Stockscom Report for Sunday Feb 29 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• The weakening structure of the major indexes

 

 

Market Synopsis

 

Precious little changed in stock markets this week as indexes have hit a temporary ceiling. The motivation to buy more shares has greatly dissipated and this lack of interest, or at least lower interest, is manifesting itself in weak up days and hesitant down days. There may not be a wide motivation to buy, however the interest in selling is almost equally negligible and traders have not had a good reason to take profits. Having said that the charts are quite clear on the Nasdaq at least and that is, they are telling chart-readers to sell in a very general sense. Technicians reading the very basics of this chart will notice that the highs are becoming lower and the lows even lower, which is the classic downward trending chart. Volumes in February were remarkably lower than in January and this action also points to the strong likelihood of further drops in the index. Finally, we are approaching very quickly a significant turning point with the 25-week moving average now at 1962 on the Nasdaq Composite – just 63 points below its close from Friday. This 25-week moving average line has guided the Nasdaq since April/03 thus a break here would be immensely important.

 

While the average lies only 63 points lower, it may take longer to reach than is normal. Price ranges on all three major indexes were greatly compressed with the Nasdaq trading in a range of less than 55 points for the entire week. The Dow Jones was equally unimpressive with a trading range of a rarely seen 130 points for the week. There are times when lower volumes and compressed price ranges might signal a move higher, a consolidation of sorts, but in this instance, the chances are greater that a move lower will result.

 

This week being the first of March, it follows that there is the consequential release of the monthly data and this spotlight on economic data could serve to increase the volatility. On Monday, there is the ISM Purchasing Managers report that’s worth watching and Friday’s unemployment figures loom large. With each passing month, the unemployment numbers grow in importance as the creation of jobs becomes more than an economic issue, it becomes a giant political issue in this, an election year. And the release of consumer confidence figures from the Conference Board last week gave us a brief glimpse into that employment report with respondents in that survey noting that it’s more difficult to find work now.

 

 

New Buy Recommendations:

 

We are compelled to return once more to our energy sector for two companies that we believe are suited to weathering any storm that may arise. Both had very strong weeks and have emphasized their intention to generate capital gains. We have held them at various times in the past and indeed they remain a permanent fixture of our list of stocks to watch.

 

Consol Energy (CNX) – We were exited from this just a few weeks ago but when the market tells us we should be long this stock, we’re willing to listen. Investing in stocks invariably means experiencing whipsaws and that is an unfortunate occurrence however we learn to accept them as part of life. CNX announced on Thursday that they were increasing their proven reserves of gas by 43% and this was the catalyst behind a large move that day on extremely high volume indicating clearly that buying interest had returned. By taking out the high from Feb 17, the chart and by finding support at the 200-day moving average, the chart has mapped out a renewed signal to buy. Moreover the weekly and monthly charts show Lindahl buy signals as well enforcing the buy on the daily chart.

 

Suncor (SU #) – Suncor has been range bound since the beginning of 2004 but the latest jump on Friday demonstrates the strong likelihood of the start of another move higher. It bottomed on Feb 24 but remained supported by the low reached on Jan 8. Now with a solid closing reversal on the weekly, the signal is clear that the stock is prepared to continue higher.

 

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

 

Portfolio Comments:

 

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

 

While we have placed mild Buy indicators beside 3 stocks, we would be cautious with these three because of their relatively high volatility and the fact that they are all tech stocks. As we’ve mentioned, the propensity for the Nasdaq is likely to be movement in the down direction before any possible resumption of this bull rally.

 

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	6.15		H
08/25/03	Bema Gold	BGO #	3.08	3.31		H
12/08/03	BHP	BHP	17.18	19.11		H
01/12/04	Beta Oil and Gas	BETA	3.25	2.87		H
09/29/03	China Unicom	CHU	8.18	12.77	10.49	B
05/12/03	Cott Corp	COT #	20.02	29.51	26.50	H
23/02/04	CyberOptics	CYBE	16.70	18.07		B
12/08/03	Inco	N #	35.70	37.16		H
23/02/04	King Pharma.	KG	20.10	19.27		H
01/12/04	ON Semiconductor	ONNN	7.59	8.47	6.70	B
12/15/03	Overstock.com	OSTK	20.35	29.27	22.00	H
01/12/04	Sierra Wireless	SWIR #	21.95	27.39	22.50	H
23/02/04	Wal-Mart	WMT	59.44	59.56		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