Stockscom Report for Sunday June 27 2004

Publisher: Colin Alexander Editor: Ken Wilson

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

• Nasdaq signals a rally to begin
• DJ and S&P remain in downward channel

Market Synopsis

Equity moves last week were a story of contrasts with the Dow Jones and S&P 500 looking very tired while the tech stocks were breathing new life. Moreover, small caps and mid caps, as represented by the Russell 2000 and the S&P 400 respectively, strongly reflected their heavy weightings in tech issues and consequently mirrored the very good performance of the Nasdaq market.

In the case of either the DJ or the large cap S&P, the story was similar on Friday – large volumes traded in falling stocks such as GE, WMT, PFE, XOM, and JNJ all of which had extraordinary drops in prices. These stocks led the rout on the large cap indexes which resulted in a very bearish tones on their respective charts with the fast OBV slicing through the slow OBV and stochastics turning decidedly downward.

Tech issues were much the opposite with ND signaling a breakout move from the downward moving channel on Wednesday, which was confirmed and emphasized with the strong finish on Friday. One could argue that the Nasdaq Composite did not appear especially strong at the end of the week, however if one were to look at the chart of the Nasdaq 100, it becomes clearer that indeed tech shares made powerful moves. Individually, several stocks were remarkable for their strength and we discuss a few of them below. Volumes traded on Friday were at levels not seen in months and especially in the case of Nasdaq, which saw shares traded top the 2.6 billion mark – a level not reached since January.

Despite the strong signals from tech, we realize that this week will be highly unusual. There are three events likely to swing markets like baseball bats. The first is the Federal Reserve meeting that wraps up on Wednesday where a likely 0.25% increase in the overnight lending rate – the first in four years – will signal the beginning of a cycle of rising interest rates. A further meeting in early August could see the Fed adding another quarter point. Second, the Iraqi Governing Council will be handed power and few are expecting this to occur without bloodshed. Last is the employment report for the month of June due to be released on Friday and expectations have been heightened given the past few reports and surveys such as the ISM, which suggest hiring programs are becoming the norm. We expect to have more comments about the employment situation after reading Friday’s report.

New Buy Recommendations:

Accenture (ACN) – This IT consulting/systems firm won the lion’s share of a contract to develop a complex security system for the Homeland Security Dept less than two weeks ago, worth some $10 billion over 5 years with another 5 year optional extension. The price gapped higher upon the announcement and after a short retracement has signaled that a new leg higher has begun.

ATI Technologies (ATYT) # - ATI announced sharper increases in quarterly revenue and earnings than had been expected this week and the stock gapped up substantially as a result. Friday’s trading continued the move with another step higher. The large move resulted in a new high for ‘04 and a breakout from the 10-month sideways movement.

Cyberoptics Corp (CYBE) – This firm has been in our portfolio before but we were exited prematurely. Price continues to trend strongly in the up direction and Friday’s trading saw a healthy increase in volume (no news) and an indication that large buying occurred.

Microsoft (MSFT) – MSFT is always on our watchlist and with its recent rise, the trend has definitely changed and is now poised to move higher breaking from its sideways movement of the past 3 years. Despite its strength already exhibited in the past couple of weeks, there are signs that further significant movement should be expected in the short term.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

Consol Energy (CNX) – There is a B indicating “Buy” on the chart below for CNX. This stock is difficult to buy at this level having risen quite significantly last week and one might consider being patient for a retracement around the $34 level in order to add to the position.

Transcanada (TRP) – This is another energy firm that we are paying close attention to given its weakness.

Gold stocks – The outlook for our gold stocks continues to be muddled. On June 7, GSS won their first court battle gaining permission to proceed with their offer to purchase IAG. The merger date between IAG and WHT was slated to be June 8 and this has now been delayed. The shareholders of IAG will have a chance to vote on the merger plan with WHT on June 29. Moreover, the Ontario Teachers Pension Plan has come out in favor of Coeur d’Alene in its battle to takeover WHT. Interestingly the OTPP has positions in all four of the players involved in this strange battle.

Citigroup (C) – This stock made one more attempt at the $47.50 level this week and failed again. At this point, the likelihood of it falling further has increased as it appears set to begin another leg down.

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
06/01/04	AES	AES	9.24	10.15		B++
06/01/04	Capital Env’t Res	CERI #	4.98	4.83		H
03/01/04	Consol Energy	CNX	27.50	36.50		B
04/08/04	Golden Star Res.	GSS #	6.88	4.81		H
05/24/04	Inco	N #	31.03	35.18		B+
05/24/04	Jetblue Airways	JBLU	28.66	28.90		H
05/24/04	Pan Amer Silver	PAAS	12.78	13.49		B
03/08/04	Transcanada Corp	TRP #	21.34	19.58	19.00	H
11/03/03	Wheaton River	WHT #	2.36	2.92		H

Short sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
05/17/04	Citigroup	C	45.02	46.80		H
05/17/04	General Motors	GM	43.55	47.65	48.50	H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price