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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
A cloud of confusion seems to prevail over Wall Street amidst conflicting signals on the economy, but it often pays to observe the economic environment from the hinterland, to step away, figuratively, from the crowds in order to get a better look. And what we are seeing is an ill economy that will need some time to heal.
Despite the generally good quarterly results where more than half of reporting corporations announced better than expected results this week, the key numbers were not the corporate profit margins, but rather they included consumer inflation, which clocked in at a hair-raising 0.4%, the leading economic indicators (LEI), which fell 0.4% in March and is designed to forecast conditions six to nine months hence, and the ever-present high energy prices. These are the key numbers because not only do they describe a deteriorating situation, the presence of the energy prices is a major reason for the downward shift in conditions.
Regardless of the downward bias in the economy, the Federal Reserve is not telegraphing any signal to the market that it’s prepared to alter its plan to tighten the monetary supply. After 175 basis points of interest rate increases, the Fed still chose to emphasize, at its last meeting on March 22, that inflation pressures have increased in recent months, leading many analysts to speculate that there will be another 100 basis points of tightening before the end of the year.
Certainly the housing market has been affected by the rate increases with construction of new homes in March falling 17.6%, which is the largest drop in 14 years. And the drop in retail sales is conveying notice that consumers are tapped out, unwilling to add to debt and succumbing to the unexpected “tax” of higher gas prices. The drop in disposable income is being felt across the country but naturally it has a greater impact on lower income earners.
Indeed the economy has hit a soft patch and the market indexes have been showing us this for several months though camouflaging it on the broader indexes under the umbrella of higher prices for oil and oil service companies. Now with prices in that category facing similar pressures, we are able to distinguish the true trendline for share prices and it continues to be downward.
Technically Speaking
For the most part, equities continued to be under substantial pricing pressure and it was only through noticeable and unexpectedly strong quarterly reports that certain stocks overcame the general negativity that pervades the market. Selling on all indexes remains the force to be reckoned with and despite a lively bounce in the indexes on Thursday, the key factors to recognize were the fact that volume was less than Wednesday’s, a significant down day, and there was no distinct follow through in Friday’s trading.
On all three major markets, resistance is particularly fierce at the previous 2005 lows which on S&P equates to 1164, 10350 on the DJ and on the Nasdaq Composite at 1970.
New Buy Recommendations:
Verisign Inc. (VRSN) – This software company left a wide island on its daily chart from late January until Thursday of this week upon the release of its quarterly results. Earlier this week, it tested for the third time, the gap up left from mid-October and its 200-day moving average. Evidently all this bullishness is a sign that there will be new highs in 2005.
New Short Sales
3M (MMM) – 3M’s quarterly report was in line with expectations but was used as an excuse to dump the stock which had already been the object of significant selling since July of last year. This week’s move sent it sharply lower and its chart is suggesting that much greater downside is pending.
Wal-Mart (WMT) – Wal-Mart is losing sales for two reasons. The first is that higher energy prices are hurting disproportionately their major clientele group, those in lower income brackets. And the second is a grassroots effort to dissuade consumers from shopping at Wal-Mart due to their corporate efforts against union organizing amongst their employees. The daily chart has progressively gotten worse and Friday’s action displayed a new step lower with a gap down on larger volumes. Weekly and monthly charts both suggest that a strong potential exists for Wal-Mart’s shares to test the $38 level.
Yellow Roadway (YELL) – This trucking firm gapped lower near the beginning of April and on Friday, the share price dropped below the 200-day moving average in an outside day on rising volume. Higher gas prices and a slowing economy will mean a substantial compression of profits or even losses moving forward.
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
[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 |
15.52 |
13.64 |
H |
|
|
Applix |
APLX |
7.01 |
5.99 |
5.00 |
H |
|
|
Paincare Holdings |
PRZ |
4.69 |
4.73 |
4.25 |
H
|
|
|
Transcanada Corp |
TRP |
21.34 |
24.10 |
23.25 |
H |
|
Date of Entry |
Name |
Symbol |
Entry Price |
Current Price |
Stop |
Action Rating |
|
|
Cisco |
CSCO |
17.66 |
17.43 |
|
S+ |
|
|
Ebay |
EBAY |
36.85 |
33.67 |
|
COVERED |
|
|
General Motors |
GM |
29.95 |
26.74 |
|
S
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price