Stockscom Report for Sunday July 11 2004

Publisher: Colin Alexander Editor: Ken Wilson

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

• Markets signal a new leg down

Market Synopsis

Tuesday’s fall in stocks marked the beginning of a downward leg in both tech issues and the broader general market. The heavy down volume balanced against the light upward volume in Friday’s action tells us in succinct terms that the move lower has not yet been completed and that we should expect further action this week.

Tech stocks were hardest hit by the drop as warnings continue to mount of lower than expected results when corporations release their financial reports through the coming days. In the tech sector, software companies were the principle bearers of bad news. These warnings coupled with the latest economic data signifying some slowing in the growth seen so far in 2004 have forced analysts to downgrade expectations for second quarter GDP due to be released at the end of the month.

However the more serious consideration is the possibility that the slowdown in economic activity is much greater than anticipated. The potential threat is without a new housing boom brought on by refinancing, interest rates edging toward neutral and no new tax cuts to increase disposable income, consumer spending will be limited. Add to this recipe, sub-par job growth and a rise in real wage income that fails to cover inflation in prices and we get a glimpse of a consumer society that has less disposable income and consequently must reduce its spending or add to its already large stock of personal debt. If we look at Wal-Mart’s chart, which gives a good barometer of the American consumer, we find that its high reached in early March has given way to sustained losses and though currently oversold, the likelihood of a rebound above $56 is highly questionable at this point. While we don’t deny the power of the American consumer, the confluence of events is placing new pressures on the ability of the consumer to purchase items and reducing their overall purchasing power.

Metal shares performed well this past week in stark contrast to tech shares. The price of the US dollar has begun another leg down and with metals priced in US dollars, the metals become cheaper in foreign currencies. Nickel and copper share prices have risen in recent weeks as attention is brought to their dwindling global stocks while gold and silver are purchased as hedges against losses in the value of the dollar. Having found support in the $380’s, gold’s chart offers strong potential for new highs to develop.

Our tech shares, while not impervious to the fall in Nasdaq, had limited losses due to their individual strengths both fundamentally and technically. ACN and ATI are notable for their chart breakouts and these types of breakouts rarely fail. What we are likely to see is some backing and filling as weakness in the broader tech shares apply pressure to all prices.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

Consol Energy (CNX) – We keep the B rating on this for despite being overbought by a wide margin, it continues to gather strength. Friday’s action was quite telling with an outside day appearing to have swept away all the weak longs and indicating a further move higher and this on higher than normal volumes.

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

Gold stocks – Our gold plays – GSS and WHT – have spent more time in the courtroom than in the field recently. On Tuesday, IAG shareholders rejected the offer to merge with WHT and once again the affair is in limbo. The deadline for the GSS offer to buy IAG is July 16 however this naturally could be extended if not enough shareholders accept the offer. IAG is not in favor of this business combination and is making efforts to discourage its shareholders from presenting their shares. Meanwhile, the price of gold surged this week and judging from the charts, we expect further upward momentum to carry the price of an ounce of gold higher in the short term. The US dollar has begun another leg down and as the price of gold has been moving inversely to the US$, expectations are for a new leg higher in the price of the yellow metal. Similarly, silver prices should benefit and we saw evidence of that this week in the price of PAAS.

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	26.99		H
06/01/04	AES	AES	9.24	9.93		B
06/28/04	ATI Technologies	ATYT #	18.79	18.07		H
06/01/04	Capital Env’t Res	CERI #	4.98	4.85		H
03/01/04	Consol Energy	CNX	27.50	37.87		B
06/28/04	Cyberoptics	CYBE	27.43	22.66		H
04/08/04	Golden Star Res.	GSS #	6.88	5.06		H
05/24/04	Inco	N #	31.03	35.60		B
05/24/04	Jetblue Airways	JBLU	28.66	25.61	25.00	H
06/28/04	Microsoft	MSFT	28.60	27.86		H
05/24/04	Pan Amer Silver	PAAS	12.78	15.10		B+
03/08/04	Transcanada Corp	TRP #	21.34	19.88	19.00	H
11/03/03	Wheaton River	WHT #	2.36	3.00		B

Short sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
05/17/04	Citigroup	C	45.02	45.03		H
05/17/04	General Motors	GM	43.55	44.24	48.50	H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price