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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
Equity markets were embroiled in a battle for the exits this week as large scale selling replaced the indecisiveness that had been in force. As a reality check, this selling had been largely in control of the Nasdaq index since the beginning of the year and it was only due to heavy, lopsided gains by the oil and oil service sectors that had ensured positive moves on the DJ and SP until early March.
Now with the oil sector reacting to lower petroleum prices one might consider the prospect of renewed buy interest in equities, however the reality is that the damage has already been wrought. Barely positive retail sales crystallize an important aspect of the economy – significantly higher oil prices are a detriment to discretionary income and decrease consumer spending on other items. To be certain, the fall in the price of oil will most certainly be longer and go further than analysts expect for that is what financial markets do. They overshoot. Just as the price of oil inflated to illogical levels beyond reason taking into consideration the expanding inventories, the price shall fall far out of whack with reality to another extreme.
Currently on world markets, the price of crude is toying with the $50 per barrel price level, a key support level as previous highs in January enforced this notion. It certainly doesn’t hurt that $50 is a round figure, which has its own peculiar support/resistance capabilities. Once price is comfortably below $50 per barrel, the price will most likely drop to $46 before taking a breather. Weekly data on crude oil inventories will affect how it moves from the $46 per barrel level.
The key element to remember though is that consumers have already been affected by the price increase and the hit to discretionary income has been felt. Regardless of the extent of the immediate drop in the price of oil, the consumer will not suddenly start a new spending spree. Furthermore, once the oil price effect is subtracted from equity charts, one perceives that charts have been pricing in a possible economic slowdown since the beginning of the year and with the action this week, evidently equities have become unequivocal in their view.
In situations such as this, prudence is the better part of courage and we accord greater value to the sidelines. Aside from any short sells, it pays to remember the old adage that “Cash is King”.
Technically Speaking
The severity of the drop in equities is most significant for it affirms the meandering fall in value since the beginning of the year reinforcing the idea that we are on the brink of a recession. While the fall in the price of oil will benefit the economy, it will only serve to cushion the blow from falling equity prices.
All indexes reached new lows for 2005 on Friday with SP joining DJ and ND below its 200-day moving average. Perhaps more importantly, these three indexes have now dropped below their respective channels that had guided price from the lows of 2003.
Interestingly, there are a number of
similarities between the DJ chart today and its chart on
New Buy Recommendations:
None.
New Short Sales
None. We would be interested in selling Flextronics but consider the risk of selling into a pit too great at this level. Better to wait until a minor retracement of these losses occurs before proceeding with this short sale. In all timeframes – monthly, weekly and daily – this stock clearly has more room to move on the downside.
Stock Positions to Sell/Exit:
Amgen (AMGN) – Coincident with the gains made in biotech and pharmaceuticals, Amgen will most likely probe higher prices and has further upside potential. Accordingly, we feel it’s prudent at this point to cover our position.
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
[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 |
|
|
Air T Inc |
AIRT |
17.63 |
14.32 |
13.64 |
H |
|
|
Applix |
APLX |
7.01 |
5.22 |
5.00 |
H |
|
|
Intellisync |
SYNC |
3.37 |
2.89 |
2.89 |
SOLD |
|
|
Paincare Holdings |
PRZ |
4.69 |
4.64 |
4.25 |
H
|
|
|
Transcanada Corp |
TRP |
21.34 |
23.97 |
23.25 |
H |
|
Date of Entry |
Name |
Symbol |
Entry Price |
Current Price |
Stop |
Action Rating |
|
|
Amgen |
AMGN |
57.14 |
59.95 |
|
COVER |
|
|
Cisco |
CSCO |
17.66 |
17.20 |
|
S |
|
|
Ebay |
EBAY |
36.85 |
31.97 |
|
S
|
|
|
General Motors |
GM |
29.95 |
25.60 |
|
S
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price