Stockscom Report for Sunday Jan 25 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• First month results to come this week
• New stimulus to come from where?

 

 

Market Synopsis

 

With the end of the first month fast approaching, we thought it worthwhile to take a look at how far we’ve come in January. The fact is that the Dow Jones is up 115 points or a bit more than 1% since the end of the year, the S&P 500 is up a robust 30 points, while the Nasdaq is also up a solid 120 points. At this stage as we move into the final week, it would seem highly likely that both the S&P and Nasdaq will succeed in closing out January with gains. The Dow is more of a question mark since the averages all have a slight look of fatigue after the upward rush of the past seven weeks. They are unquestionably overbought and are even stretching that definition to its extreme.

 

The trigger for future stock market gains or losses is being pulled this week with approximately 140 members of the S&P 500 reporting quarterly earnings. Expectations are riding high that the extraordinary 3^rd quarter GDP will have carried enough momentum to the 4^th quarter to produce another blowout GDP figure (to be released on Friday) and helped corporations achieve the sort of results worthy of the high multiples attached right now to their prices.

 

Friday’s trading was noteworthy not for some new price level but rather the unusual circumstance of seeing the VIX volatility indicator sink below 15 for the first time since 1996. In a nutshell, the balance between bullish and bearish investors has tipped heavily in favor of those bullish. The VIX in itself is not a terribly good predictor for timing purposes but it does merit attention for it tells us unequivocally that the bulls are winning right now, that nervousness related to price levels is extremely low and that no alarm bells are ringing. This often means for contrarians that those bells should be ringing. However, as we’ve made mention several times in the past, markets can remain illogical for long periods of time and in this particular case, the overbought nature of markets today is certainly a prime test of our patience.

 

On Tuesday of this week, the Federal Reserve begins its first meeting of the year and announces its decision on interest rates. The consensus is that rates will remain where they are as the Fed has been particularly careful about signaling their intentions after the disastrous misinterpretations that occurred just before summer 2003. As they have stated in the past, interest rates will stay where they are for a considerable time for the Fed doesn’t wish to be blamed for either cutting down a recovery prematurely or for playing political games in this, an election year. Despite the booming economic figures of the third quarter, inflationary pressures are stagnant and job recovery data is remarkably weak and these conditions make it easy for the Fed to take a hands-off approach. The fact that price inflation remains so low while commodity inflation is increasing, nominal interest rates are virtually insignificant, the US currency is losing its value, and the economy is vibrant tells us that there is substantial unused capacity in the system and that deflation remains at the doorstep.

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

We sold our position in BPT at the stop.

 

Portfolio Comments:

 

CHU – each passing week this stock appears stronger – the gaps on Jan 8 and on Tuesday this past week are the keys to its strength.

 

ABB – the selling has appeared to have stopped and it’s now much stronger technically than it’s been in awhile.

 

TRP – this one continues to hang on treading water above our stop price.

 

SCLD – this share has struggled and while we have considered on many occasions to close the position, there is evidently some investment money coming in and as a consequence, we keep it for now.

 

BGO, WHT – the retracement in the price of gold was inevitable as it’s moved in inverse relation to the US dollar for a very long time now. The dollar was vastly oversold and last week saw its first significant rebound in a few weeks, a move that was needed to bring some health back into the market. The potential for an interest rate cut from the European Central Bank openly discussed on the weekend could incite further US dollar strength in the short term, however the longer term trend is down and the monetary stimulus being created by the Fed assures the US administration of success in lowering the value of its dollar.

 

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	6.02		H
09/29/03	AES	AES	7.50	10.68	9.00	B+
08/25/03	Bema Gold	BGO #	3.08	3.13		H
12/08/03	BHP	BHP	17.18	18.35		H
01/12/04	Beta Oil and Gas	BETA	3.25	3.09		B++
01/12/04	Cepheid	CPHD	13.02	12.20		B+
09/29/03	China Unicom	CHU	8.18	12.03	10.00	B+
12/08/03	Consol Energy	CNX	22.75	26.67		H
05/12/03	Cott Corp	COT #	20.02	28.48	26.00	H
12/08/03	Inco	N #	35.70	38.80		H
12/08/03	Nanophase Tech.	NANX	7.64	12.37		H
01/12/04	ON Semiconductor	ONNN	7.59	7.54		H
12/15/03	Overstock.com	OSTK	20.35	18.58		H
01/12/04	Red Hat Inc	RHAT	21.10	20.40		B
01/12/04	Sierra Wireless	SWIR #	21.95	22.90		B+
12/01/03	Steelcloud	SCLD	5.05	3.98		H
04/28/03	TransCanada Pipe	TRP #	15.85	21.19	20.65	H
11/03/03	Wheaton River	WHT #	2.36	2.71		H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price