Click here to go to the Stockscom website
Stockscom Report for Sunday Nov 7 2004
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
Politics and economics are forever intertwined and nowhere was that more evident than in the US this week. While the media pundits licked their wounds from the shock of seeing George Bush re-elected, Wall Street traders were positively giddy for not only did their man get elected, he handily won the popular vote and thus ensured them that there would not be a repeat of 2000’s election controversy with the consequent month of political wrangling. The euphoria of a re-elected President Bush translated into a week where the predominant action for traders was buying. The election results stoked the fires of an equity rally, the likes of which we haven’t seen in quite awhile. By the end of the week, the S&P 500 had reached a new high for 2004 and both the Nasdaq Composite and the Dow Jones had managed to break out of their respective downward moving channels.
Friday morning gave traders their second gift of the week with the release of the October employment report. While expectations had been for an increase of 195K jobs during the month, the BLS reported that 337K jobs had been created and as an added bonus, they revised the August and September numbers higher. As a caveat, it is worth noting that analysts have commented that 100K-150K of these jobs in October were related to work necessitated by the four hurricanes that hit Florida.
The only downside to the week was the nasty turn down that the dollar took and it was especially remarkable on Friday. Normally whenever there is a good employment report showing robust job growth, the US dollar gains strength and easily has the upper hand against currencies such as the euro, the yen or the British pound. But it wasn’t the case on Friday. Currency traders reacted normally to the good news by buying up dollars but suddenly the buying aborted and the dollar sold off. At the end of the day, the US dollar had completed an outside reversal to the downside exacerbating the weakness that had been evident for the past couple of weeks.
We are of the opinion that a problem isn’t a problem until it is a problem and this rule applies to the twin deficits: that of the federal budget and the other pertaining to the current account. The unsustainable rise in government spending and the increasing gap between imports and exports has meant that a massive amount of investment has needed to be imported from abroad to finance this imbalance. Heretofore, foreign investors could be counted on to purchase US assets namely treasuries, at least until 2004 when foreign governments accepted the role of purchaser once the foreign investors balked at buying anymore. Without the need to raise interest rates owing to the foreigners’ enthusiasm for buying these assets, this insidious situation festered on and the problem has consequently remained on the back burner. Until now. The weakness in the US dollar has sent out a warning shot that the problem of the twin deficits is looming large and foreigners are losing patience with an American government unwilling to address this imbalance.
In specific terms, we are seeing the beneficiaries of a lower US dollar gravitate higher and this includes precious metals stocks. Gold and silver shares are strong and will remain forceful for as long as the dollar remains weak. Investors are concerned that with a lower dollar, the value of their assets will deteriorate rapidly and use the gold and silver shares as hedges against losses in portfolio values. With a new futures contract high in gold, resistance to higher prices has melted away and we could be on the cusp of a major new thrust in the price of gold.
As mentioned already, there were buy signals on all three major markets and especially in the SP, which reached a new high for 2004. Despite the non-confirmation of that move in the ND and the DJ, these two markets did accomplish an important feat in breaking out of their respective descending channels and telegraphed their propensity to rise further. We use the occasion to add to our recommendations and remove those with lackluster performances.
New Buy Recommendations:
Cryptologic Inc (CRYP #) – this company provides software and infrastructure for online poker, one of the fastest growing entertainment sectors on the internet today. They are quickly gaining market share and profits are growing exponentially. Friday saw them reporting their latest quarterly results boosting their stock more than 10%.
F5 Networks (FFIV) – this provider of network systems and equipment released their quarterly results at the end of October and likewise saw a large gap up in their share price with expectations of another blow out quarter to come. On Friday, the stock hit a new higher for 2004.
Ipsco (IPS #) – steel producers have been very profitable in 2004 but perhaps this one has been lost in the shuffle for it still trades at slightly above one times book value while a company such as Nucor trades at closer to three times book value. Several gaps higher over the past few days tell us that this company is starting to attract much deserved attention.
MFRI Inc. (MFRI) – this company produces industrial pollution control devices and is perhaps more speculative inasmuch as it carries a small float. The price though has doubled since early September and on Friday, it reached a new high for the year with a big gain.
Potash Corp (POT #) – this is the world’s largest producer of potash and with large scale agriculture requiring an increasing amount of fertilizers in order to sustain high yields, this company benefits directly. The gap up and new high on Friday is testament to its steady strength.
New Short Sales
None.
Stock Positions to Sell/Exit:
Hurco Companies (HURC)
Witness Systems (WITS)
We wish to sell our positions in these slow performing stocks in order to capitalize further on the stocks we have plus those that we have recommended this week.
Portfolio Comments:
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 |
11.34 |
9.50 |
H |
|
09/20/04 |
Air T Inc |
AIRT |
15.48 |
30.17 |
26.60 |
H |
|
10/04/04 |
Amedisys |
AMED |
32.00 |
34.27 |
|
H |
|
04/08/04 |
Golden Star Res. |
GSS # |
6.88 |
4.45 |
|
SOLD |
|
10/04/04 |
Hurco Companies |
HURC |
15.23 |
13.88 |
12.00 |
SELL |
|
10/04/04 |
Palomar Medical |
PMTI |
25.88 |
18.00 |
18.00 |
SOLD |
|
08/09/04 |
Pan Amer Silver |
PAAS # |
13.40 |
17.85 |
|
B+ |
|
09/27/04 |
Petro-Canada |
PCZ # |
50.90 |
53.10 |
|
B |
|
11/05/04 |
Placer Dome |
PDG # |
22.12 |
23.26 |
|
B+ |
|
08/16/04 |
Suncor |
SU # |
28.50 |
33.80 |
|
B |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
22.78 |
19.00 |
B |
|
09/20/04 |
Ulticom |
ULCM |
13.24 |
17.26 |
|
B |
|
09/20/04 |
Vintage Petroleum |
VPI |
18.44 |
20.36 |
|
B |
|
09/20/04 |
Witness Systems |
WITS |
16.42 |
15.24 |
|
SELL |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price