Stockscom Report for Sunday Mar 28 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

 

Equity markets extended their losses through the early part of the week quickly driving to an oversold condition that corresponded neatly with the 200-day moving averages on the Nasdaq indexes both Composite and 100. On Thursday, all markets experienced strong bounces from their significant losses of the past couple of weeks and led us to believe that this new found upward momentum would continue for at least two or three sessions. However Friday’s action was perhaps foretelling of future moves when the range on Nasdaq’s Composite reached near the 2000 level for its high as well as its 25-day moving average and backed away with a closing reversal. The Nasdaq-100 indicator moved in similar action.

 

The other two major indexes, the Dow Jones and the S&P 500 provided confirmation of this latest move while closing with reversals on Friday. Significantly, these two indexes remain well above their respective 200-day moving averages though we are not prepared to guess whether they have a need to test this level or whether Nasdaq having risen further and faster is simply being tested more rigorously.

 

At times like this where market direction is difficult to decipher, we will often rely more on the indispensable monthly charts and clearly they are telling us that the tops have been installed in January. And with the bottoming 25-month moving averages, we are provided with potential and natural placements for retracements. A determination therefore is made that by comparing the moving averages to the current prices, that a conservative estimate of a 10-15% retracement is possible for all three major markets. Moreover their bullish trends over longer terms would not be negated even with this performance.

 

Investors must keep in mind that this retracement won’t necessarily occur over a short time span but certainly the likelihood is greater. More often than not, downward legs tend to be much more rapid than the plodding climb of an upward leg.

 

In an environment, which we feel is fraught with risk, the best opportunities lie with safe sectors such as energy. In the past the fundamental nature that increased demand for energy was met by increased production by OPEC countries was adhered to notwithstanding any OPEC cheating that usually provoked lower prices than desired. The past year though has evidently changed the equation as China’s consumption has ramped up considerably and while OPEC has continued to cheat by producing far greater volumes than agreed to by their internal quota system, the excess has easily been absorbed by China’s voracious appetite. Competition for scarce resources is the root of inflation and here is a prime example.

 

Further risk in this investment environment will be seen over the following months. As we progress through 2004, profit comparisons will become difficult in the third and fourth quarters due to the ramp up of profits in the corresponding quarters of 2003. Whereas profits grew an average of 12% in Q1-2003 and 9% in Q2-2003, they jumped to 21% in Q3-2003 and 26% in Q4-2003. Consequently, profit increases in Q3 and Q4 will likely compress and cause downward pressure on share prices.

 

 

New Buy Recommendations:

 

Though there are some stocks that continue to have wonderful charts, we prefer to retain what we already own and wait until market sentiment has changed appreciably before adding to the list. By the same token, we prefer not to add any short sell recommendations due to the relative ambiguity in overall market direction.

 

New Short Sales

None.

 

Stock Positions to Sell/Exit:

 

None.

 

Portfolio Comments:

 

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. Most interestingly was the recent rebound in the price of gold and this was accomplished even while the US dollar was gaining against most other major currencies. Now, the bull market in gold has re-ignited and price is rising in all currencies.

 

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	5.50	5.50	SOLD
08/25/03	Bema Gold	BGO #	3.08	3.62		B
12/08/03	BHP	BHP	17.18	18.17	17.25	H
01/12/04	Beta Oil and Gas	BETA	3.25	3.29		B
03/01/04	Consol Energy	CNX	27.50	25.02		H
05/12/03	Cott Corp	COT #	20.02	28.00	28.00	SOLD
01/12/04	ON Semiconductor	ONNN	7.59	7.00	7.00	SOLD
12/15/03	Overstock.com	OSTK	20.35	27.00	27.00	SOLD
01/12/04	Sierra Wireless	SWIR #	21.95	33.81	27.00	B
03/01/04	Suncor	SU #	26.25	26.28		B
03/08/04	Transcanada Corp	TRP #	21.34	21.99		B
23/02/04	Wal-Mart	WMT	59.44	59.41		H
11/03/03	Wheaton River	WHT #	2.36	3.19		B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price