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Stockscom Report for Sunday Mar 6 2005
Publisher: Colin Alexander Editor: Ken Wilson
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
Market Synopsis
In a continuation of the inflation discussion from last week, the latest installment on this issue was released Monday earlier this week. The core personal consumption expenditure (PCE) price index was higher in January by 0.3%, which on the surface may seem small, but this is the largest monthly gain since October 2001. Moreover, the PCE price index is known to be a favorite of Alan Greenspan in his efforts to detect inflation trends and as such we can expect that his bias certainly leans toward greater inflation now. When the Federal Reserve meets on March 22 to decide once more on overnight interest rates, we can be sure that there will be an increase of at least one-quarter percent.
Naturally, the other important news was the apparent recovery in jobs as evidenced by the employment figures for February released on Friday morning. The mildly bullish report showed an increase of 262K jobs in the month, a figure that was in the upper half of an estimated range of 150-300K jobs. Still the report disappointed as many people as it inspired since it wasn’t the extraordinary performance that some expected.
The employment report is divided into two parts: the Household survey and the Establishment survey. The Household survey, which as the name suggests, is a survey of households to determine how many people are employed, how many are looking for work and how many are not. The Establishment survey on the other hand, relies on a sampling of businesses for data on the changes in their particular employment situations to establish the number of jobs gained or lost during the month. Perhaps the most important aspect of the employment report is that while the Establishment survey’s final jobs number gets the headlines, there are many on the analytical side who perceive the Household survey as a much more accurate description of the actual jobs environment and this despite a smaller sample size.
One of the key factors contributing to the disappointment was the increase in the unemployment rate from 5.2% to 5.4% in the Household survey. Despite the optimistic numbers represented by the headline jobs figure, the ranks of the unemployed swelled by 251K in the last month due to a combination of greater numbers in the labor force and a drop in the number employed.
Bond traders found something to like in this report as well. What they noticed was that average hourly earnings was unchanged and the number of hours worked in a week remained at 33.7 hours. (There are many analysts who question the validity of the number of hours worked as calculated in this report. In general, it would seem to be quite a stretch for one to believe that the average worker worked only 33.7 hours per week in today’s work environment.) With earnings unchanged, inflation in wages measured just 2.5% for the last twelve months whereas the consumer price index increased 3.0% - a loss of earnings power indeed!
Technically Speaking
Upon the release of the jobs figures on Friday, the equities markets were buoyed by the prospect of healthy job growth and the concomitant health in consumerism. Both the DJ-30 and the S&P 500 rose to new highs both for 2005 and the overall bull market rally that has been in control since the final quarter of 2002. By the end of Friday’s trading, both indexes had reached levels not seen since 2001.
But perhaps the most important aspect of trading on Friday was not those new highs but rather the new highs reached by both the DJ Industrials and the DJ Transports. According to Dow Theory, a new high on the DJ-Ind confirmed by a new high on the DJ-Trpt, is a buy signal for the aforementioned markets. On Friday, both of these market indexes hit new highs thus triggering the buy signal.
The tech sector and the Nasdaq market meanwhile remain mired in a slump dating back to the beginning of 2005. By the end of trading on Friday however, ND’s price level had clawed back over the 25 and 40-day moving averages but was stuck underneath the 50-day MA and appeared to be on the verge of another leg downward. While the buy signal for the DJ is a good reliable signal, it seems questionable given the overall status of the tech sector.
New Buy Recommendations:
Ngas Resources (NGAS) – This chart appears strong from all angles whether one looks at it in terms of monthly, weekly or daily. On Friday, the stock jumped 17% and is poised to continue this trend. Fundamentally, with proven reserves doubling from 2003 to 2004, there is ample reason to like the company. Granted, the price may be extended on the daily chart given the previous day’s trading however, all indications are that this can go much further.
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.
Please take note that the following clause is being removed
under the assumption that the aforementioned federal budget in Canada will be
accepted into law. From the budget date forward, there are no longer
restrictions on foreign stocks held in Canadian retirement accounts.
Furthermore we will no longer mark stocks with # to indicate such.
[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 |
16.25 |
|
H |
|
02/08/05 |
Applix |
APLX |
7.01 |
8.80 |
|
B |
|
02/08/05 |
Ascential Software |
ASCL |
16.00 |
15.85 |
|
H |
|
01/24/05 |
Checkfree Corp |
CKFR |
38.43 |
40.79 |
|
H |
|
01/24/05 |
Cleveland-Cliffs |
CLF |
60.41 |
86.19 |
|
B |
|
01/24/05 |
Cryptologic |
CRYP |
23.67 |
32.63 |
|
B |
|
01/24/05 |
Encana |
ECA |
57.40 |
71.14 |
|
B |
|
01/10/05 |
Immucor |
BLUD |
26.59 |
30.89 |
|
B |
|
02/14/05 |
Ipsco |
IPS |
51.33 |
57.46 |
|
B |
|
01/31/05 |
Massey Energy |
MEE |
37.00 |
45.90 |
|
B |
|
02/14/05 |
Meridian Gold |
MDG |
20.12 |
18.63 |
|
H |
|
02/28/05 |
Perficient Inc. |
PRFT |
8.74 |
9.06 |
|
B |
|
03/08/04 |
Transcanada Corp |
TRP |
21.34 |
24.88 |
23.25 |
B |
|
01/24/05 |
Trident Microsys. |
TRID |
18.05 |
18.64 |
16.85 |
H |
|
02/14/05 |
Western Silver Crp |
WTZ |
10.50 |
10.65 |
|
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price