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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
Investors were treated to a perfect example this week of how stock markets are predictive when economic news released, demonstrating poor recent activity, was negated by optimistic reports of future economic performance. Specifically, the factory orders number for September showed a decline of 1.7% putting a large stop to the advances made in the previous four months. The results were particularly ominous for capital goods orders, which were off by 7.8% for the month. Meanwhile, construction spending was lower in September than expected coming in with an increase of 0.5% when most other predictions were in the neighborhood of 0.7%.
Worker productivity on the other hand, made up for some of these economic shortfalls as it was measured as an increase of 4.1% in the third quarter. But perhaps the biggest news belonged to the ISM surveys on manufacturing and services. Both surveys released earlier in the week, pointed to better than expected conditions in the near term. The manufacturing survey dropped from 59.4% in September to 59.1% in October, whereas a bigger decline had been expected and in the case of the non-manufacturing survey, often referred to as services, the October result reached 60%, a substantial increase from September’s 53.3% and the expectations of 56.9%.
The stock market reacted in typical predictive fashion ignoring for the most part the economic news of past events (factory orders for September for example) choosing to respond to the prospect of improved results as companies expanded their businesses in a still-vibrant marketplace.
Technically Speaking
By midweek we had changed our attitude about the markets and more specifically the Nasdaq. While last week’s comments dwelled on the bearishness of the charts, this week’s action forced us to reconsider and while the other markets are arguably still under the influence of a bear market, the Nasdaq managed to overcome the negativity and post not only solid gains for the week, but also to change technicians minds’ with respect to the most probable direction.
The broader markets of the Dow Jones and the S&P 500 managed gains on the week but technically, there was a lack of follow through on these initial thrusts higher. Similar situations were found for the S&P Midcap index and the Russell Small caps from which comes the concentration on the Nasdaq and especially the Nasdaq 100 comprising the top 100 stocks on the Nasdaq.
There is certainly the possibility that this move is a rebound from the losses in October however, that would hardly explain the technical strength as the ND-100 finished the week with a close above the August high and in so doing generated a new 2005 high. The Composite index is, like the broader markets, lagging this notable performance by a significant margin, but did move significantly above the down-trending line formed by a line drawn linking the previous rally tops reached in August, September, and October.
What is worrisome is the accurate notion that these new highs are being made on the backs of lower dollar volumes in trading. However one could also point out that the previous highs reached in the final weeks of 2004 were also made in a similar manner when compared to the early 2004 peak.
New Buy Recommendations (in order of preference):
Biovail (BVF) – This drug manufacturer has been through a bad stretch lasting well over a year but is now emerging much stronger. The gap higher in September coupled with the gap on Friday is a clear indication of a strong upward trend and a powerful mover. Friday’s move was a break out from the consolidation of the past two months and the week ended with a weekly close not seen since 2003.
Qualcomm (QCOM) – We are re-initiating our position on Qualcomm since the charts are telling us with conviction that this stock will resume its rise now. The reversal on the weekly charts is just that strong indication that we required along with the 4-day island left behind on Thursday.
Redback Networks (RBAK) – The high volume break to a new 2005 high on Friday along with a strong weekly pattern on the chart gives us the impetus to recommend this stock.
Plexus Corp (PLXS) – This ECM experienced tough times the past few years much like the rest of industry but has now cleaned house and this is apparent from its chart, which had a double bottom on the weekly chart in late-2004 early-2005 and is now charging toward the high of 2004. At the end of this week, it broke out from a 2-month consolidation and is poised to move higher.
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 |
|
10/03/05 |
Akamai Tech |
AKAM |
15.96 |
16.69 |
15.00 |
B
|
|
03/08/04 |
Transcanada Corp |
TRP |
21.34 |
30.70 |
27.50 |
B |
|
10/10/05 |
Viasat Inc |
VSAT |
27.43 |
25.68 |
23.00 |
B
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price