Stockscom Report for Sunday Dec 21 2003

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Divided market for now

 

 

Market Synopsis

 

The capture of Saddam Hussein last weekend was notable only for the few number of hours that it actually generated excitement. Overnight electronic markets last Sunday were predicting a huge rally on Monday but the rally was sold as soon as the regular trading day began. Tuesday, however, made up for the weak response by smartly jumping on the promising economic news released that morning. Manufacturing output both durable and non-durable advanced quite strongly in November and lifted the capacity utilization to 75.7%, an increase of 0.1% over the level of a year ago. The double shot of stimulative monetary policy and grossly stimulative fiscal policy is having the desired effect. Of that we have no doubt. Among stock traders, it has imbued them with a sense of giddiness and, like its alcoholic counterpart, we are concerned that it will cause the inevitable hangover once the party is over. But for now, the party continues unabated. Or perhaps more accurately, it continues in the broad markets as represented by the Dow Jones and the S&P 500.

 

The tech market as represented by the Nasdaq characterizes the other half of this divided market. And this is where the trouble in paradise begins. While the Dow and S&P shoot for the stars and have driven quickly into overbought territory over the past four weeks, the Nasdaq has languished and we are quick to point out that it is the Philadelphia Semiconductor Index, which is leading the parade as it always does acting in its predictive role. The Philly Semi index or SOX as it is often called, is often viewed as an early warning system of upcoming retracement in the tech-heavy Nasdaq. In fact looking at all three indexes, the Nasdaq Composite, the Nasdaq-100, and the SOX, we observe that each reached its respective high close on December 1^st. Since that time however, the Nasdaq overall market and the Nasdaq-100 have eased less than 2%, but the Philly Semi index has dropped over 8% in that same time span.

 

As we mentioned in last week's newsletter, one member of the SOX index is already in a critical state. Intel is one reason for the weakness found on the Philly Semi index as it's dropped more than 10% since the beginning of December. The chart for INTC shows a distribution pattern occurring in its stock and with Friday's closing reversal, an entry could be made here to sell it short.

We are now entering the final two weeks of the year and as such, we can expect an increase in volatility and a normal fall in volumes as traders take vacation breaks. We may see some dips in prices as institutions that have held long positions for the better part of the year decide to take profits on all or part of these positions.

 

New Buy Recommendations:

 

With the end of year around the corner and with an already weak tech index, we are quite hesitant about adding any recommendations to buy. Speculative traders may wish to look at ASPT whose stock price had been range bound for the end of October until Thursday this past week when it broke out above the $15 level. A buy on this move should be reasonably safe and could provide a very good return.

 

New Short Sales

INTC - As we mentioned earlier, Intel's chart is remarkably weak and as the leader of the SOX index, we expect it to carry on falling. The 200-day moving average could provide some support but it lies at the $25 level currently. While the Nasdaq indexes are somewhat ambiguous at this moment in their support of this trade, the Philly Semiconductor index is much more adamant that this is a good trade to make.

 

Stock Positions to Sell/Exit:

 

CHU – it's still being monitored but it's showing more signs of strength these past few days. It is tracing out a pennant pattern right now and we see that as a positive given that the stock should resolve itself to the general overall direction, which is up.

 

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

 

TRP – we bumped up the stop on this stock as it now appears likely to be a candidate for near-term retracement. Those investors with a penchant for dividends might consider hanging on though to this stock as its ex-dividend date is December 29^th.

 

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	4.95		H
09/29/03	AES	AES	7.50	8.75	7.41	H
08/25/03	Bema Gold	BGO #	3.08	3.21		H
12/08/03	BHP	BHP	17.18	17.87		B
11/10/03	BP Prudhoe Bay	BPT	23.11	26.84	23.50	H
09/29/03	China Unicom	CHU	8.18	9.26	8.00	H
12/08/03	Consol Energy	CNX	22.75	26.79		B
05/12/03	Cott Corp	COT #	20.02	27.27	24.90	H
12/08/03	Inco	N #	35.70	38.11		B
12/08/03	Nanophase Tech.	NANX	7.64	6.97		H**
12/15/03	Overstock.com	OSTK	20.35	19.03		H
12/01/03	Steelcloud	SCLD	5.05	4.10		H
04/28/03	TransCanada Pipe	TRP #	15.85	20.73	20.65	H
11/03/03	Wheaton River	WHT #	2.36	2.72		H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price