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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
October is normally the most bearish month of the year and consequently it is at this time that the most negative prognostications are trotted out by those considered by many to be investment experts. Contrarians will point to these doomsayers and take a different line relying on the assumption that when the sky is said to be falling, it is best to start buying stocks. Is either side right?
The current environment is rather tricky and thus it is quite difficult to say whether one side is correct but we would agree that the risk is definitely weighted to the downside. Despite some very good quarterly earnings reports giving individual stocks an immediate boost, overall the market has not managed to gain any traction from the reports due to the presence of numerous companies either missing or just reaching estimates. Now if the market were coming off a longer term low, this might be the catalyst for a new wave of buying however the market has already experienced that particular wave from the end of April until the beginning of August and, in many analysts eyes, has become expensive.
On a macroeconomic level, there are greater issues that are affecting equities. The rise in fuel costs has caused major damage to household finances with personal savings levels now mired below the 0% mark. The lack of savings coupled with the closed window of mortgage-renegotiation have meant that many consumers have begun to tighten their spending habits in order to survive. Particularly violent hurricane weather this year has only added to the woes.
The Federal Reserve has done its part in a bid to cool the visible signs of inflation by raising interest rates by a quarter percent at a time. Next week on Nov 1, the Fed meets once more and given the recent comments by Fed governors, it is a foregone conclusion that they will raise interest rates one more time. The rise in rates has had the additional effect of cooling the red-hot housing sector where the most recent data showed an increase of the inventory of unsold homes to 4.7 months worth, a level not seen since June 2000.
Without the last remaining avenue to raise
cash, mortgage refinancing, the typical consumer is left to retrench and reduce
all discretionary spending due to the inflation in energy prices. With
Technically Speaking
The tech-heavy Nasdaq managed to finish the week with a gain but it was alone among the large-cap majors with both the Dow Jones and the SP 500 ending the week in the red. On the daily charts, bulls are pointing to the bottoms from last Thursday as support for a near-term rally but we view this as unlikely. Friday’s price bars on the dailies were largely inside days on modest volumes but more importantly, the charts are approaching significant resistance points, which would need to be surpassed if there is to be any rebound. On ND, the chart has resistance at both 2100 and 2125 while on SP, there is similar resistance at the 1200 level.
Bulls will point to the fact that it’s the last week in October, a good starting point for a rally, but a combination of weak technicals on the charts and an overbearing economic situation will continue to put downward pressure on stocks as we close out the year.
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.
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 |
|
|
Akamai Tech |
AKAM |
15.96 |
17.25 |
15.00 |
B
|
|
03/08/04 |
Transcanada Corp |
TRP |
21.34 |
29.79 |
27.50 |
B |
|
10/10/05 |
Viasat Inc |
VSAT |
27.43 |
24.72 |
|
B
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price