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Stockscom Report for Sunday Aug 29 2004
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
The revision to the second quarter GDP arrived as projected at 2.8%, albeit a far cry from the 4.5% of the first quarter and the 4.2% of the last quarter in ‘03. As many analysts have stated, the economy hit a slow patch and the result was below par performance, however if one were to believe the likes Dr. Ben Bernanke, one Federal Reserve governor, or his colleague William Poole, another Fed governor, this mysterious soft patch is nothing to worry about and according to Poole on Friday, “…could be a memory by (the) fall (season)…”. Even Federal Reserve Chairman Greenspan has been quite vocal in the past few weeks, uncharacteristically responding to broadly spoken doubts being raised by several economists, defending the American economy as though he were personally responsible for it.
The revised GDP figures contained some warning bells with consumer spending growth at 1.6%, which is the lowest increase in the past three years while business investment soared 12.1% undoubtedly a one-shot sign of businesses wishing to capitalize on the accelerated depreciation on capital goods due to expire at the end of this year.
Furthermore, other economic indicators have been less than spectacular for this, the third quarter of ’04. The Univ. of Michigan’s widely watched consumer sentiment findings showed August numbers dipped slightly from July though they did gain from the mid-month report. And durable goods orders for July increased 1.7%, however this increase was largely the result of increases in volatile aircraft orders and once stripped out, the gain of 0.1% ex-transport was wholly unimpressive.
So can the broad indexes manage to float upward to higher ground now that the economy’s on the mend? Ironically, there are many analysts who would respond with an enthusiastic “yes” and these same analysts are among those who have spent tremendous amounts of time explaining to their clients that in an environment where interest rates are declining, stock markets generally go up. It appears hypocritical that they are able to justify their encouragements when interest rates environments have shifted and are surely increasing.
Naturally, the one sure thing on this planet and the reason
that Fed Chairman Alan Greenspan can sleep easily at night has been the
steadfast reliability of the American consumer. Much like the postman’s motto,
“Neither rain, nor sleet,
nor gloom of night …”, the consumer has provided Greenspan with a ready credit
card willing to support the US economy through its darker moments. But there is
anecdotal evidence that even this support is now wavering.
Wal-Mart,
the biggest barometer of consumer spending, announced this week that Hurricane
Charley and weak back-to-school sales would potentially erase all sales gains
for the month year-over-year. The announcement was made more surprising by the
fact that just last week, they had forecasted a sales increase for August of
two to four percent.
Many observers would look at this and judge it to be important perhaps to Wal-Mart, but less important in the larger picture, however this announcement should not be ignored. Not only does Wal-Mart rarely revise forecasts by such a degree, the back-to-school sales are the second most important behind the Christmas season and a storm such as Hurricane Charley might induce lower sales in the days following the storm but the preparations beforehand and the sales provoked by the cleanup should easily replace those sales. This is a trend to be watched.
Equities continued the rebound last week but this market lacks conviction even as it notches higher each day. The DJ and SP both have exceeded recent tops but we can hardly place any trust in these moves when the underlying volumes are utterly anemic. This is the summer doldrums, a time when traders have left on vacation and with the Republican Party in NYC for the week, the threat of terrorist plots and crowds of tourists will have definitely driven the remaining souls away from the trading desks and onto some beaches miles away. Once the Labor Day holiday weekend passes, a sense of normalcy will return.
The tech index has not discovered the same elixir that provoked the DJ and SP to reach these new highs and remains beaten down. Volumes here have been just as poor and barring a terrorist plot, it should be located around the same point exactly one week from now.
New Buy Recommendations:
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
None.
Portfolio Comments:
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. A move closing the gap left on Apr 13 at $21.18 would be a conclusive sign to add to this position.
Gold stocks – IAG announced a merger with the international assets of Gold Fields (GFI) and this has finally put to rest the uncertainty of GSS (and to some extent WHT). Gold is still trending higher and the US$ is under immense pressure after the unexpectedly larger trade deficit of $55 billion. This data coupled with the weak inflation data and the employment report is likely to contain the US$.
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 |
25.92 |
|
H |
|
08/23/04 |
AES |
AES |
10.23 |
10.00 |
|
H |
|
04/08/04 |
Golden Star Res. |
GSS # |
6.88 |
4.49 |
|
H |
|
06/28/04 |
Microsoft |
MSFT |
28.60 |
27.46 |
|
H |
|
08/09/04 |
Pan Amer Silver |
PAAS # |
13.40 |
14.73 |
|
H |
|
08/09/04 |
Southern Co. |
SO |
29.83 |
30.01 |
|
H |
|
08/16/04 |
Suncor |
SU # |
28.50 |
27.80 |
|
H |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
20.56 |
19.00 |
H |
|
Date of Entry |
Name |
Symbol |
Entry Price |
Current Price |
Stop |
Action Rating |
|
05/17/04 |
General Motors |
GM |
43.55 |
41.75 |
43.50 |
H |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price