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Stockscom Report for Sunday Oct 31 2004
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
The three E’s – earnings, election and the price of energy remain the drivers of this current market with the election drawing arguably the most importance as we reached the week’s end. Most polls have the two candidates running virtually neck and neck in a repeat of the tight race four years ago. What concerns the market most though is the possibility of repeating the obtuse, divisive process of determining a winner through court battles waged on inane subjects such as the quality of marked ballots. Stock markets despise uncertainty as much as the general public therefore a clear choice, free of arguments, is the preferred avenue for investors.
With this election upon us, it is an instructive exercise to study how past elections have affected the stock market. We took the elections from 1948 onward and evaluated whether a gain or loss resulted in the twelve months that followed the election. (In all these calculations, we used the mid-November period as the beginning of one period and the end of the last). The Dow Jones index is the only one of the three to be represented for all of the pertaining years. The S&P 500 has data from the 1964 election until the present day and the Nasdaq includes data from 1992. All of the markets agreed on direction for each of the periods studied and the only difference was the percentage of the move.
The one characteristic immediately noticeable was that there are 4-election cycles or, in other words, there is a pattern of four election years that follow one direction then a change for four election years in the opposite direction. In fact on the Dow Jones, this relationship exists for every election since World War II except for the election in 1956. The most recent cycle has seen positive annual moves on the stock markets in years: 1984, 1988, 1992, and 1996 with the first negative annual move in the year 2000. Were this relationship to continue, the elections in 2004, 2008, and 2012 would have negative stock markets results one year after each of these elections.
Finally, it is worthwhile noting that the there have been only two periods of four years where the Dow Jones finished at a lower level for the entire term of the President. The first was for the Jimmy Carter presidency of 1976-1980 and the second was the most current term, that for George W. Bush. There is probably no need to remind readers that Jimmy Carter was a one-term president who failed in his attempt at re-election.
The indexes reversed their losses of the previous week with some above average gains in the week just completed. The DJ remains the weakest of the three majors as it recovers from its recent losses while the SP and Nasdaq have rebounded to points within striking distance of significant resistance. In the case of the SP, the current level of 1130, lies less than 2% from the strong resistance of 1150, which is the level reached in April of 2004. Similarly, the ND Composite is approximately 25 points from the 2000 level, which is not only near the upper boundary of the declining channel, being a round number, these often act as natural points of resistance/support.
The election uncertainty will most likely limit the market’s advances in the coming days. The largest risk to this assessment is the possibility of a clear victor, which if declared might cause some initial euphoria leading to a break in resistance.
New Buy Recommendations:
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
None.
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 |
|
08/23/04 |
AES |
AES |
10.23 |
10.90 |
9.50 |
H |
|
09/20/04 |
Air T Inc |
AIRT |
15.48 |
28.13 |
25.50 |
H |
|
10/04/04 |
Amedisys |
AMED |
32.00 |
30.23 |
|
H |
|
04/08/04 |
Golden Star Res. |
GSS # |
6.88 |
5.30 |
|
H |
|
10/04/04 |
Hurco Companies |
HURC |
15.23 |
14.33 |
|
H |
|
06/28/04 |
Microsoft |
MSFT |
28.60 |
27.68 |
|
SOLD
|
|
10/04/04 |
Palomar Medical |
PMTI |
25.88 |
20.49 |
|
H |
|
08/09/04 |
Pan Amer Silver |
PAAS # |
13.40 |
16.87 |
|
B |
|
09/27/04 |
Petro-Canada |
PCZ # |
50.90 |
54.49 |
|
B |
|
08/16/04 |
Suncor |
SU # |
28.50 |
34.10 |
|
B |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
22.63 |
19.00 |
B |
|
09/20/04 |
Ulticom |
ULCM |
13.24 |
17.19 |
|
B |
|
09/20/04 |
Vintage Petroleum |
VPI |
18.44 |
21.00 |
|
B |
|
09/20/04 |
Witness Systems |
WITS |
16.42 |
15.56 |
|
H |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price