Stockscom Report for Sunday Mar 7 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• The weakening structure of the major indexes
• Jobs report very weak

 

 

Market Synopsis

 

The much anticipated employment report from February was a large disappointment and may be the catalyst for accelerated selling for the next month. Stock markets on Friday though, read the report and gave it a collective yawn when the three major indexes remained bolted to the unchanged line and the small-caps and mid-caps lead equities higher.

 

At this point, we wouldn’t risk selling short any index given the lack of confirmation and this despite the definite downward lean seen in the Nasdaq. But any downward development could occur quite quickly. Already there is the aforementioned weakness in the Nasdaq where the Friday’s intraday high stopped just shy of the 40-day moving average hovering a few points above. The closing reversal on its daily chart could signal the beginning of yet another leg down and if that were to be the case, then selling pressure would likely build in other areas as a matter of congruency.

 

The Nasdaq is not alone in signaling potential weakness however. The Dow Jones Industrials and the Dow Utilities managed slight gains for the week but the Dow Transports has been moving in the opposite direction after its sudden plunge in late January. A loss on the daily chart early in the week would confirm that the predominant direction for the Transports has now changed. This is noteworthy stock action for Dow Theory requires that movements on one average confirm those on the other. So despite the relative strength currently seen in the Dow Industrials, the lack of confirmation in the Dow Transports is signaling to some traders that the end is near. If the Dow Industrials were to drop, that deed would amount to confirmation of the downward move and could possibly accelerate the trend.

 

Certainly there are concrete reasons for a break in the bull rally. The longevity of the current run has been nothing short of spectacular. Too, an economy that lacks job creation is unlikely to witness a significant increase in consumer spending without some means to generate the extra personal revenue. Certainly the new 2004 tax cuts favor some increases in spending however the boost that the widespread mortgage refinancing provided until the middle of 2003, will not see a repeat performance. Government spending will also be reined in, in this an election year, as the Republicans will have to demonstrate more budget discipline especially given the lack of new jobs. Not surprisingly, immediately following the release of the employment report, Democrats were eager to begin attacks on the government for its failure at job creation. Without a sustained boost in employment beginning soon, the Bush Administration may face strong headwinds when rolling into the election later this year.

 

New Buy Recommendations:

 

Transcanada Corp (TRP #) – Once more we return to a previously held stock that had become ambiguous but has now re-established itself and the direction it intends to travel. There is reason to believe that we are once again on the cusp of a step up in TRP, which is a bonus in capital gains given its decent quarterly dividend. The tightening of supplies and the concomitant rise in energy prices are giving their stocks a significant boost and this strategy will pay dividends if indexes start heading south.

 

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. Friday’s outside move higher has signaled the beginning of another leg in the march upward.

 

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 jobs report caused the US dollar to reverse on Friday and this could start renewed selling of the greenback. Both stocks saw significant gaps higher leaving large open spaces below their bars on the daily charts and this represents to us a signal of further moves higher.

 

 

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	6.31	5.00	H
08/25/03	Bema Gold	BGO #	3.08	3.53		B+
12/08/03	BHP	BHP	17.18	19.19	17.25	H
01/12/04	Beta Oil and Gas	BETA	3.25	3.48		B++
09/29/03	China Unicom	CHU	8.18	12.58	10.49	B+
03/01/04	Consol Energy	CNX	27.50	26.10		H
05/12/03	Cott Corp	COT #	20.02	30.30	28.00	B
23/02/04	CyberOptics	CYBE	16.70	19.67	16.00	B
12/08/03	Inco	N #	35.70	36.35	34.00	H
23/02/04	King Pharma.	KG	20.10	19.55	17.00	B
01/12/04	ON Semiconductor	ONNN	7.59	9.00	7.00	B
12/15/03	Overstock.com	OSTK	20.35	33.19	27.00	B
01/12/04	Sierra Wireless	SWIR #	21.95	31.28	25.00	H
03/01/04	Suncor	SU #	26.25	28.35		B
23/02/04	Wal-Mart	WMT	59.44	60.24		H
11/03/03	Wheaton River	WHT #	2.36	2.91		B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price