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Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Market Synopsis
The Federal Reserve met on Tuesday of this week and finished the meeting with an announcement of another quarter point interest rate hike taking the influential overnight rate to 4.25%. However it was the accompanying statement that had analysts in a quandary when they changed the key phrase, “policy accommodation could be removed at a pace that would likely be measured…” to “…some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.” This re-working of the phrase meant to telegraph the direction of future interest rate moves, generated different conclusions from the analytical faction. Some believed that this was a clear sign that the Fed is prepared to cease rate increases very soon while others, judging that another phrase, “…possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.” indicates significant concern and a likelihood of further increases for an indeterminate time.
In support of the latter argument, analysts pointed to the Fed’s observation that “…the expansion in economic activity appears solid.” and if we are to accept this, then we must expect a continuation of the present policy of raising rates a quarter percent at a time. And this week, with the release of the durable goods report for the month of November on Friday, traders will have a look at an important indicator of future economic activity. Expectations are for a relatively strong report of a 1.3% increase, which follows an especially strong October at +3.7%.
One factor that appears to have disappeared from analysts’ radar screens is the effect of a weakening US dollar. Starting with last week, traders generally viewed the Federal Reserve statement as a dollar-bearish policy believing that the dollar, which has benefited from a strong interest rate differential against other currencies, would fall minus the support of higher interest rates. As the dollar falls, some commodities (which are priced in US dollars) are prone to inflation as their prices rise to compensate for the drop in value in local currencies. Similarly, some US-traded stocks whose earnings are more heavily-weighted to foreign currencies could see some price appreciation based on the assumption of increased earnings once converted back to dollars.
Technically Speaking
Stock indexes remain stuck in a consolidation phase begun in mid-November and, notwithstanding the new high on the S&P 500 this week, there is direction-less travel that requires some patience while the investors sort out the information and make judgment calls. The market is essentially a thorough review of all information available relative to a stock. In other words, the price of a stock or an index represents the sum total of all information in the marketplace.
What the charts are revealing at this point is that we appear to be on the verge of another move however the market is not willing at this point to tip its hand to which direction it will follow. New highs on Nasdaq and S&P 500 will indicate a bullish conclusion to this consolidation while a drop below recent lows (Nasdaq Composite – 2230, S&P – 1250) will likely represent a technical failure and warning of future weakening.
Though difficult to guess the outcome, it is worth noting that the durable goods numbers should be supportive of further stock price gains and the lead up to holidays often consists of generally bullish activity in the markets.
New Buy Recommendations (in order of preference):
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 |
|
|
Amer Sci & Eng |
ASEI |
71.08 |
63.40 |
|
H
|
|
|
Birch Mtn Resour. |
BMD |
6.65 |
7.87 |
|
B
|
|
|
Broadcom |
BRCM |
48.41 |
49.02 |
|
B
|
|
|
Omnivisions Tech |
OVTI |
16.39 |
20.52 |
|
B
|
|
|
Plexus Corp |
PLXS |
20.15 |
22.16 |
|
B
|
|
|
Qualcomm |
QCOM |
44.83 |
44.95 |
44.00 |
B
|
|
|
Radiant Systems |
RADS |
13.78 |
12.65 |
|
H
|
|
|
Redback Networks |
RBAK |
11.78 |
14.03 |
|
B+
|
|
|
Sigma Designs |
SIGM |
13.10 |
13.84 |
|
B
|
|
|
Tom Online |
TOMO |
20.66 |
18.76 |
|
H
|
|
|
Transcanada Corp |
TRP |
21.34 |
32.24 |
27.50 |
B+ |
|
|
USA Truck Inc |
USAK |
29.30 |
31.19 |
|
H |
|
10/10/05 |
Viasat Inc |
VSAT |
27.43 |
25.90 |
25.50 |
H
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price