Stockscom Report for Sunday Mar 14 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

• The weakness of the major indexes

 

 

 

Market Synopsis

 

 After five consecutive losing sessions on Nasdaq, the market was able to piece together a small measure of rebound on Friday albeit on weaker volumes than we’d seen during the down days. And Nasdaq wasn’t the only market to recover some of its losses. The broader market too was ahead with the S&P 500 and the Dow Jones both bouncing after their four days of losses. Again volume was a key factor leading many to believe that the only reason for the bounce was short covering and as a consequence, there would be no enduring rise in market indexes beyond a couple of sessions. Certainly the trading volumes this week will be studied closely as a keen barometer of the nature of this rebound. Perhaps the even larger problem for those attempting to time the market is the fact that these equity markets have steadily surged for approximately a year and, taking the example of the Nasdaq Composite, the 200-day moving average is located around 1876, which is more than 100 points lower than the current level. Thus tech stocks could potentially sustain much greater losses before a true test of the bull rally comes into play. In the case of both the Dow Jones and the S&P, these tests are even further below current levels with potential losses of 4.7% and 6.5% respectively before any meaningful tests occur at their 200-day moving averages.

 

At times such as this we ask ourselves whether the volatility of the current situation is worth staying invested for. We have recommended a broad selection of stocks emphasizing metals, energy-related issues and a select group of specialty tech stocks and with few exceptions, there was broad pressure on their respective prices. Two of our recommendations were stopped out with small losses and we accept that as proof of concept for our trading methods. But the question remains, should we stay the course and remain invested or should we reach for the relative safety of the sidelines and wait out the storm? Certainly an argument could be made to step aside but we feel confident that these stock choices will weather any storm better than the broad market and the key to this, is that despite market indexes falling, there is always an outperforming sector or individual stocks that shine regardless of the rain. That concept coupled with carefully tuned and disciplined stops should allow us to ride out these troubling periods.

 

The emphasis on sectors will often form the basis of a successful trading strategy even for those interested more in market timing. While the philosophy behind market timing means concentrating particularly on charts strongly trending in one direction or another, the additional strategy of searching out compelling sectors based on over-riding fundamentals adds a layer of confidence to those choices. If we take for example the case of energy stocks, we note that the US crude inventories reported weekly have been continuously weaker than expected and this in spite of greater production and exports of Iraqi crude. And coupled with the massive level of cheating that OPEC producers are notorious for, boosting their levels of production well beyond those that the cartel has decreed shall be their proportion, one would think that there should be an abundance of crude. That is simply not the case and as a consequence of Chinese competition for supplies, the world balance between production and consumption is much tighter than most had expected putting significant upward pressure on oil stocks.

 

 

New Buy Recommendations:

 

None.

 

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. Last 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	5.69	5.50	H
08/25/03	Bema Gold	BGO #	3.08	3.46		B
12/08/03	BHP	BHP	17.18	18.05	17.25	H
01/12/04	Beta Oil and Gas	BETA	3.25	3.28		B+
09/29/03	China Unicom	CHU	8.18	11.81	10.49	B
03/01/04	Consol Energy	CNX	27.50	25.43		H
05/12/03	Cott Corp	COT #	20.02	29.70	28.00	H
23/02/04	CyberOptics	CYBE	16.70	18.10	16.00	H
12/08/03	Inco	N #	35.70	36.35	34.00	SOLD
23/02/04	King Pharma.	KG	20.10	19.55	17.00	SOLD
01/12/04	ON Semiconductor	ONNN	7.59	7.90	7.00	H
12/15/03	Overstock.com	OSTK	20.35	29.77	27.00	B
01/12/04	Sierra Wireless	SWIR #	21.95	30.30	25.00	H
03/01/04	Suncor	SU #	26.25	27.13		B
03/08/04	Transcanada Corp	TRP #	21.34	21.70		B
23/02/04	Wal-Mart	WMT	59.44	58.48		H
11/03/03	Wheaton River	WHT #	2.36	2.92		B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price