Stockscom Report for Friday July 2 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

We will be out of the office next week and as such we are releasing our newsletter tonight.

 

Market Synopsis

 

The past week was a study of contrasts with the Nasdaq-100 reaching a close of over 1516, a peak not visited since January versus the dive in prices over the last two sessions. Undoubtedly, some of the action was due to funds attempting some beginning-of-the-quarter positioning however the unexpected economic news certainly was no help for those believing in a strong US recovery.

 

Naturally, the expected rate hike on Wednesday was not a surprise but the Midwest report of purchasing managers commonly known as the Chicago PMI numbers were markedly less than previous months and this was followed by the national ISM numbers yesterday, which suggested some weakness, especially in manufacturing employment. But the numbers that ultimately made the biggest difference were the employment numbers for June released this morning. Just half of the expected number of new jobs and the expectations were already lower than the previous three months data. Perhaps more stunning though less discussed was the reduction in hours worked that translated into lower weekly average pay and an average increase in hourly earnings that amounted to two cents.

 

Immediately analysts changed their projections for growth in the second half of the year and the lower likelihood that the Fed will be keen to raise rates even a quarter point while the economy is slowing. Employment numbers such as we saw this morning have an additional effect: interest rates increased on Wednesday, job pay on average declined, price inflation still in effect – the combination of these conditions means less disposable income in consumers’ pockets. Certainly this month’s data could be an anomaly but we also realize that the Fed efforts have been directed towards generating inflation with little regard to whether this was creating any asset bubbles since the flip side of allowing deflation was considered to be far too dangerous. A problem is never a problem until it is a problem. This has been the mantra of the Federal Reserve and has served them well through the years. Only time will tell if they can continue to push the problem to another time and place. 

 

What this means for investors however is that the US dollar will continue to be sold and indeed we saw strong evidence of that in Friday’s trading with the dollar index setting a new low on the current slump. With a weak dollar, the metals should benefit though in our particular case, we still have the resolution of the takeovers to be completed first. On Tuesday, shareholders for IAG will vote on either merging with WHT or GSS and this should be good for WHT or GSS no matter which company wins since it will effectively remove the uncertainty surrounding both of these companies.

 

We were not surprised that our tech stocks that we recommended last week held up despite the losses seen in the market as these are exhibiting very bullish behavior and we don’t expect them to suffer the same consequences as some of their peers. Regardless, we would hesitate to add to any of these positions or any others except those marked accordingly for now.

 

New Buy Recommendations:

 

None.

 

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 July 6. 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

06/28/04

Accenture

ACN

27.41

27.91

 

H

06/01/04

AES

AES

9.24

9.85

 

H

06/28/04

ATI Technologies

ATYT #

18.79

18.11

 

H

06/01/04

Capital Env’t Res

CERI #

4.98

4.97

 

H

03/01/04

Consol Energy

CNX

27.50

35.72

 

B

06/28/04

Cyberoptics

CYBE

27.43

26.24

 

H

04/08/04

Golden Star Res.

GSS #

6.88

4.82

 

H

05/24/04

Inco

N #

31.03

34.78

 

B

05/24/04

Jetblue Airways

JBLU

28.66

28.72

 

H

06/28/04

Microsoft

MSFT

28.60

28.57

 

H

05/24/04

Pan Amer Silver

PAAS

12.78

13.65

 

B

03/08/04

Transcanada Corp

TRP #

21.34

19.66

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

45.76

 

H

05/17/04

General Motors

GM

43.55

45.24

48.50

H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price