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Stockscom Report for Sunday Nov 14 2004
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
Despite the extremely overbought stochastics evident on the daily charts, the three major stock indexes prolonged their collective rally reaching a new 2004 high in the case of the S&P 500 while engaged in a concerted effort in the case of both the Dow Jones Industrials and the Nasdaq Composite. Each of the latter two indexes is now within striking distance of new 2004 highs with the DJ a little greater than 200 points lower and the Nasdaq just 70 points away. The close proximity to the new highs coupled with strong chart moves higher virtually assures equity traders of success in reaching these goals.
But this very bullish action in stocks hides the true face of the current stock market environment. In fact, we are seeing the development of two extremes; one is a group of equities that are surpassing quarterly expectations while the other does the opposite and misses anticipated numbers. Looking at charts, the most notable example of this action is a comparison of the Nasdaq Composite and the Nasdaq 100. The ND 100 index rests just one single point below its 2004 high and is in a strong position to accomplish this feat immediately once the markets open on Monday. Of course, the aforementioned ND Composite remains 70 points or 3.4% below its new high. The Nasdaq 100 comprises the 100 largest companies traded on Nasdaq therefore we have a significant amount of catching up required on the part of lesser cousins, but this is being made more difficult by the performances of some shares, which have been punished for lower earnings.
This situation leaves us with two questions. The first being how far the rally can go. And the second is how does this rally happen if economic indications have been mediocre at best for the past several months.
To answer the first, we refer to the charts, searching for possible resistance points. On the Nasdaq Composite, the nearest resistance is located at the 2320 level representing the mid-year high from 2001. Similarly, the DJ mid-year high for 2001 was 11350.
As for the second, the stock market predicts future earnings and often it is predicting improvements in financial performance even as economic deterioration is being reported. This relates to a timing issue whereas the economic indicators are often one or two months in arrears while the stock price should ideally represent a future value and stock indexes generally predict where the economy will be in six months.
Continued improvement in the economy and the stock market performance will hinge largely on two factors, the price of oil and the Federal Reserve’s effort to normalize interest rates. In brief, the price of oil acts as a tax on consumer spending displacing money away from discretionary spending to non-discretionary to fulfill our energy needs. And if the Federal Reserve continues to raise interest rates, the stock market’s performance over the longer term is threatened since a rising interest rate environment equates to a weaker equity market when studied over longer periods such as those one would find on a monthly chart.
New Buy Recommendations:
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
None.
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 |
12.14 |
9.50 |
H |
|
09/20/04 |
Air T Inc |
AIRT |
15.48 |
29.60 |
26.60 |
H |
|
10/04/04 |
Amedisys |
AMED |
32.00 |
34.20 |
|
H |
|
11/08/04 |
Cryptologic |
CRYP # |
18.58 |
20.50 |
|
B+ |
|
11/08/04 |
F5 Networks |
FFIV |
42.38 |
42.61 |
|
B |
|
10/04/04 |
Hurco Companies |
HURC |
15.23 |
13.57 |
|
SOLD |
|
11/08/04 |
Ipsco |
IPS # |
31.69 |
32.87 |
|
B |
|
11/08/04 |
MFRI Inc |
MFRI |
7.41 |
7.60 |
|
B |
|
08/09/04 |
Pan Amer Silver |
PAAS # |
13.40 |
18.42 |
|
B+ |
|
09/27/04 |
Petro-Canada |
PCZ # |
50.90 |
54.88 |
|
B |
|
11/05/04 |
Placer Dome |
PDG # |
22.12 |
22.30 |
|
B |
|
11/08/04 |
Potash Corp |
POT # |
73.85 |
72.92 |
|
B+ |
|
08/16/04 |
Suncor |
SU # |
28.50 |
33.53 |
|
B |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
23.33 |
19.00 |
B |
|
09/20/04 |
Ulticom |
ULCM |
13.24 |
18.99 |
|
B |
|
09/20/04 |
Vintage Petroleum |
VPI |
18.44 |
21.13 |
|
B |
|
09/20/04 |
Witness Systems |
WITS |
16.42 |
15.30 |
|
SOLD |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price