Stockscom Report for Sunday Apr 18 2004

Publisher: Colin Alexander Editor: Ken Wilson

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• Markets begin to dip again

Market Synopsis

Clearly a struggle is shaping up as good news for equities is greeted with indifference and bad news causes a quick flight for the exit. Markets have become stunningly expensive fuelled in part by the extremely low overnight interest rates, which permits short term lending at near zero cost. Nevertheless, the essential key here is not that the stocks have become expensive, they’ve been that for many months, but rather it’s the recently minted fear of an imminent interest rate cut, which is signaling to the big players, institutions and the like, that their fuel taps are being closed at least partially. They interpret this signal as a red traffic light, and it’s forced them to start liquidating their positions in those companies that are deemed too speculative. Consequently, this pruning action has propelled the Nasdaq much lower in response. While the Dow Jones and the S&P have also eased of late, the loss on Nasdaq is far more significant and its price chart is infinitely more bearish than the other two. Similarly, the Russell small cap index and the S&P Midcap 400 have held up reasonably well as stocks in these indexes tend to be trading at far lower P/E ratios than those on Nasdaq.

As the losses become entrenched on the Nasdaq, the Dow Jones and S&P will surely follow it down. For now, the Nasdaq is the sole index to be trading so bearishly. This characteristic shouldn’t be terribly surprising as there are far more speculative issues trading on Nasdaq then the other two majors thus the Nasdaq has been the leader on the upside and now it’s the leader on the downside in this speculative-driven bull rally.

The weekly charts indicate that further weakness is likely in both the Nasdaq and the S&P, which completed Lindahl sell signals to end the week. In such circumstances, one must exercise extreme caution when choosing to trade long. At best this is a sideways market for now and at worst, this is a market that has peaked and is ready to fall over a period of weeks or months. In choosing long trades we become quite cautious and prefer those issues whose fundamentals are strong and whose environment is not prone to risks of higher costs such as a transport firm whose costs depend highly on the price of fuel. For now, we have been reluctant to trade short given the strength of the previous rally and the sideways nature of both the S&P and Dow.

New Buy Recommendations:

Align Tech (ALGN) – this stock was in our buy list several months ago and we turn our attention once more to it. In trading on Friday, it showed signs of renewed surging and this on a week in which it reached a new high. The company is in the business of straightening adult teeth and has a proprietary product, which is best suited to adults who have long passed their period of growth when braces might have been an option. Sales are rising and in the last quarter of 2003, they generated their first quarterly profit.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

IVIL – they announced mid-week that they were filing a common stock shelf registration for the sale of $125 million. This potential dilution of stock was enough to send the share price sharply lower at the open of trade on Thursday however we found it interesting that the price held up and this we attribute to the fact that there is still a strong belief that this company has turned the corner on profitability.

WMT – we applied a stop to Wal-Mart given the unusually steep losses on Wed and Thu of the previous week. While WMT has indicated that the current quarter’s performance is stronger than first forecasted, the stock price of this retailer is dropping much as the broad group of retailers is, on the threat of reduced sales due to the collective public attention diverted to the problems experienced by American troops in Iraq.

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
12/08/03	BHP	BHP	17.18	18.23	17.25	B
03/01/04	Consol Energy	CNX	27.50	27.95		B
04/08/04	Golden Star Res.	GSS #	6.88	5.98		H
04/12/04	IVillage	IVIL	8.36	7.70		H
01/12/04	Sierra Wireless	SWIR #	21.95	42.16	33.00	H
03/01/04	Suncor	SU #	26.25	26.85		H
03/08/04	Transcanada Corp	TRP #	21.34	20.33		H
23/02/04	Wal-Mart	WMT	59.44	58.44	56.00	H
11/03/03	Wheaton River	WHT #	2.36	2.90		H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price