Stockscom Report for Sunday May 2 2004

Publisher: Colin Alexander Editor: Ken Wilson

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

• Equities heading for tumble
• China to reduce investment – attempt a soft landing

Market Synopsis

The signal that we interpreted last week as being a buy signal on Nasdaq was evidently a fake-out or, expressed another way, demonstrated clearly that this rally has now exhausted itself. Similar indications on the Dow Jones and the S&P are signifying the propensity of share prices to tumble. The triggers for this surprising price action were the very visible signs of a forced slowdown in the Chinese economy and the fear that interest rate hikes would handcuff the US expansion. In the case of the former, a mid-week announcement that fixed-asset investment would be curtailed through the restricted access to bank financing coupled with the very public policy to halt further expansion of investment in areas involving steel, cement, and metals (especially copper) acted like a torpedo to sink the equities markets over here. While there were initial fears that an interest rate increase would apply brakes to a healthy US expansion, these fears paled in comparison to the perceived loss of business if China follows through on this latest threat.

The problem is that China finds itself with near term difficulties ranging from an economy growing too rapidly at the official GDP of 9.1% for 2003, to inflation in basic commodities reducing profit margins for the consumers of those commodities, to failed weekly auctions of debt thus reducing the capital available for financing. The latter problem stems from the differences in a centrally planned economy versus a capitalistic one. In China, there is no market-based means to raise capital so banks are relied on to lend capital for investment (and this not entirely based on a rigorous assessment of risk of non-repayment) and that loan depends on the availability of that capital often sourced from outside China. But this week’s announcement went further in regards to loans for investment, by mandating the outright refusal of access to capital for a variety of businesses.

Fears of a global slowdown resulting from the reduced activities in China have gripped US markets and sent them spiraling. Technically, the charts sustained significant damage this week and the effects were not limited to basic materials and industrial metals, but rather it was widespread not limited to any particular type of company. Even the price of gold and other precious metals were not immune to the severe drops in price. By week’s end however, there were signs that those gold stocks were rebounding and it is for that reason that we retain our positions in them. One of our recommended shares and high cost producer, Golden Star Resources, was subjected to heavy losses as the price of gold lowered but the secular bull market in gold continues and we expect that near term weakness will be replaced by a new rally likely in conjunction with a drop in the value of the US dollar.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We recommend exiting Align Technology, Overstock.com and IVillage due to the losses sustained and to the presence of technical risk elements, which could drive their shares prices significantly lower.

Portfolio Comments:

Suncor (SU) – This vertically integrated oil producer, refiner, and retailer saw its shares tumble as a result of a quarterly financial release. Revenues were lower than in the same quarter last year however much of the change was due to currency translation. Rising production and a high price for oil should ensure strong support, but we are watching this carefully especially after the momentary dip below the 200-day moving average on Thursday.

Integrated Silicon Solutions (ISSI) – Technically this stock was beaten up last week but we don’t wish to exit just yet. Fundamentally, the company is strong with large increases in revenue and net income forecast for this year. We would prefer to keep a close watch over this as it dipped a bit below its 200-day moving average on Friday.

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	17.36		SELL
03/01/04	Consol Energy	CNX	27.50	28.63		H
04/08/04	Golden Star Res.	GSS #	6.88	4.45		H
04/26/04	Integrated Silicon	ISSI	17.15	13.73		H
04/12/04	IVillage	IVIL	8.36	6.39		SELL
04/20/04	Overstock.com	OSTK	36.04	36.24		SELL
04/26/04	Perrigo	PRGO	22.00	21.47		H
03/01/04	Suncor	SU #	26.25	23.90		H
03/08/04	Transcanada Corp	TRP #	21.34	19.69		H
23/02/04	Wal-Mart	WMT	59.44	57.00	56.00	H
11/03/03	Wheaton River	WHT #	2.36	2.55		H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price