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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
Terrorism struck hard and fast once more in
Some may argue that a sideways movement is hardly beneficial to traders but giving rightful consideration to the economy and its most recent indicators, perhaps this is the best possible outcome. The June employment report was laudable in proving to the naysayers that job growth is inexistent since the bulls are able to point to an average 180K new jobs per month this year, while even the Federal Reserve governors stated that "labor market conditions continue to improve gradually." but this is balanced by the knowledge that we are in the third year of a recovery and job growth has been well below par compared to other recoveries in the past.
Durable goods orders have begun to rebound after having been lower at the beginning of the year but much of the latest growth was due to expensive aircraft and military equipment, which are capable of skewing the orders data from month to month with their hefty price tags. Subtracting out these orders in the latest report left the economy with a drop of 0.2% for the month. The decline in durable goods orders is also being felt in the employment report where a drop of 24K jobs in manufacturing was registered for the month of June.
The employment report outlined above average job growth in two sectors: business and professional services with 56K new jobs and construction with another 18K new positions. But as we have mentioned before, construction and especially residential construction depends heavily on interest rates and with the latest quarter point increase in rates, the FOMC shows no sign of slowing down their program of gradually raising interest rates. Despite analysts’ predictions that a softer economy will prompt the Fed to temporarily halt increases, there is no hint of this imminent action in any of the FOMC press releases.
So a sideways moving market is sufficient on a long-term basis for it avoids the pain and frustration of a distinctly bearish market where 90% of all equities fall and probably it is highly representative of the current economic conditions where there is little overall growth but companies focused on the bottom line are showing excellent profit margins and conserving these financial resources instead of wastefully frittering away the money on questionable activities.
Technically Speaking
The rebound in the markets at the end of the week turned a largely negative week into a growing positive one on all three major indexes. The most bullish index, as has been the case for several weeks now, was the ND, which managed to close higher than on any trading day this year with the exception of the first. More importantly from a technical standpoint, ND broke through the fierce resistance that had built up just north of 2100 and it found unlikely support at the old trendline that had supported the ND from the 2002 market bottom until mid-April. This old trendline is notable for the ND had failed as mentioned in mid-April only to break through what had now become resistance in mid-May and it has been tested many times in the past two weeks and surprisingly, found solid support
With the broader markets, the week was positive as well with SP approaching resistance at the 1220 level, which is a key point. A move above this level would largely negate the formation of a head and shoulders pattern that stretches back to the fall of 2004 and would represent a more bullish near-term break out. As for the DJ, the weakest of the large cap indexes, a move above 10,650 would shift the near-term expectations to bullish, but for now, the index remains mired in a slump.
*** There was an offer made to buy PHS this week from United Healthcare (UNH). Both stocks rose on the week and for now there is no technical reason to dispose of the shares. We recommend therefore holding onto these shares since there is a technical reason to believe they could continue to rise in tandem. Related to this action, HUM jumped on the same day as the offer was announced as traders considered the possibility that HUM may be an attractive takeover to one of the other healthcare companies interested in growing through acquisition.
New Buy Recommendations:
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
Aleris International (ARS) – Aleris was hit by a brokerage downgrade on Friday and at this point there is little technical hope for it to rebound quickly so rather than wait, we prefer to simply exit the position and wait for a better trade.
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 |
|
|
Aleris International |
ARS |
22.65 |
21.01 |
|
SELL |
|
|
Canadian Nat Res. |
CNQ *** |
28.47 |
39.60 |
|
B |
|
|
Captiva Software |
CPTV |
14.03 |
14.74 |
13.00 |
B |
|
|
|
GILD |
39.58 |
46.63 |
39.50 |
B |
|
|
Humana |
HUM |
36.30 |
41.75 |
36.75 |
B+ |
|
|
Nexen |
NXY |
33.76 |
35.02 |
|
B |
|
|
Novatel |
NGPS |
28.09 |
31.45 |
|
B |
|
|
Orckit Comm. |
ORCT |
27.09 |
27.02 |
|
H |
|
|
Pacificare Health |
PHS |
62.60 |
76.83 |
|
B |
|
05/31/05 |
Sun Hydraulics |
SNHY |
35.88 |
41.24 |
|
B+ |
|
03/08/04 |
Transcanada Corp |
TRP |
21.34 |
27.31 |
23.25 |
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price