Stockscom Report for Sunday Apr 25 2004

Publisher: Colin Alexander Editor: Ken Wilson

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

• Markets change direction in pivot action

Market Synopsis

In the battle between the bulls and the bears, this week’s action signaled that the bulls were definitely in charge. The very bullish move by the Nasdaq Composite on Thursday was enormously convincing inasmuch as it was accomplished on higher volumes compared to late. Since the bottom reached on March 24 near its 200-day moving average, there has been only one day where trading volumes were greater and that was April 2 when another bullish day occurred beginning with a large gap higher to open. The significance of these moves cannot be understated. We can say what we will about the relative value of stocks, that they are expensive is undeniable, but the charts are clearly telling us that investors remain willing and enthusiastic buyers of tech stocks.

To gauge the strength of the rally, one need only look at the leaders and one of the most important and influential is none other than Microsoft, whose price action on Friday was certainly impressive. The gap higher at the open was extraordinary and were it not so far above $26 a share, we would be moved to recommend it. A surge to close the gap left open from late October 2003 (a close above $28.91) would be the next requirement in its bid to loosen the shackles of its own bear market. For now though, all indications are that this rise was a sufficient first step and that the gap will be closed in the short term. Microsoft has been in a technical bear market since the collapse of Nasdaq in 2000 but the bottoming action begun in 2002 is now beginning to bear fruit. To reiterate, we want to monitor the price of MSFT because it’s signaling a buy but an entry at this level is undesirable and we prefer to patiently wait for a better moment.

While we see this week’s action as unabashedly bullish, we do consider the risk to be elevated at these levels and one must be willing to act in nimble fashion in order to profit from it. One major risk that we see is that the Nasdaq could be relegated to a trading range and if that is the case, the high reached in late January (2153) might represent the top of the range. Though impossible to be certain of that, we must, nevertheless, be prepared for that potentiality. Also it’s worth noting that there is agreement among the three majors with respect to this new rally and it occurred after hearing the words of Alan Greenspan where he spoke of interest rate hike possibilities and the lower risk of deflation.

The key to this rally appears to have been the March durable goods orders, which were very strong at 3.4% coming on the heels of a revised February measurement at 3.8%, thus two months of very strong orders growth. Growth here must only be ignored at one’s peril since the potential for increased business investment could drive the economy even as the consumer slackens.

Still longer term, we believe that there are enough risks in the economy that holding gold stocks is a good protective strategy to employ much as a hedge. The twin deficits have ballooned out of control and the only reason short term bond prices have remained cheap (low interest rates) is the fortunate situation that has persisted with both China and Japan financing these deficits through massive purchases of US treasuries recycling dollars back into dollar-based instruments. Without discussing a long list of potential trouble spots in the economy, it’s suffice to say that risky conditions prevail and one should be prepared to react to any move against us.

New Buy Recommendations:

Perrigo (PRGO) – We are adding a recommendation in Perrigo this week. Perrigo is the largest over-the-counter drug manufacturer in the States. Many of their products are generic versions of name brand drugs used to treat common ailments such as colds, allergies, and pain. Thursday’s quarterly results exceeded expectations and Friday’s action saw the stock gap higher but close near the bottom of the range affording us the opportunity to get an entry in at a (hopefully) reasonable price.

Integrated Silicon Solution (ISSI) – We believe that we should add one pure tech stock in the recommendations this week and this company also released quarterly results on Thursday leading to a strong gain on Friday and a buy signal on the chart. This has been trading in a range of $13-19 but the move Friday suggests that it’s about to move out of this range and start a new leg higher.

New Short Sales

None.

Stock Positions to Sell/Exit:

We were exited from BHP and Sierra Wireless this week at the stops that had been setup.

Portfolio Comments:

ALGN – they announced their quarterly results this week and the stock suffered. Still the news was quite good as they are showing high double digit growth y-o-y and this is expected to continue. We will watch this stock over the next few days in order to see if it’s able to brush off the hit it suffered.

WMT – we applied a stop to Wal-Mart given the unusually steep losses on Wed and Thu a fortnight ago. 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
04/19/04	Align Tech	ALGN	22.09	19.00		H
12/08/03	BHP	BHP	17.18	17.25	17.25	SOLD 04/21/04
03/01/04	Consol Energy	CNX	27.50	29.96		B
04/08/04	Golden Star Res.	GSS #	6.88	5.81		H
04/12/04	IVillage	IVIL	8.36	8.00		H
04/20/04	Overstock.com	OSTK	36.04	36.25		B
01/12/04	Sierra Wireless	SWIR #	21.95	33.00	33.00	SOLD 04/22/04
03/01/04	Suncor	SU #	26.25	25.50		H
03/08/04	Transcanada Corp	TRP #	21.34	20.31		H
23/02/04	Wal-Mart	WMT	59.44	58.97	56.00	H
11/03/03	Wheaton River	WHT #	2.36	2.73		H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price