Stockscom Report for Sunday May 1 2005

Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

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

• Signals of global weakness growing stronger
• High energy prices do reduce consumer spending

Market Synopsis

Factories across the US were humming a little less than first believed as demonstrated by the GDP figure of 3.1% growth for the first quarter of 2005. A lethal combination of higher energy prices and inflation in basic commodities were being blamed for the lowered production and subdued business spending. As any consumer can relate to, the more money spent on gas means fewer purchases elsewhere. Certainly Wal-Mart can attest to this theory having seen consumer spending in its stores limited in this first quarter, which provoked a statement from the company near the beginning of April warning that quarterly profits would be at the low end of forecasts and even April is now believed to have finished with a 0.9% increase in comparable store sales y-o-y.

Nobody should be surprised by the lowest GDP recorded in the past two years for the warning signs have been judiciously placed starting with the high price of energy. So many analysts have either ignored the effects of high gas prices or have naively believed that consumers would simply adjust to the new reality. The new reality is the fact that when presented with a choice to either buy clothes or gas for the car, people inevitably choose the latter. Analysts are now adjusting to this new reality.

Another sign was the cycle of rising interest rates bringing the overnight rate from 1.0% to 2.75% orchestrated by Fed Chairman Greenspan. This series of interest rate increases has only served to neutralize the rate of inflation. It has not been as large a drag on the economy as other cycles of rate hikes, but on Tuesday of this week, the Fed will announce one more rate hike of a quarter point bringing the rate to an even 3.0%. With the overnight rate at this level, real interest rates are arguably positive for the first time in a very long time. The bottom line though is that a cycle of rising interest rates has historically forced the economy to slow down as a preventive measure against an uptick in inflation.

Lastly, the stock markets have been busy predicting an economic slowdown for several months on the tech-heavy Nasdaq. The broad indexes, the Dow Jones and the S&P, were less expressive, for energy and energy-service stocks served to muddle the picture with their good fortune. Had these sectors been excluded from these indexes, the picture would have ostensibly been more indicative of the actual situation and charts would have appeared more similar to those on Nasdaq.

Technically Speaking

Technically the move on Friday was essentially a copycat move of the 2-day reversal seen on April 20/21 and accomplished one thing – a successful test of the 10000 area on DJ and 1135 on S&P. One might argue that this double reversal was an additional bullish signal but Nasdaq did not mirror this performance for Thursday’s loss resulted in a new low close for the market. The jump on Friday was promising for bulls but on all three major indexes a region of heavy resistance lies above and only a concentrated effort will succeed in changing the chart direction.

On weekly charts, the indexes are unanimous – all three have slipped down from their respective trendlines, which had guided their rises from the Aug 2003 lows. Violation of this trendline suggests strongly that further downside is probable.

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.

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	14.64	13.64	H
02/08/05	Applix	APLX	7.01	4.65	5.00	SOLD
04/25/05	Gilead Sciences	GILD	39.58	37.11	34.50	H
04/25/05	Hutchinson Tech	HTCH	37.00	37.04	32.00	H
03/28/05	Paincare Holdings	PRZ	4.69	4.25	4.25	SOLD
03/08/04	Transcanada Corp	TRP	21.34	23.53	23.25	H
04/25/05	Verisign Inc	VRSN	29.24	26.45	24.60	H

Short Sales

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
04/04/05	Cisco	CSCO	17.66	17.27		S
04/25/05	3M	MMM	77.67	76.47		S
04/04/05	General Motors	GM	29.95	26.68		S
04/25/05	Wal-Mart	WMT	47.05	47.14		S
04/25/05	Yellow Roadway	YELL	50.62	49.00		S

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price