Stockscom Report for Monday Sep 05 2005

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

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

• Katrina and the repercussions

Market Synopsis

Hurricane Katrina is undoubtedly the most important event to directly affect the US so far in 2005. The devastation wrought was of an order of magnitude that has surprised all who’ve watched in stunned silence as the reports surfaced on television. And sadly, the tragedy is still unfolding as the water, by now a muddy, toxic soup, has nowhere to go and waits the inevitable pumping, which will begin once the levees are repaired.

The economic repercussions of this event are unlike those of 9/11. It has been several days since Katrina unleashed its power and New Orleans has recovered little. Initial estimates suggest that it will take a month just to pump out the water from the city before the rebuilding can begin. But one month is a very long time and most people cannot wait that much time to begin rebuilding so those exiled already to other cities or other states will have begun the process of rebuilding.

Normally, the economic shock of such an event is immediate and the reaction time or the time delay from initial shock to restoration phase is brief. This is not the case for New Orleans. While the waters slowly subside, a clean up phase can begin including the search for dead bodies but unfortunately, these efforts will be hampered by the threat of disease and infection, which will serve to slow down the entire process. The next phase will concentrate on removing the structures that cannot be saved. And finally, the last phase will center on rebuilding those structures lost, which are once more required.

Trained volunteers will manage the search for dead bodies and handle final arrangements. However the next two phases will require a large number of people, something which is in very short supply inasmuch as half a million people have fled the city. These people will not be simply waiting for the moment when they are told that they can come back. They are likely attempting to rebuild shattered lives right now wherever it is that they find themselves. Of the half a million people, some 220K have migrated to Texas, mostly Houston and many will avail themselves of the job opportunities that are presented in Houston.

The concept of a shortage of people is the key problem especially considering the importance of New Orleans as a port on the Gulf of Mexico. The port located here is the largest in the US and is classed number five in the world by tonnage. Specifically, more than half the exports are agricultural products, mostly corn and soybeans, while crude oil and its products dominate imports. Even if we assume that a port is built at a point nearby in order to rebuild in a more secure location, the shortage of manpower is still critical since so many people have fled to other cities.

Technically Speaking

For the week, the charts are beginning to display some semblance of a bounce and for guidance, we study the Nasdaq and the S&P 500, which offer more clarity than the DJ. Specifically, the Nasdaq daily chart is quite clear in showing a reverse head and shoulders beginning at the start of the year and containing a neckline located at 2100. The breakout from this H+S occurred in early July and this week’s successful test of this level points to a continuation of the rally probably reaching a peak at around 2300.

As for the S&P, there is a similar action though less definitive since the neckline at 1220 was broken during the most recent retracement. The latest rebound has served to place price at approximately the same level as the neckline with Friday’s close of 1218 very close to the key 1220 level. Were this rally to continue and it does appear to be the path of least resistance, then a logical destination would be the 1300 level.

The Dow Jones chart is unfortunately, less bullish than the previous two however there are still signals that a continuation in the rally is in the cards. Drawing a trendline connecting the lows since April shows that there is support for higher prices having successfully retested this trendline just this week. The trend is tilted in the upward direction and a move toward 10800 appears likely.

New Buy Recommendations:

Commercial Metals Co. (CMC) – This steel company is riding the wave of the past few sessions carrying steel stocks to new heights. Technically, this chart offers both a low risk entry and an above average potential return. With Friday’s close, CMC closed the important gap left open from Apr 13 and in so doing, served notice that its next target would be its Apr high followed by its yearly high reached in Mar at a price of $39. The weekly chart supports this move with a buy signal upon breaking out from its sub-$31 trading range with a large, significant outside bar this week on increasing volume.

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.

N.B. There are no longer restrictions on foreign stocks held in Canadian retirement savings accounts.

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
08/15/05	Am Sci & Eng Inc	ASEI	49.25	64.00		B
08/22/05	Autodesk Inc.	ADSK	40.22	42.59		B
05/23/05	Captiva Software	CPTV	14.03	19.09	17.00	B
05/10/05	Humana	HUM	36.30	47.83	40.00	B
08/15/05	Nvidia	NVDA	30.05	30.19		B
05/10/05	Pacificare Health	PHS	62.60	76.73	73.00	B
07/25/05	Precision Drilling	PDS	41.50	48.02	41.00	B
03/08/04	Transcanada Corp	TRP	21.34	27.98	25.10	B
08/15/05	Websidestory	WSSI	16.74	17.84		B

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price