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Stockscom Report for Monday Feb 21 2005
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
Federal Reserve Chairman Alan Greenspan’s testimony over two days this week was the definitive highlight of the week. Sitting before the Senate Banking Committee on Wednesday and the House Financial Services Committee on Thursday, he outlined in a prepared script how the US economy was copasetic and growing steadily, inflation was under control and job growth, although slow, was recovering nicely thank you. The more interesting points occurred during the question period afterwards.
When asked about the Bush Administration’s private accounts initiative for social security, he expressed mild caution for an effort such as this would entail borrowing in the trillions of dollars in order to properly set up. With the federal government’s inability to control spending seen so many times through the past four years and the on-going fiscal imbalance, Greenspan left little doubt that the lack of financial discipline combined with the massive borrowing required would be the key hurdles to overcome.
He also felt concerned about the twin pillars of American mortgages, Fannie Mae and Freddie Mac. The bloated mortgage entities have grown exponentially from around $475 billion in mortgages in 1997 to almost $1,600 billion by the end of last year. Greenspan emphasized that the total financial system was at risk unless some tighter controls were applied to them. Already the agencies’ main regulator ordered Fannie Mae to increase its reserve of capital by 30% when it was judged to be inadequate and now Greenspan recommended that a steady divestiture be started in order to prevent a dangerous financial collapse.
Lastly, he raised several eyebrows when he called the drop in long-term yields a “conundrum”. While the Fed has gone about its business of normalizing interest rates to bring real rates above 0% and to lift the accommodative stance of monetary policy, the short-term rate increases have had no positive effect on long-term rates. In fact, the opposite has been true and long-term rates have fallen significantly, squeezing rates and setting the stage for an inverted rate environment, which signals a coming recession. When the person most responsible for setting monetary policy in the country professes not to know and sees the interest rate squeeze as a conundrum, we are concerned.
The interest rate squeeze was a mere memory though by the end of the week as PPI figures were released on Friday morning. An increase of 0.8% in the core rate had analysts debating whether much higher inflation was on our doorstep. To be sure, the PPI measurement is a volatile figure from month to month and doesn’t reflect the CPI in most cases. If inflation is seen in the CPI numbers due to be released on Wednesday morning, then conceivably, we’ll see long-term interest rates start a more significant climb.
Technically Speaking
There’s been a certain recovery in the markets since the initial tumble marked the beginning of 2005. While the DJ-30 and the S&P 500 have staged strong rebounds in attempting a return to the highs which were reached on Dec 27 and Jan 3 respectively, the Nasdaq Composite has remained well below its high from Jan 3 lacking the strength to even come close.
Now however, all these markets have a common trait though and that is the double top on the DJ and SP equating more or less to the resistance at the 2100 level on the ND. Friday’s feeble gain on the DJ was matched by the SP but not by the tech sector, which once again recorded a down day. And with earnings season largely behind us, there is very little to keep stock prices afloat in a broad sense, which will only serve to reinforce these resistance levels.
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 |
|
01/31/05 |
Air T Inc |
AIRT |
17.63 |
18.85 |
|
B |
|
02/08/05 |
Applix |
APLX |
7.01 |
7.96 |
|
B |
|
02/08/05 |
Ascential Software |
ASCL |
16.00 |
15.51 |
|
H |
|
01/24/05 |
Checkfree Corp |
CKFR |
38.43 |
38.74 |
|
B |
|
01/24/05 |
Cleveland-Cliffs |
CLF |
60.41 |
67.95 |
|
B |
|
01/24/05 |
Cryptologic |
CRYP # |
23.67 |
27.78 |
|
B+ |
|
01/24/05 |
Encana |
ECA # |
57.40 |
63.50 |
|
B |
|
01/10/05 |
Immucor |
BLUD |
26.59 |
29.89 |
|
B |
|
02/14/05 |
Ipsco |
IPS # |
51.33 |
48.34 |
|
H |
|
01/10/05 |
Keryx Biopharm |
KERX |
15.09 |
12.89 |
12.15 |
H |
|
01/31/05 |
Massey Energy |
MEE |
37.00 |
42.49 |
|
B |
|
02/14/05 |
Meridian Gold |
MDG # |
20.12 |
19.87 |
|
H |
|
03/08/04 |
Transcanada Corp |
TRP # |
21.34 |
24.97 |
23.25 |
H |
|
01/24/05 |
Trident Microsys. |
TRID |
18.05 |
17.49 |
16.85 |
H |
|
02/14/05 |
Western Silver Crp |
WTZ # |
10.50 |
10.70 |
|
H |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price