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·
Presidential cycle and the
year 2006
·
Bulls back in command
Market Synopsis
There’s something wrong with this picture. This is the year 2006, which happens to be the second year of the Presidential Cycle. Normally, the Presidential Cycle dictates that this year is the worst for stock market returns yet both the S&P 500 and the Dow Jones are at new 2006 peaks – peaks not seen since 2001. While the S&P is several percent below its all-time peak reached in 2000 and the Nasdaq-100 and the Nasdaq Composite lay more than 50% below their respective peaks, the Dow continues its program of shock and awe. At the close of Friday, the DJ was located just 4% off its 2000 peak, well within striking distance in the short term.
The bullish trend in equities is perhaps even more surprising given the state of the presidency. Considering George W. Bush’s approval rating in the latest polls is abysmally low at 37% while a not insignificant 58% percent believe that poor ol’ George should seriously consider a career change, the mere fact that equities are rising in the midst of this party dissension and the variety of controversies is a bullish statement in itself.
Conceivably, we shouldn’t jump to year end conclusions about stock market performance this early in the year for a glance at the year 1998, another second year in the Presidential Cycle, could give us a rude awakening. In that year, the Dow broke out of a consolidation early in the new year and progressed higher until the month of July when it began falling. The index fell for the next two months wiping more than 18% off the value of the index in the process.
Of course, market bears will gleefully point out that this example pales in comparison to the last time a year two occurred in the Presidential Cycle only four years ago. In 2002, an extension of the rally from the previous autumn in the post-9/11 period carried the market to a new peak early in the year but the index faltered and began a descent, which lasted nearly the whole year bottoming in the autumn of 2002 at 7138 on the Dow. The total loss in value of the index was greater than 30%.
Technically Speaking
Equities shifted to a more bullish stance this week with both the DJ and SP attaining new highs for 2006. There were similar moves on both the Russell small cap index and the S&P Midcap index indicating the high probability that a continuation of the wave of buying is forthcoming.
Nasdaq remains the laggard amongst the indexes and in particular the ND-100, which has yet to consummate the head and shoulders formation with a thrust below the neckline. If we were to put more faith in the Nasdaq Composite as the leader of the tech sector, we would be inclined to believe that the formation would never be completely triggered. The ND-Comp has performed much more bullishly in the past several months than its cousin, the ND-100, and the chart concurs. The most recent low reached on Mar 10 only touched down at 2239 which compares favorably with the previous low of 2232 from Feb 13. And the current thrust above the 2300 level appears poised to lead the index to a new 2006 high.
New Buy Recommendations (in order of preference):
LSI Logic Corp (LSI) – This chip manufacturer is becoming a fabless entity as they are in the process of selling their chip manufacturing plant; one of the new strategies spearheaded by their new CEO brought in a few months ago to turn things around. Certainly the stock price reveals a strong belief in his efforts as the stock broke out of its 9-month consolidation and is primed now for a move higher.
RTI International Metals (RTI) – RTI is a titanium producer and demand for titanium is increasing exponentially especially as a metal for aircraft parts replacing steel. This company finished the week with 3 solid up-days to complete a Lindahl buy signal on the weekly and reach a new 52-week high. The strong performance was the natural reaction to its firm 4th quarter results that were released on Thursday and its very positive outlook for 2006.
New Short Sales
None.
Stock Positions to Sell/Exit:
Englobal Corp (ENG) – Unfortunately, this stock has gone nowhere in the time that we’ve owned it and we’d rather deploy our money elsewhere at this point.
Radiant Systems (RADS) – Here is a similar situation.
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 |
89.98 |
|
B
|
|
|
Birch Mtn Resour. |
BMD |
6.65 |
6.42 |
|
H
|
|
|
Cdn Natural Res |
CNQ |
58.00 |
56.25 |
|
H
|
|
|
Englobal Corp |
ENG |
10.86 |
10.53 |
|
SELL |
|
|
|
MNG |
2.50 |
3.08 |
|
B
|
|
|
Nasdaq Stock Mkt |
NDAQ |
45.98 |
43.78 |
|
H
|
|
|
Nuvelo Inc. |
NUVO |
12.95 |
18.01 |
|
B
|
|
|
Progenics Pharma |
PGNX |
29.70 |
27.54 |
|
H
|
|
|
Radiant Systems |
RADS |
13.78 |
13.68 |
|
SELL |
|
|
Redback Networks |
RBAK |
11.78 |
19.06 |
16.00 |
B
|
|
|
Seabridge Gold |
SA |
9.49 |
7.95 |
|
H
|
|
|
Sierra Wireless |
SWIR |
13.60 |
11.51 |
|
H
|
|
|
Sigma Designs |
SIGM |
13.10 |
15.24 |
|
B
|
|
|
Stereotaxis |
STXS |
13.57 |
13.83 |
|
B+
|
|
|
Tom Online |
TOMO |
20.66 |
22.24 |
|
B
|
|
|
Transcanada Corp |
TRP |
21.34 |
30.33 |
27.50 |
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price