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Stockscom Report for Sunday Aug 1 2004
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
By the end of the week, GDP figures and the rising price of oil were the dominant issues and ironically while both were viewed as abject negatives for the world of equities, the equities markets succeeded largely in ignoring the indicators to register positive finishes for the week. But as any technician will tell you, unlike the financial mass media, the bounce that occurred wasn’t so much the earnest re-evaluation of corporate fortunes in the past week as it was a normal reaction to a very oversold condition. The Nasdaq illustrated this point magnificently with a chart that touched the bottom of the downward moving channel and abruptly reversed to begin a new climb to the top of said channel. Now the propensity of the tech index should be a concerted push toward the 2000 level, where the natural support/resistance of a round number coupled with the top of the downward moving channel should create the consummate resistance to any further bullish notions.
Of course, the other news item to affect stocks this week was the Democratic National Convention whose sole tangible purpose was to crown Senator John Kerry as the nominee for President, a foregone conclusion in today’s world of antiseptic productions unwilling to present any conflicting view for fear of disrupting the masses and encouraging debate. While the security fears for the convention were elevated, they were thankfully not met by violence. However this weekend has once again brought the threat of terrorist violence to the fore with the news today that certain buildings located in Washington and New York are identified targets according to reliable intelligence gathered in the past few days. Already in Japan on Monday morning, the Nikkei has dropped considerably (around 1%) as fears of another terrorist attack have traders hedging any bullish inclinations that they held on Friday.
Jobs are the focus of the week with July figures to be released on Friday morning. While initially in 2004, the monthly data was surprisingly good in terms of sheer numbers, June’s figures failed to live up to expectations and consequently thoughts turned to the robustness of the recovery especially in light of declining numbers for durable goods orders. More importantly, analyses of the occupations and pay levels of the new jobs has taken greater precedence as those arguing that this recovery is only full of low quality jobs, have become more vocal. For example, the number of part-time workers has risen 5.2% since early 2002 and now numbers around 22% of the entire workforce, which is an increase of 1.5% over the same time period. Also the number of self-employed has jumped almost 5% and while this may be viewed as a positive, those newly installed self-employed people usually earn less when they begin this phase and often have the ignominious reputation of having been forced by economic necessity to have aspirations of self-employment. Lastly, and by far the most visible characteristic of this job recovery, is the concentration of new jobs in the service sector and the lack of job growth in manufacturing where the pay is generally greater. The chief economist at Morgan Stanley, Stephen Roach, has done some interesting analyses on the nature of the job recovery and found that restaurants, temporary hiring agencies and building services, which as a group account for only 9.7% of total non-farm payrolls, have contributed 25% of the cumulative growth in jobs over the past four months. Moreover, he emphasizes that other low-end services work employing 22% of the non-farm payrolls has contributed a disproportionate 44% of new jobs in the past four months.
The end of month offers a habitual though rare look at complete monthly charts and it is especially convenient when the month ends on a Friday, thus offering complete weekly charts in addition to the monthlies. The key characteristic of the monthly is that the general market’s direction is boldly being telegraphed to any audience willing to look and listen even in spite of the lack of immediate direction, which is dictated by the daily charts and their associated measures of near term sentiment.
With the passing of the month of July, we are witnessing an occasion that failed even to occur during the plunge in stocks from 2000 to 2002. All three major equity indexes completed Lindahl sell signals on their respective monthly charts. Granted this doesn’t mean that everyone should immediately buy put options or some equivalent action on these indexes but it definitely should make everyone pay close attention. At some point in the near future, stocks will be once again in a position to sell based on action in both daily and weekly charts and we may assume that their propensity to continue downward will be the overpowering force until such time as a new identifiable turn in the long term direction of stocks transpires.
New Buy Recommendations:
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
None.
Portfolio Comments:
There are a few stocks that we’ve held in the past are looking very good at this moment. These include BHP, Inco (N – which we just sold), Consol Energy (CNX – also which we just sold) and Suncor (SU). For the first two we would prefer to buy once the previous highs were taken out and for the latter two of these we would prefer to buy on a retracement of the current levels.
Transcanada (TRP) – This energy firm is appearing much stronger and we would consider this as a possible add-to and this in spite of a current price below the original price of purchase.
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 finished Friday with a Lindahl sell signal on the weekly and with that we suggest selling additional shares however there is one caveat and that is the fact that Citigroup was one of the companies named as being threatened by terrorist action and as such if one added to shorts at the open, one would be inviting the risk of selling into a pit.
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 |
24.63 |
|
H |
|
06/01/04 |
AES |
AES |
9.24 |
9.40 |
9.40 |
SOLD |
|
06/28/04 |
ATI Technologies |
ATYT # |
18.79 |
16.10 |
|
H |
|
06/01/04 |
Capital Env’t Res |
CERI # |
4.98 |
5.05 |
|
H |
|
03/01/04 |
Consol Energy |
CNX |
27.50 |
33.50 |
33.50 |
SOLD |
|
06/28/04 |
Cyberoptics |
CYBE |
27.43 |
17.80 |
17.80 |
SOLD |
|
04/08/04 |
Golden Star Res. |
GSS # |
6.88 |
4.02 |
|
H |
|
06/28/04 |
Microsoft |
MSFT |
28.60 |
28.49 |
|
H |
|
05/24/04 |
Pan Amer Silver |
PAAS |
12.78 |
13.00 |
13.00 |
SOLD |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
20.10 |
19.00 |
H |
|
11/03/03 |
Wheaton River |
WHT # |
2.36 |
2.40 |
2.40 |
SOLD |
|
Date of Entry |
Name |
Symbol |
Entry Price |
Current Price |
Stop |
Action Rating |
|
05/17/04 |
Citigroup |
C |
45.02 |
44.09 |
|
S |
|
05/17/04 |
General Motors |
GM |
43.55 |
43.14 |
45.00 |
H |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price