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Stockscom Report for Sunday Sept 26 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

 

Market Synopsis

 

Another week, another hurricane hits Florida. We need to reiterate that a series of events such as this will undoubtedly result in some more optimistic measures of the health of the economy. This week in particular we saw that durable goods orders for the month of August were down 0.5%, but once the volatile transportation orders were subtracted out, the durable goods orders were up a much more market friendly +1.7%. For the month of September, this same statistic will show an increase, as orders to rebuild from the destruction in Florida will push economic activity in this state.

 

Of course, in an ideal world, the release of economic statistics would be grouped together for complete analyses so that conclusions could be presented for discussion. Durable goods orders might offer one aspect of the economy while retail sales tell perhaps a different story. We would expect that retail sales will suffer as consumers already over-burdened with debt are unable to purchase anything but necessities such as food and shelter in addition to the costs incurred to clean up and repair damages caused by the disaster. This would be especially true for those people inadequately insured or non-insured. Non-insured losses in Florida and the surrounding states may be covered by government relief efforts to help the people but the likelihood that all losses will be reimbursed is nil.

 

Technically speaking

 

On Tuesday of this past week, the S&P 500 reached once more the upper boundary of the downward channel much the same as it did in March and June of this year and its reaction was both swift and similar. This resistance line became the peak before a descent. While some relief was evident on Friday with the SP500 completing a small gain, the principle trend remained lower and a test of the 1050 level should be considered a minimum move.

 

Alternatively, a look at the MACD chart for the SP has been quite informative and predictive for the year so far and now having turned emphatically once more in the downward direction, and with other indicators such as OBV having turned negative, the probability of a this test of 1050 has been boosted.

 

The same can be said for the Dow Jones index, which mirrors in many ways the SP 500. Here too, the congruency provides us with some confirmation of the move and we would project a test of the 9700 level provided that the chart remains proportional to past price action.

 

The Nasdaq index is by far the weakest of the three having fallen by a much greater percentage in July and the first part of August. The rally from the August lows has amounted to approximately 57%, which corresponds nicely to the expected maximum of a 60% retracement. The resumption of this downward trend could result in a test of the support near 1640.

 

New Buy Recommendations:

 

Petro-Canada (PCZ #) – The Canadian government announced plans to sell the portion of shares held by the government a week ago Friday. In heavy trading this past Friday, price was up modestly however volume traded was massive and with the renewed interest in oil and gas shares, there is strong likelihood that upward pressure on the share price of PCZ will result.

 

New Short Sales 

 

None.

 

Stock Positions to Sell/Exit:

 

Southern Company (SO) – This electricity producer has fallen below its upward trending channel line that has supported the share price since May. While the downside may be limited, we feel that its an unnecessary risk at this point.

 

Portfolio Comments:

 

GSS – Gold stocks should benefit from a renewed look at shorting the US dollar as encouraged by the Fed President Yellen. As the price of gold rises, small cap producers with low current profit margins such as cash-rich GSS benefit as profit potential grows exponentially.

 

WBSN – During the last cyclical descent in the Nasdaq market during the month of July, Websense experienced a sell-off in its shares, which caused the price to tumble more than 20%. Considering that we had just added this to our list of recommended shares, we see no reason to risk this magnitude of loss.

 

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

26.82

 

H

08/23/04

AES

AES

10.23

10.25

 

H

09/20/04

Air T Inc

AIRT

15.48

21.76

 

B

04/08/04

Golden Star Res.

GSS #

6.88

4.87

 

H

06/28/04

Microsoft

MSFT

28.60

27.29

 

H

08/09/04

Pan Amer Silver

PAAS #

13.40

15.94

 

H

08/09/04

Southern Co.

SO

29.83

29.85

 

SELL

08/16/04

Suncor

SU #

28.50

30.39

 

B

03/08/04

Transcanada Corp

TRP #

21.34

22.13

19.00

B

09/20/04

Ulticom

ULCM

13.24

13.61

 

H

09/20/04

Vintage Petroleum

VPI

18.44

20.32

 

B+

09/20/04

Websense

WBSN

42.48

40.92

39.75

H

09/20/04

Wesco Int’l

WCC

22.73

22.63

 

H

09/20/04

Witness Systems

WITS

16.42

15.52

 

H

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price