Stockscom Report for Sunday Nov 27 2005

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

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

• Stock rally will continue albeit with some retracement

Market Synopsis

Many investors are asking themselves (and their advisors) why the stock market has been lifting off over the course of November and this is a fair question given the difficult conditions that we’ve witnessed recently. Between natural disasters such as Hurricanes Katrina and Rita, which were especially devastating and a slow progressive loss of factory labor punctuated by the recent GM announcement of several plant closings, it would seem more accurate to describe the economy as in a downward spiral. But the markets have rebounded cleanly from the depths of their double bottom with its lows in both April and October and having now cleared the previous tops, it is the moment that a new leg upward has begun. Inasmuch as the market expresses the sum total of all wisdom of its participants, there has been a clear indication that investors share great optimism for the near term future.

This last point is key: the stock market predicts outcomes and this, generally believed to be six months hence barring any sudden unexpected shock. Thus the relatively good market conditions of today represent the collective belief of corporate financial conditions and some measure of the general economic health of America in May 2006. Time will tell if this belief is accurate or not, but more importantly we can look at current trends and evaluate whether this belief makes sense or is it simply a case of psychologist, Irving Janis’ groupthink.

In the latest Univ. of Michigan consumer sentiment survey, the index reached 81.6, an improvement from 79.9 measured earlier in November, and sharply higher from October’s reading of 74.2. The importance of this survey should not be underestimated with consumer-demand fueling around 70% of the GDP. And the Thanksgiving weekend has given us some early returns on the latest retail figures – a good proxy for the health of consumers. Over the long weekend, considered to be the kick-off to holiday spending, sales increased over 22% from 2004 to reach more than $28 billion thus providing proof that the increase in sentiment is working its way through the system and producing tangible results.

The question therefore extends to whether it makes logical sense that in six months, the economy will be in better shape than it is currently given that the predictive powers of the stock market are promising us as much. And the response is that indeed it is conceivable that with lower energy costs as we’re now seeing, consumers would have larger discretionary spending available. The extremely high spike in gas prices was symptomatic of reduced production (due to the damage wrought by the hurricanes) combined with speculative fear of tightness in supplies. However that fear has been greatly alleviated by the weekly release of oil and gas inventory figures demonstrating that the demand has slowed down and inventories have been boosted.

Tied to this slowness in energy demand is the possibility that the economy might slow down from its current inflationary pace enough for the Federal Reserve to stop raising short-term interest rates or even to cut them. We know from the release of the minutes of the last meeting that there was some discussion of this potential. A lower interest rate and the concomitant lower risk of inflation would allow the economy a breather and constitute an enhancement to corporate profitability.

Finally, there appears to be a general consensus that a pull-out of American troops from Iraq is a distinct possibility in the new year and the stock market is naturally discounting that probability and the beneficial effects such a pull-out would have on stretched government budgets. Inherent in a troop withdrawal is the immediate reduction of the roughly $200 billion spent so far in Iraq.

Technically Speaking

The stock indexes continue to bolster their advances for full year 2005 and with the Dow Jones Industrials now located a scant 50 points from its high for the year, it no longer seems to be a stretch to believe that the DJ will indeed finish 2005 above the 11K level.

The Nasdaq market and the S&P 500 indexes remain equal to the task having added to gains this week and in all probability they will add to their gains tomorrow though we’d not be inclined to offer a similar prediction for the rest of the week. Nevertheless all these indexes stand to finish with Lindahl buy signals on the monthly charts by the end of trading on Wednesday, which marks the end of November.

The tech sector as a whole continues to perform very strongly and it should be no surprise that the majority of our recommendations belong to this sector. Meanwhile energy stocks and mortgage financing companies have resisted falling apart despite their apparent fundamental weakness. Here is an example of how we prefer to do more of what is working right and exit or stand aside those situations deemed to be less favorable.

New Buy Recommendations (in order of preference):

None. Take note that several of our recommendations have plus signs this week meaning that there is minimal risk to making additions to these long positions.

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	16.80	15.00	SOLD
11/21/05	Amer Sci & Eng	ASEI	71.08	69.79		B
11/14/05	Birch Mtn Resour.	BMD	6.65	7.34		B+
11/21/05	Broadcom	BRCM	48.41	48.07		B+
11/14/05	Capstone Turbine	CPST	3.16	3.76	3.50	B
11/21/05	Omnivisions Tech	OVTI	16.39	18.80		B
11/07/05	Plexus Corp	PLXS	20.15	20.59		B
11/07/05	Qualcomm	QCOM	44.83	46.18		B+
11/07/05	Redback Networks	RBAK	11.78	13.24		B
11/21/05	Sigma Designs	SIGM	13.10	13.09		B+
11/14/05	Tom Online	TOMO	20.66	21.79		B
03/08/04	Transcanada Corp	TRP	21.34	31.92	27.50	B
10/10/05	Viasat Inc	VSAT	27.43	27.84	23.00	B+

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price