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Stockscom Report for Sunday Jan 9 2005

Publisher: Colin Alexander Editor: Ken Wilson

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

• Equities under further risk of sliding

Market Synopsis

The Dec employment report was not nearly as bullish as economists had predicted with a gain of only 157K new jobs which compares well to November’s now revised number of 137K but pales in comparison to the job creation that took place in the first five months of the year or even as recent as October when 312K jobs were created. Expectations had been for 175K new jobs in December. But the key factor often lost in these numbers recklessly tossed around, is that the economy requires 125K new jobs per month just to absorb new entrants into the workforce.

This anemic job growth coupled with wage inflation of two cents or 0.01% for the month and 2.7% for the year fails to keep pace with annual inflation of 3.5% and certainly puts into doubt the ability of the consumer to sustain growth in consumer expenditures. Though resilient, the American consumer has whittled away the savings portion of his/her pay to the recent historical lows of 0.2% (October 2004) while relying on a host of other schemes in order to continue spending over the past four years. Once the stock market bubble burst in 2000, profligate consumers turned to debt accumulation in the form of refinancing mortgages at lower rates, exercising their option to cash in some of the equity valued in their real estate; itself a bubble resulting from the extremely low rates orchestrated by the Federal Reserve in a defensive measure to combat deflation. Some may disagree with the reference to the real estate bubble but even the Fed this week (finally!) acknowledged that there are anecdotal reports of speculation in residential property.

Perhaps the most notable news this week was not the jobs figures but rather the release of the Federal Reserve policy meeting held three weeks ago. The apparent lively discussion amongst Fed governors about inflation demonstrates clearly that their concerns are tilted toward a defensive posture against inflation now and no longer deflation. For the past few months, the Fed has seen fit to raise the overnight rate from 1% to 2.25% and little reaction has been seen in the long-term rates. This may change now as the Fed is signaling that there should be higher long rates and the flattening of the yield curve should cease.

Increasing long rates could go a long way to returning some sensibility in consumer savings. If a consumer recognizes that the interest paid on an interest-bearing security is valuable, there is more of an incentive to save certain funds. Low interest rates only serve to entice consumers to spend more, usually adding to an already heavy debt burden, and potentially advancing purchases. And consumer savings weren’t always as depressed as they are now. In the 70’s and early 80’s, savings rates were often in the neighborhood of 9-11%.

Technically Speaking

The first week of the new year was marked by a significant and sudden change in direction for the major indexes. For the first time since August, the direction has for the moment turned down. Obviously this retracement could be the start of something large, a likely feature given the length of the upward movement, or it could be a small correction. We consider that the odds and the risk factors are in favor of a sharp slide in equity values.

At midweek we alerted subscribers to this potential and assigned stop losses, many of which were hit in the final two sessions of the week. As such we are almost flat into cash having taken our profits when it appeared to be the most logical action.

By Friday’s close some of our recommendations were rebounding but given the latest change in investment climate, we would not be recommending that long positions be re-instated in them as yet.

New Buy Recommendations:

Keryx Biopharmaceuticals (KERX) – this is the first of two recommendations this week which when viewed under the present conditions, may seem unusual. However this recommendation and the other have exceptionally bullish charts notwithstanding this week’s action. Keryx is developing drugs to treat a kidney disease affecting millions of diabetics and with its latest very promising results, has begun the planning stages for Phases III and IV, which should start in the next few weeks.

Immucor (BLUD) – this company’s shares rallied on Friday upon the release of its quarterly earnings and its improved outlook for 2005. Share price has steadily risen on this stock especially since late April and with price increases on their products expected this month, it has the potential to exceed even the company’s outlook.

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	12.75	12.75	SOLD
12/20/04	Avaya	AV	17.73	16.75	16.75	SOLD
11/08/04	Cryptologic	CRYP #	18.58	22.75	22.00	H
12/13/04	Electronic Arts	ERTS	55.77	58.75	58.75	SOLD
11/19/04	Essex Corp	KEYW	17.69	16.60	16.70	SOLD
11/08/04	F5 Networks	FFIV	42.38	44.50	44.50	SOLD
01/03/05	Immunogen	IMGN	8.96	8.04	7.70	H
11/08/04	Ipsco	IPS #	31.69	45.50	45.50	SOLD
11/08/04	MFRI Inc	MFRI	7.41	8.50	8.50	SOLD
01/03/05	Mikron Infrared	MIKR	13.29	9.75	9.75	SOLD
08/09/04	Pan Amer Silver	PAAS #	13.40	15.00	15.00	SOLD
09/27/04	Petro-Canada	PCZ #	50.90	49.00	49.00	SOLD
11/05/04	Placer Dome	PDG #	22.12	18.00	18.00	SOLD
11/08/04	Potash Corp	POT #	73.85	77.80	77.80	SOLD
08/16/04	Suncor	SU #	28.50	32.50	32.50	SOLD
03/08/04	Transcanada Corp	TRP #	21.34	24.55	23.25	H
09/20/04	Vintage Petroleum	VPI	18.44	20.85	20.85	SOLD

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price