Stockscom Report for Sunday Jan 4 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Regular trading to begin for 2004
• Dow Jones and S&P extremely overbought

 

 

Market Synopsis

 

Monday will finally see the return to a more normal trading day with the passing of the holiday season. Professional traders will look to the first three days of business in January for its predictive qualities of the entire month of January and later this month, all eyes will be on the first month’s performance for a signal toward the end of the year. Generally, the two rules can be summed up briefly as (1) the month of January goes as the first three trading days go and (2) the year goes as the month of January goes. We must keep in mind that the latter rule is by far the more reliable of the two.

 

With the Nasdaq Composite demonstrating uncommon strength in hurdling the all-important 2000 level and with the new highs reached in the other major markets, it appears likely that no one wishes to be the party pooper, at least for now. The break out on the Nasdaq from its range of the past two months is a clear sign of its propensity to continue forging ahead. However, it’s worth noticing that on monthly charts, we find some probable resistance located at 2100 and 2330 where former peaks took place in early 2001 as the global markets unraveled. For the short term, the 2100 level bears watching as the index draws near.

 

The SOX Semiconductor index is evidently not as excited about 2004 as the overall Nasdaq is. On the daily chart, the SOX index continues to show some weakness with its failure to broadly surpass its 25-day moving average. While a sub-index on the Nasdaq doesn’t usually attract our attention, the SOX is an exception to the rule in the uncanny manner that it acts as an early warning of trends for the entire market.

 

The Dow Jones and S&P 500 indexes have led the way throughout December and with Friday’s collapse, we believe that this is the signal that the indexes are in need of immediate retracement. Stochastics on both of these indexes are extremely overbought supporting the need. If the broader market, is left to retrace a fraction of the gains made in December, then there is small hope that the Nasdaq market will mark new gains at this time. The previous head and shoulders pattern identified on the Nasdaq and mentioned in last week’s newsletter has now been nullified by the rise in the index above 2000.

 

If we are to assume that the indexes will begin an important retracement, then logically, there is little chance for any of the indexes to remain positive for the first three days of January. But as we said before, the three-day rule is far less reliable than the one-month rule.

 

Gold continues to shine as investors lose faith in the US dollar. With the spot price of gold holding above $400 an ounce, there is little reason to be concerned with minor fluctuations in the prices of gold stocks. What remains important for us is whether the stock prices are appreciating in real terms so that the entire gain is not simply an inverse function of the decrease in price of the US dollar. To be a viable investment for us, we need to see extraordinary gains and our current trades with Bema and Wheaton River give us that kind of exposure.

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

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. Consequent to this note from last week, CHU did indeed jump up and broke out of its pennant, which will now lead to more technical buying.

 

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	5.08		H
09/29/03	AES	AES	7.50	9.48	8.50	B+
08/25/03	Bema Gold	BGO #	3.08	3.69		B
12/08/03	BHP	BHP	17.18	18.58		B
11/10/03	BP Prudhoe Bay	BPT	23.11	28.65	25.50	H
09/29/03	China Unicom	CHU	8.18	10.05	9.00	B+
12/08/03	Consol Energy	CNX	22.75	26.30		B
05/12/03	Cott Corp	COT #	20.02	28.32	26.00	H
12/08/03	Inco	N #	35.70	40.51		B
12/08/03	Nanophase Tech.	NANX	7.64	9.21		B
12/15/03	Overstock.com	OSTK	20.35	19.14		H
12/01/03	Steelcloud	SCLD	5.05	4.14		H
04/28/03	TransCanada Pipe	TRP #	15.85	21.90	20.65	B+
11/03/03	Wheaton River	WHT #	2.36	3.00		B

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

 

Short sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
12/22/03	Intel	INTC	30.39	31.36	32.23	BOUGHT

 

New stops in BOLD