Stockscom Report for Sunday Dec 14 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• The capture of Saddam Hussein
• Recovery without jobs

 

Market Synopsis

 

The only news that counts this evening is the capture of Saddam Hussein. All else is secondary. For the next few days and maybe longer we will be observing the Saddam Hussein Effect (it will look so much like the Santa Claus rally that one will have difficulty telling them apart) as global markets rejoice in his removal, the timing of which could not have been better for the political fortunes of George Bush II. Undoubtedly, the President will earn a great deal of political mileage after having already scored a hit with the Thanksgiving Day trip to Baghdad. Now with the Ace of Spades in custody just in time for the holiday season, Bush's popularity starting this crucial election year will be extraordinarily high, higher perhaps than it would be if he were being judged solely on economic performance. Given that few presidents have ever entered their re-election year without booming job growth, it shall be interesting to see how long the excitement can be sustained. But it should also be noted that most opinion polls currently show no viable opposition to the Republican leader. 

 

Electronic markets opening this Sunday evening as well as stock markets around the world are witnessing rises of 1-3%. The Nasdaq and S&P futures contracts each opened several points higher while the oversold US dollar rallied against foreign currencies. Associated to those markets is the price of gold, which was seen falling greater than 1% but remaining above the all-important $400 level and the price of crude oil, which was trading down approximately 2%. While oil prices may drop on expectations that pipeline sabotage will end, the work necessary to rebuild Iraq's oil infrastructure is far from over and it will take considerable time before this sector can recover to pre-war levels of production and export. In the latest weekly data from the DOE/API, crude oil inventories in the US were significantly lower and although the heating oil and gasoline inventories were increasing, the dominant opinion as we head into the winter heating season, is that these low inventory levels will put a floor under oil prices.

 

It is worth noting that Saddam Hussein was found in a specially dug hole measuring about six feet and had no means of communication with outside militants. Therefore we can assume that any of the attacks on infrastructure or American troops stationed in Iraq have been the result of planning by disparate groups and included no coordination by Hussein himself. Following that logic further, we can assume then that these attacks on the oil infrastructure and on American troops were executed by Islamic militants who are unlikely to be discouraged by his capture and will continue to be a threat to the army personnel and to reconstruction efforts.

 

A recovery without jobs. We have seen the media fixate on this issue for several months sometimes shifting the argument instead to the exportation of jobs to China. Certainly there has been, until recent months, no sign of recovery in jobs nor increases in the important manufacturing sector. Studies have shown that twenty months after a recession, the change in payrolls has been positive. If we look at November 1970, the growth in payrolls was 3 million, in March 1975, the corresponding figure was closer to 4 million, in November 1982, it was 6 million and in March 1991, after another such jobless recovery period, there was nonetheless, just under 1 million jobs created. What makes this figure stand out even more this time is the unprecedented amount of fiscal stimulus that has been thrown at by a supposedly conservative government bent on spending, an amount that has not been sterilized by tight monetary policy.

 

Regardless of the market action this evening, we see this now as a divided market with gains in Nasdaq limited by its previous peaks while the Dow Jones and the S&P 500 continue to make headway, most notably the Dow, which reached the 10,000 mark this week. Important bellwether tech stocks such as Intel and Microsoft have charts that are more likely short candidates than fodder for the bulls.

 

New Buy Recommendations:

 

OSTK – Overstock.com is an online retailer beating Amazon.com at its own game - so much so that they make a point of comparing their prices to Amazon's and as a result, the gross margins are relatively small. Revenues are growing exponentially though and perhaps most importantly for us, there are signs that they're attracting buyers to their stock. Two weeks ago, there was a breakout above the trading range that it had been stuck in for a year, and late this week, it completed the retracement signaling that its next move was higher.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

SAPE was sold this week when priced dipped to the $5.00 level. At this point its upside appears to be limited. CHU is still being monitored but it's showing more signs of strength these past few days.

 

ABB – we continue to monitor this stock though we believe that whatever caused the sudden bout of selling, has dissipated.

 

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	5.04		H
09/29/03	AES	AES	7.50	8.21	7.41	H
08/25/03	Bema Gold	BGO #	3.08	3.61		H
12/08/03	BHP	BHP	17.18	17.44		B
11/10/03	BP Prudhoe Bay	BPT	23.11	26.10	23.50	H
09/29/03	China Unicom	CHU	8.18	9.61	8.00	H
12/08/03	Consol Energy	CNX	22.75	23.00		B
05/12/03	Cott Corp	COT #	20.02	25.78	24.90	H
12/08/03	Inco	N #	35.70	35.19		B
12/08/03	Nanophase Tech.	NANX	7.64	6.91		H**
09/08/03	Sapient	SAPE	3.72	5.00	5.00	SOLD
12/01/03	Steelcloud	SCLD	5.05	4.40		H
04/28/03	TransCanada Pipe	TRP #	15.85	21.15	20.38	H
11/03/03	Wheaton River	WHT #	2.36	2.80		H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price