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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
Traders are waiting to analyze data to be released later this week for clues to the extent of the soft-patch experienced in the early part of 2005. A busy week for data begins on Tuesday with the release of retail sales and PPI figures followed on Wednesday by data on earnings, industrial production and CPI. There will be housing starts data on Thursday and Friday rounds out the week with data on the first quarter current account.
Undoubtedly, information gleaned from this week’s data releases will play a pivotal role in the Fed Reserve’s decision on interest rates to come during their meeting June 29-30. At this point, all analysts expect that Greenspan will come out in favor of another quarter point hike in the overnight rate despite the obvious flattening of the yield curve and the potential for inversed interest rates. Fed-observers are fully aware that should the long-term rates drop below the short-term rates, those set by the Federal Reserve, the potential of a recession increases sharply.
Greenspan in his testimony to the Joint Economic Committee this week strongly suggested that in spite of short-term higher interest rates, another rate hike was likely. His immediate concern appears to be the housing market, which has attained bubble status in recent months. While benign neglect was the strategy employed before, an apparent shift of philosophy has the Fed commenting publicly on the dangers of newly crafted mortgage products that permit borrowers to delay paying down the principle. Their fear is that an increase in long-term interest rates will cause housing sales to begin falling. Once this snowball starts, the next phase is lower prices followed by homeowners having purchased houses with newly developed mortgages who will be tempted to walk away from their purchase thus flooding the market with supply and causing an ever greater problem. From an economic and consumer point of view, the Fed realizes that there are even more powerful forces being unleashed here. The value of one’s housing has a far greater positive effect on personal sense of wealth than does the value of one’s equity investments. Thus, a dip in the value of housing has a ripple effect in consumer sentiment that is proportionally greater than a dip in the value of equities. And it is the potential for this negative effect that has the Fed worried.
Technically Speaking
For the week, the DJ and SP managed small gains while the ND eased in trading. The rally that began at the end of April reached its pinnacle in early June and we’ve been watching the markets retrace a part of that gain. Currently, we are near the 25-day moving average and here the strength of the rally will be put to the test. Support here could provide a launch pad for the next phase of a bullish rally but this is far from being a certain outcome.
The ND has been the leader in this equities rally and the Composite index has reached the 2100 level but being stopped here has some technicians questioning its strength. In February and March, upward bounces on ND were also stopped at the 2100 level thus building a substantial amount of resistance. For a continuation of the rally to occur, a push by the ND above 2100 is absolutely essential.
Interesting formations are found also on the SP and DJ charts. Starting from the mid-November period, there is one peak reached on Dec 31, then another higher peak reached at the beginning of March, and if these are combined with the latest peak, we have a rather ominous head and shoulders formation.
New Buy Recommendations:
Novatel (NGPS) – This developer of GPS systems is gaining considerable traction after having dropped to its 2005 low in May but taking out the peaks in February and April have proven that the stock still has legs and could repeat its peak from December. A large jump in volume and price on Monday was confirmed on Friday and becomes the impetus for a buy recommendation.
Orckit Communication (ORCT) – Orckit is at
the forefront of creating all-IP networks or in simpler terms the transport of
voice, data and video over the internet. Revenues and net income are growing
now exponentially as they rollout a system implementation for one of
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
[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 |
17.14 |
13.64 |
H |
|
|
Aleris International |
ARS |
22.65 |
23.37 |
|
B |
|
|
Canadian Nat Res. |
CNQ *** |
28.47 |
32.19 |
|
B |
|
|
Captiva Software |
CPTV |
14.03 |
13.40 |
13.00 |
H |
|
|
|
GILD |
39.58 |
43.32 |
34.50 |
B |
|
|
Humana |
HUM |
36.30 |
38.15 |
|
B |
|
|
|
HTCH |
37.00 |
40.99 |
38.00 |
B |
|
|
Pacificare Health |
PHS |
62.60 |
64.92 |
|
B |
|
|
Sun Hydraulics |
SNHY |
35.88 |
33.76 |
|
H |
|
|
Transcanada Corp |
TRP |
21.34 |
24.91 |
23.25 |
B |
|
|
Verisign Inc |
VRSN |
29.24 |
30.92 |
29.50 |
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price