/03/03	Wheaton River	WHT #	2.36	3.20		B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price