Stockscom Report for Sunday Mar 10 2006

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

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

 

·        Security or protectionism

·        Split personality in stock indexes

 

 

Market Synopsis

 

Is the world more concerned with national security or is it masking rampant protectionism at the international level? This week’s furor related to Dubai Ports World’s purchase of London-based P&O with the concomitant change of ownership of six US ports brought the issue once more to the forefront of the evening news. Despite the vetting of the Dubai-based organization by the secretive US Committee on Foreign Investment with particular emphasis on security risks, that port security at all US-based ports is the joint responsibility of the US Coast Guard and US Customs and Border Protection and the reality that US ports on the west coast are already owned by Chinese and Singaporean companies, the loud protests were sufficient ammunition for many election-frightened Republicans to support those opposed to the sale. The threat of a never-utilized veto power by President George W. Bush did little to sway those opposed to the purchase.

 

Why was the Dubai firm singled out as a security threat? Simply put, Dubai is one of the seven United Arab Emirates, a loosely held federation of seven nations on the shores of the Persian Gulf strategically located south east of the Strait of Hormuz, where approximately two-fifths of the world’s exported oil flows through. But, more importantly, the UAE is according to the FBI, an operational and financial base for the 9/11 terrorist hijackers. Whether or not that condition remains true today is somewhat questionable given the propensity of the more Western-leaning Arab states, such as the UAE, to rid themselves of these undesirables.

 

Nonetheless it has become an increasingly popular activity to portray Arabs as being cut from the same cloth and combining those fears with the non-issue of American jobs at risk, was a no lose situation for Democrats and those Republicans located in states where Bush’s popularity has declined heavily.

 

However this protectionist issue masquerading as a security issue is not exclusive to the US though the recent CNOOC/Unocal takeover battle might suggest that. In fact Europe is no stranger to similar examples and these were perhaps more interesting due to the nationality of the combatants.

On February 27th, the boards of Gaz de France and France’s Suez SA agreed to a stock swap merger thus preventing the Italian firm, Enel SpA, from succeeding in its hostile bid for Suez SA. Much as the government of Dubai owns Dubai Ports World, Gaz de France is 80% owned by the government of France, which saw this combination with Suez SA as a threat to secure energy for France. Unbelievable at it may seem, the French government perceived this Italian company as a threat to a secure energy supply for France notwithstanding the fact that they are both original members of the EU and now permit free movement of people and goods across all land borders.

 

The French have also generously supplied another example of protectionist behavior when in the past summer, the questionable merit of “food security” became priority number one. The French company, Groupe Danone, was believed to be the target of PepsiCo despite their denials surrounding the affair. The agricultural and bottled water giant was described by the French Prime Minister Villepin as “…one of our industrial treasures.” In the end, it was revealed that the Chairman of Danone had never received an actual offer from PepsiCo.

 

 

Technically Speaking

 

The split personality of the market is becoming more evident as we progress through March. The Dow Jones has taken a leadership position with its weekly closing reversal ending Friday. And the broader large capitalization market represented by the S&P 500 is trailing by a small margin. Though the S&P failed to complete a weekly reversal, it did however manage to cut its losses significantly to close out the week. Similarly, the Russell small cap index closed the week with an outside day higher and although it failed as well to mark a closing reversal on the weekly, it displayed internal strength, which favors a continuation of the upward movement.

 

We view the other side of the market’s personality with a glance at the tech-heavy Nasdaq. While the Composite index has been marginally stronger than the ND-100, the most pronounced characteristic in the ND-100 has been the very visible development of an ominous head and shoulders formation. Fortunately for Nasdaq bulls, the Composite index does not share this chart formation however the lateral movement in share price is certainly non-committal.

 

Somewhere in between, we find the S&P Midcap index, which has not chosen to follow the more bullish Russell, but instead mirrors the Nasdaq Composite in many respects.

 

 

New Buy Recommendations (in order of preference):

 

None. Though gold tumbled on futures markets Friday and reached a low not seen since January, overnight markets have gold moving higher and a look at several stock charts shows that the majority ended the week with gold stocks being pursued. There is a common view that gold stocks lead the price of gold higher at the beginning of a rally and presuming that to be true, it would be a profitable trade if one were to add to gold positions on Monday. Given the current small loss in SA, additions should be concentrated in MNG as we strongly advise to add to winning positions and avoid strategies such as doubling up on losers. We cannot be more blunt - this is a loser strategy.

 

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

11/21/05

Amer Sci & Eng

ASEI

71.08

83.63

 
B

11/14/05

Birch Mtn Resour.

BMD

6.65

6.50

 
H

02/21/06

Cdn Natural Res

CNQ

58.00

55.32

 
H

01/09/06

Englobal Corp

ENG

10.86

10.65

 
H

01/17/06

Miramar Mining

MNG

2.50

3.22

 
B

01/30/06

Nasdaq Stock Mkt

NDAQ

45.98

43.56

 
H

01/09/06

Nuvelo Inc.

NUVO

12.95

16.67

 
B

01/09/06

Progenics Pharma

PGNX

29.70

27.38

 
H

12/12/05

Radiant Systems

RADS

13.78

13.88

 
B

11/07/05

Redback Networks

RBAK

11.78

17.75

16.00
B

01/09/06

Seabridge Gold

SA

9.49

8.04

 
H

01/09/06

Sierra Wireless

SWIR

13.60

11.30

 
H

11/21/05

Sigma Designs

SIGM

13.10

14.97

 
B

02/27/06

Stereotaxis

STXS

13.57

12.78

 
H

11/14/05

Tom Online

TOMO

20.66

20.70

 
B

03/08/04

Transcanada Corp

TRP

21.34

29.73

27.50

B

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price