Stockscom Report for Monday Feb 16 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• Is the tone of economic news changing?

 

 

Market Synopsis

 

The new year has barely begun but the news has already taken some abrupt turns for worse and we wish to take a moment and ponder whether it’s truly significant – should we sit up and take notice? For starters the first estimate of fourth quarter GDP was lower than expected at a rate of 4.0%, much lower than the consensus guesstimate of 4.8%. Durable goods orders in December were flat with November, retail sales were down in January though much of this was attributed to the fall in automobile sales and now just this week, it was revealed that the trade imbalance that had been measured at $43.9 billion in November, had jumped to $48.2 billion in December on account of a large increase in imports. Exports too had increased during the month but not at the same pace as imports and again, the increase could be partly blamed on the price of oil, which zoomed higher in December. To top it off, the barometer of consumer confidence taken by the Univ. of Michigan dropped more than 10% from the end of January to the mid-February measurement.

 

The bad news didn’t stop with goods and trade, it continued with people. The numbers of weekly first-time claimants for unemployment have been edging higher in the past few weeks even while government spokespeople pat themselves on the back for increasing employment by 115,000 in the latest month. But for sure, the John Snow(storm) Prize for Effective Public Relations has to go this week to a certain Dr. N. Gregory Mankiw, the Chairman of the Council of Economic Advisors, who suggested matter-of-factly that the outsourcing of jobs to countries such as India and China were signs of a healthy global economy reshuffling the deck. Now it is fine and gracious to want to share, however for those listening to Dr. Mankiw who cannot find work owing to the decline in manufacturing jobs in the US, his words come as cold comfort. Strangely ironic for its timing was the announcement just this evening that German electronics giant Siemens, will outsource over 15,000 internal IT jobs to India and China in an effort to cut technology costs. Most of the jobs will be coming from the high cost centers of Western Europe and North America.

 

This same Council of Economic Advisors tabled an Economic Report to the President this week and undoubtedly the most amusing part was the one concerning employment. When one lives one’s life in an ivory tower surrounded by all the benefits afforded by a life of academia, one must reflect if the reality back on earth corresponds to the models’ assumptions. Despite their enormously wrong job forecast for 2003, they have returned with yet another for 2004, in which we are led to believe that a net 2.6 million people will find work in 2004, which amounts to approximately 2.5 million new jobs from February until December or an average of 227,000 new jobs per month from now until the end of the year. Perhaps it is inappropriate at this moment, but it’s worth pointing out that in the latest jobs report, the average duration of unemployment rose to 19.8 weeks – it was 18.5 weeks in November.

 

The economic news could be the reason behind the latest chart action. As investors question whether the recovery will be as strong as the government would have us believe, their nervousness is translated into market action that is more ambiguous than it’s been in the recent past. The charts for the Dow Jones and the S&P 500 both show a tendency toward a flatlining market though to be sure, both markets still are keeping above their respective 40-day moving averages. The S&P is reaching a natural resistance level around the 1177 level, which it recovered to a little more than two years ago before it fell apart on its eventual move to its lows reached in October 2002. More interesting is the action on the Nasdaq, which is showing signs of an inevitable slide. The tech sector has risen non-stop since March of last year and one would think it’s a prime candidate for a healthy retracement at some point. That point may have come, though it’s still too early to be absolutely certain. We do know however, that Friday’s move lower meant it closed the week below its 40-day moving average and its weekly and monthly charts effectively illustrate how price has moved below the all-powerful trendline that has guarded this rising market for so long. But a bull market doesn’t give up that easily and we expect that there will be a few false starts to any drop in the market before it finally lets go.

 

With so much accompanying risk, one should not be searching for places to invest more cash at this point though it could be argued that gold, silver, nickel and copper shares continue to provide good opportunities. The supply/demand curves for these minerals remains inexorably bullish in the medium to long term though in the short term there could be some volatility, namely in nickel due to its easing price on world markets these first few weeks of 2004. And in copper there is already a widely-held perception that supplies have tightened and that weekly inventory figures from the LME and Comex warehouses don’t accurately depict the dire situation that exists. In the futures markets, the price of copper has already risen 19% this year.

 

New Buy Recommendations:

 

None.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

None.

 

 

Portfolio Comments:

 

CHU – each passing week this stock appears stronger – the gaps on Jan 8, Jan 20 and this past Friday, Feb 13, 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.

 

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 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	6.00		H
08/25/03	Bema Gold	BGO #	3.08	3.43		H
12/08/03	BHP	BHP	17.18	18.75		H
01/12/04	Beta Oil and Gas	BETA	3.25	2.82		H
09/29/03	China Unicom	CHU	8.18	12.29	10.49	H
05/12/03	Cott Corp	COT #	20.02	28.41	26.50	H
12/08/03	Inco	N #	35.70	36.94		H
12/08/03	Nanophase Tech.	NANX	7.64	11.85	10.00	H
01/12/04	ON Semiconductor	ONNN	7.59	7.60	6.70	H
12/15/03	Overstock.com	OSTK	20.35	18.15	17.00	H
01/12/04	Red Hat Inc	RHAT	21.10	19.30	17.46	SOLD
01/12/04	Sierra Wireless	SWIR #	21.95	25.59	22.50	H
12/01/03	Steelcloud	SCLD	5.05	3.83	3.38	SOLD
11/03/03	Wheaton River	WHT #	2.36	2.84		H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price