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Stockscom Report for Sunday July 25 2004

Publisher: Colin Alexander Editor: Ken Wilson

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

• Nasdaq reaching support levels

Market Synopsis

Sellers continue to dominate the markets as the major indexes all finished the week in the red. Technically the three majors are in quite a shambles though selling at this point would invite undue risk due to the strong potential for rebounds. This potential is especially true for the Nasdaq, which is drifting very close to its lower boundary of the downward sloping channel, at around 1830.

Driving stock prices down are the reduced expectations offered in company guidance with the release of second quarter results. With many companies forecasting lower revenues for the second half, investors have pulled money from stocks in anticipation of a marked slowdown in the economy.

One other aspect not to be overlooked is the favorable comparisons that have been possible until now in financial statements. For the four quarters starting in the third quarter of 2003, companies achieved greatly improved results yr-over-yr but this sweet spot for earnings has now been closed and comparisons will be tighter and investors are unlikely to be forgiving with companies whose results fail to demonstrate solid growth.

Alan Greenspan made his semiannual visit to Capital Hill this past week to offer his view of the economy. He used the visit as an occasion to send a clear message that interest rate hikes will be gradual but regular and that the Federal Reserve perceived risks to be weighted on the side of inflation notwithstanding the transitory inflation composed mostly of oil prices. However, with the latest inflation figures showing low consumer inflation and real wages shrinking, his hawkish view of inflation appears to be misplaced. Ironically, he sounds increasingly like the ECB, which for the longest time, saw inflation under every economic “rock”. Greenspan was also questioned and had to defend himself and the Fed about an article written by the Chief Economist at Morgan Stanley, Stephen Roach. In the article, Roach accuses the Fed of engineering the biggest macro trades in the past 15-20 years and describes the Fed as the world’s biggest hedge fund for their actions in sustaining lower than necessary interest rates. He illustrates his point with examples whereby the Fed kept interest rates artificially low in order to ease the loan burden and inject liquidity into the system. One of Roach’s main concerns remains the twin pillars of elevated risk, the current account deficit and the federal budget deficit.

While little economic data is expected this week, Friday is a red-letter day with the release of the second quarter’s first estimate of GDP. Since economists’ estimates are generally close to the number released, little surprise should come of this. However, the following week brings new monthly data and the employment report will be especially dissected for new indications on the status of the recovery in jobs.

New Buy Recommendations:

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

Inco (N) – This stock was sold on Friday when it hit our stop.

Cyberoptics (CYBE) – CYBE took a hit on Friday on slightly larger volume than average and while we are strongly tempted to sell immediately, we instead initiate a tight stop and watch for a bounce. In fact, CYBE is due to release quarterly results after Tuesday’s close and it’s worth noting that it is still trading above its 200-day moving average located at $16.23.

Consol Energy (CNX) – We modify the rating to H given the significant rise of the past couple of weeks and the likelihood of some measure of retracement.

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. We put a new stop on WHT due to the weakness in gold prices but we hold off on GSS because of the on-going deal with IAG. GSS has now been permitted to access financial data from IAG and consequently their due diligence will now go forward with a date limit of August 15. While IAG is hopeful of additional suitors, none have come forward as yet.

Citigroup (C) – Citigroup was sold off on the day it announced its quarterly earnings and finished the week much lower. We would consider adding to this trade however we consider it appropriate to wait for a retracement of this drop before acting.

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	24.91		H
06/01/04	AES	AES	9.24	9.58	9.40	H
06/28/04	ATI Technologies	ATYT #	18.79	16.59		H
06/01/04	Capital Env’t Res	CERI #	4.98	5.09		H
03/01/04	Consol Energy	CNX	27.50	35.71	33.50	H
06/28/04	Cyberoptics	CYBE	27.43	17.82	17.80	H
04/08/04	Golden Star Res.	GSS #	6.88	4.22		H
05/24/04	Inco	N #	31.03	31.50	31.50	SOLD
06/28/04	Microsoft	MSFT	28.60	28.03		H
05/24/04	Pan Amer Silver	PAAS	12.78	13.56	13.00	H
03/08/04	Transcanada Corp	TRP #	21.34	20.04	19.00	H
11/03/03	Wheaton River	WHT #	2.36	2.48	2.40	H

Short sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
05/17/04	Citigroup	C	45.02	44.31		H
05/17/04	General Motors	GM	43.55	42.93	45.00	H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price