Stockscom Report for Sunday Jan 11 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• 2004 to be an up year?
• Weak jobs report on Friday

 

 

Market Synopsis

 

For those investors needing reassurance, a little was provided this week with the first five trading days of January finishing in the plus column. Since 1950, the performance of stocks in the first five days has successfully predicted the direction for the entire year 72% of the time. Now those same investors can look forward to the end of the month for confirmation because a similar study taking the whole month of January has been correct 80% of the time over the same period. Naturally this survey is deficient since the gain or loss in January could theoretically set the tone and certainly offers a substantive head start for the eleven months that follow. Of course, along with these surveys comes the Presidential survey, which relates the stock market performance to the presidential election cycle. In pre-election years, the Dow Jones has finished on the positive side 20 of the past 24 cycles and 2003 was no exception to this. However, in election years, the results are definitely mixed with only 16 of the past 24 cycles ending in an up year for the Dow.

 

While the powerful combination of massive fiscal and monetary stimulus is having the desired effect with respect to avoiding recession and more importantly, provided the rocket fuel needed to jump-start the moribund economy, the jury is still out with respect to job creation. The December jobs report released on Friday should have set off alarm bells in the halls of both the Federal Reserve and the White House. Is this recovery for real even as unemployment refuses to improve substantially? Certainly the government’s own numbers have shed significant light with data showing vast improvements in productivity over the past year and virtually no recovery in manufacturing employment. Now as corporations prepare to release quarterly financial data, many analysts are looking forward to corporate gains greater than 20% in net income y-o-y. Yet even with this strong corporate growth, there are few announcements of hiring programs associated to expansion.

 

Ultimately the most important question is whether the lack of job growth will hinder the recovery and the answer here is that yes it will. Consumer spending drives economic growth in the US and the money fueling the spending has to come from somewhere. In 2003, it came from two predominant sources: income tax cuts and tax rebate checks and the second, refinancing of mortgages. The former is not yet finished with a continuation of the temporary tax cuts in 2004 including benefits for married couples, having children and a shift upward in the tax brackets. The latter is considerably less now with most who were in a position to refinance having already done so. But perhaps the most important consideration should be that one should never underestimate the American consumer.

 

Market indexes are still overbought with the Nasdaq, Dow and S&P all vying for the award as the most likely to turn down. The Dow and S&P were the more significant losers on Friday after the jobs report was released. Overall though, neither is in danger of falling off a cliff at this moment. Stochastics may be overbought but strong markets can remain overbought for long periods of time just as weak markets might stay oversold for equally long periods. One only needs to look at a chart of the US dollar for proof of that concept.

 

Gold reached $426 by Friday this week and in doing so took out the high of 1996. Above this level, there is no resistance until the area of $485, the high reached in 1987 and beyond that point is the high of 1983, $520, all of which bodes well for gold shares. Perhaps surprisingly, it was silver that shone this week in a strong push toward $6.50 per ounce.

 

New Buy Recommendations:

 

We want to add a few recommendations this week to our list.

 

ON Semiconductor (ONNN) – the Philadelphia Semiconductor index reached a new high and is now suggesting that a breakout is occurring. ONNN, itself had a breakout move of its own on Thursday and as such we add it to our recommended list.

 

Red Hat Inc. (RHAT) – one of the big stories of 2003 is the push by corporations to implement Linux OS in place of Microsoft Windows Server OS and as a consequence, RHAT is benefiting greatly from this effort. Friday’s move appears to be the first step up to another new level.

 

Cepheid (CPHD) – this company won a large contract to supply the US Postal Service with detection equipment for anthrax. While it has been moving up steadily, the likelihood of greater sales for this company means that there is much greater upside possible.

 

Beta Oil and Gas (BETA) – this independent oil and gas company is benefiting from the increases in world market prices for both commodities. The chart looks to be preparing for a big step upward.

Sierra Wireless (SWIR) # - this maker of wireless communication equipment is the leader in wireless modems, which are finding more and more buyers as a result of the large increase in sales of laptop computers. Friday’s move higher was a new breakout and strongly suggests much greater upside.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

None.

 

Comments:

 

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.

 

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	5.73		H
09/29/03	AES	AES	7.50	10.09	9.00	B+
08/25/03	Bema Gold	BGO #	3.08	3.66		B
12/08/03	BHP	BHP	17.18	18.13		B
11/10/03	BP Prudhoe Bay	BPT	23.11	29.85	27.00	H
09/29/03	China Unicom	CHU	8.18	11.30	10.00	B+
12/08/03	Consol Energy	CNX	22.75	27.03		B
05/12/03	Cott Corp	COT #	20.02	27.77	26.00	H
12/08/03	Inco	N #	35.70	39.00		B
12/08/03	Nanophase Tech.	NANX	7.64	12.39		B
12/15/03	Overstock.com	OSTK	20.35	17.50		H
12/01/03	Steelcloud	SCLD	5.05	4.05		H
04/28/03	TransCanada Pipe	TRP #	15.85	21.17	20.65	H
11/03/03	Wheaton River	WHT #	2.36	3.18		B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price