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Stockscom Report for Sunday Oct 3 2004

Publisher: Colin Alexander     Editor: Ken Wilson

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

 

 

 

Market Synopsis

 

There were two items of interest in the news this week. The first was oil reaching the $50 per barrel plateau this week, which in itself should give one pause to think. A sustained oil price near $50 would be a severe impediment to further global recovery and yet most analysts consider it an anomaly not to be taken seriously, as if it will most certainly fall in price tomorrow. Granted, the price of oil could tumble significantly from these unusually high price levels, however with most oil in the world located in the powder keg that is the Middle East, there is no reason to feel comfortable. Too, promises to increase production by the Saudis have been mostly talk and no visible action. And why should there be? Saudi Arabia, despite what they say, has limited capacity to increase production above current levels, which are already elevated due to previous efforts at pumping increased volumes at the margin.

 

With the election only weeks away now, we should expect to see further supply disruptions in oil production as a means by terrorists to draw attention to the control of these fields and possibly to ensure that George Bush wins. A Bush victory could be more desirable to the terrorists by focusing attention on the Americans, Bush in particular, to ensure a constant stream of new followers, an important need when one is dealing with suicide bomb explosions.

 

The other item of interest was the withdrawal of Vioxx, the Merck-Frost drug, removed from pharmacy shelves on fears of heightened risk of cardiac arrest or stroke associated to longer term use. The consequent nosedive in share prices of Merck makes for a good examination if technical indicators either predict or at least prevent shareholders from the extreme loss in value.

 

Throughout 2004, Merck (MRK) was tilted slightly down or, at best, consolidating previous years’ losses. Looking back for a moment, we see that on the monthly chart, MRK hit its high late in the year 2000 from which it proceeded to lose almost half of its value by the middle of 2002. A retracement in 2003 provided a boost of about 30%, but by the end of that year and into 2004, the stock had once more eased in value.

 

Its 2004 peak occurred in February and while its low reached in March didn’t exceed the previous low occurring in the fourth quarter of 2003, neither did its subsequent high in June exceed the high set earlier in the year. Here it could best be described as a pennant formation and these formations usually resolve themselves in the longer-term direction already prevalent.

 

Investors however, had an additional small warning of problems when the low of August was followed by still a smaller peak later that month and a return to the low of August in September. The weakness in this stock at that moment, while not overtly bearish, was certainly one which would be avoided by anyone following technical analysis. There was simply no technical reason to be long this share.

 

Technically speaking

 

Friday’s move in the markets altered much of the assumptions of market direction. The climb in the Nasdaq topping the previous high for September was both notable and fierce suggesting that the autumn base occurred a little early this year. Still the downward channel’s upper boundary resides just north of 2000 and this resistance must be taken out before we can state with certainty that the bear cycle has finished. In the broader markets, the SP has already arrived at a similar juncture and the June high of 1144 is extremely close at hand. Thanks to MRK, the DJ is behind in reaching the similar mark.

 

New Buy Recommendations:

 

Amedisys (AMED) – this health care company has been consolidating since April of this year and though there was one false start in June, it appears likely now that Friday’s move was the signal that a breakout to new heights is imminent.

 

Hurco Co. (HURC) – after spending the last four months retracing the year’s gain, this stock has begun once more to break out and while we are hesitant about recommending it given the move already made, the momentum is extremely strong and should carry it to a worthwhile new level.

 

Palomar Medical Tech (PMTI) – this stock spent much of 2004 consolidating its gain from 2003 and a move upward in early September indicated the start of a new level. For the last month it consolidated that push higher and Friday, it served notice that it would be moving higher.

 

New Short Sales 

 

None.

 

Stock Positions to Sell/Exit:

 

WBSN was sold at the stop this week.

 

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.

 

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

27.25

 

H

08/23/04

AES

AES

10.23

10.15

9.50

H

09/20/04

Air T Inc

AIRT

15.48

23.34

 

B

04/08/04

Golden Star Res.

GSS #

6.88

5.37

 

H

06/28/04

Microsoft

MSFT

28.60

28.25

 

B

08/09/04

Pan Amer Silver

PAAS #

13.40

16.88

 

B

09/27/04

Petro-Canada

PCZ #

50.90

52.16

 

B

08/09/04

Southern Co.

SO

29.83

29.76

 

SOLD

08/16/04

Suncor

SU #

28.50

32.73

 

B+

03/08/04

Transcanada Corp

TRP #

21.34

22.18

19.00

B

09/20/04

Ulticom

ULCM

13.24

15.08

 

B+

09/20/04

Vintage Petroleum

VPI

18.44

20.50

 

B+

09/20/04

Websense

WBSN

42.48

39.75

39.75

SOLD

09/20/04

Wesco Int’l

WCC

22.73

24.20

 

H

09/20/04

Witness Systems

WITS

16.42

16.96

 

B+

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price