Stockscom
Report for
Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
Subscriptions and Administration:
Market Synopsis
The July employment report exceeded expectations on Friday with its headline number of 207K new jobs. Most analysts had expected a number approaching 180K so the increase was considered a big positive, perhaps more so due to it being the month of July when the summer season can cause numbers to swing lower in response to layoffs. Previous months’ data was also revised upward adding to the rosy outlook on the economy.
Under the wages section of the monthly employment report, it was reported that average hourly earnings, an early indicator of wage inflation, had risen by 0.4%. Evidently by itself, this would not constitute an extraordinary event, however if the number were multiplied by 12, the net change would be 4.8%, which is significant. Consequently, the threat of wage inflation, heretofore mostly non-existent, caused bond prices to fall and yields to rise, further exacerbated by the likelihood of more interest rate hikes by the Federal Reserve beginning with the one on Tuesday of this coming week when the Fed will raise the overnight rate a quarter point from 3.25% to 3.5%.
Friday’s jobs figures only serve to reinforce the view that the economy is remarkably stronger and rising employment also ensures that the economic recovery is sustainable as these new employees exercise their newfound purchasing power. One bright aspect of the employment report was that despite another loss of 4,000 jobs in manufacturing, a majority of manufacturing industries were hiring in July, something that hadn’t been true for the past twelve months.
Technically Speaking
After an outstanding rally in stocks these past several weeks virtually uninterrupted by retracements, it was truly inevitable that a sudden and potentially severe retracement would occur putting a wrench in the spokes of the wheel of rising stock prices. Several of our recommendations have increased by double-digit percentages and because of this price action, we cautiously apply stop losses to all prices in order to avoid some unpleasant action.
There is a strong likelihood that some of these equities will be exited from their positions based on the stop loss applied. This is not a problem and if they are exited, it only means that their strength that we recognized at the time has dissipated and the outlook has changed based on the view of Mr. Market. By judiciously exiting these positions, we prepare ourselves for new stocks by holding cash and patiently waiting and when the time comes to act, we have the wherewithal to execute the trade.
Currently, market indexes suggest that downside risk could be significant with initial support for the S&P 500 lying in the 1220-1225 area corresponding roughly to the neckline of the reverse head and shoulders formation. Similarly, the 2100 area on Nasdaq provides the same support for the equivalent formation. But it is with the Russell small caps and the S&P midcaps that the greatest damage could be wrought. These two indexes have enjoyed the favor of both institutions as well as individual investors for an extended period of time now and retracements here could mean substantial drops in stock prices that still wouldn’t negate the overall bullish view of either the index or the individual stock. Initial support on the Russell would lie at the area of 650 while on the Midcaps, the equivalent first level of support lies in the region of 680.
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
[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 |
|
|
Arena Pharma |
ARNA |
8.25 |
8.39 |
7.90 |
B |
|
|
Canadian Nat Res. |
CNQ *** |
28.47 |
45.85 |
40.00 |
B |
|
|
Captiva Software |
CPTV |
14.03 |
18.37 |
16.00 |
B |
|
|
|
GILD |
39.58 |
42.63 |
42.00 |
B |
|
|
Humana |
HUM |
36.30 |
42.04 |
40.00 |
B |
|
|
MGI Pharma |
MOGN |
26.91 |
26.38 |
25.25 |
B |
|
|
Nexen |
NXY |
33.76 |
41.61 |
36.00 |
B |
|
|
Novatel |
NGPS |
28.09 |
30.89 |
29.80 |
B |
|
|
Orckit Comm. |
ORCT |
27.09 |
23.70 |
22.80 |
B |
|
|
Pacificare Health |
PHS |
62.60 |
75.75 |
73.00 |
B |
|
|
Precision Drilling |
PDS |
41.50 |
43.19 |
41.00 |
B |
|
|
Sun Hydraulics |
SNHY *** |
23.92 |
28.26 |
27.40 |
B |
|
|
Transcanada Corp |
TRP |
21.34 |
27.35 |
25.10 |
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price