Stockscom Report for Sunday Apr 30 2006

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

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

 

·        Interest rate worries take front seat

 

 

Market Synopsis

 

The earnings season is winding down and attention is now turning toward economic data, which if one were to believe the testimony in front of Congress this week from Fed Chairman Ben Bernanke, is absolutely critical to the monetary policy decisions from the new Federal Reserve. Bernanke is putting his mark on the Fed and one major deviation from his predecessor, Alan Greenspan, is Bernanke’s desire to be more forthcoming, creating a very open Fed that requires less code-breaking skills on the part of financial analysts. Agree or disagree with his policies, it matters little as long as analysts correctly interpret his comments.

 

For starters, Bernanke has spared no opportunity to give his opinion on inflation, which this week surprised some economists with his declaration that wage inflation does not necessarily introduce widespread inflation into the economy. His reasoning is that if growth in productivity were greater than the rate of inflation, the net effect would not be perceived negatively. This pearl of wisdom is perhaps not finding acceptance in some corners but does reinforce his view that data will be held in the highest regard.

 

And this week there will an abundance of data to sift through. From the ISM Mfg index to factory orders, from productivity and costs to the April employment report. A veritable smorgasbord of data giving investors a peak at various tallies will be released. Bond prices have already priced in an increase in interest rates to 5% at the meeting next week but it is the June meeting that has people wondering. Bonds of late have been pricing this rate hike as somewhat doubtful so this week’s data could be critical to the interest rate debate within the Fed.

 

Technically Speaking

 

While the broader large cap indexes, the Dow Jones and the S&P 500, finished the week virtually flat, the large cap tech sector, namely the Nasdaq-100, closed the week having lost ground and left technical indicators suggesting that we could be on the cusp of a significant fall in the Nasdaq.

One could argue however that the indicators have got it all wrong this time and that this moment is actually different. For one, Microsoft was hammered in trading on Friday after releasing quarterly results that were well below expectations and offered an outlook that deferred some revenue growth to 2007 due to the now delayed release of the next version of Windows. With 591 million shares traded in MSFT alone of the total 2.6 billion shares traded on Nasdaq, the results of MSFT heavily skewed the index toward a large volume loss on the day. Despite the negative reaction to MSFT, the market breadth as measured by advancing issues versus declining issues favored advancing issues by a wide margin.

 

For the most part, the first quarter earnings season was a positive experience and with data such as durable goods orders increasing at a strong 6.1% pace and first quarter GDP estimated to be 4.8%, there is ample reason to believe that stock prices could get a lift over the next few months.

 

 

New Buy Recommendations (in order of preference):

 

US Global Investors (GROW) – This investment fund company has become a performance leader in its classes. What interests us is not its investments but rather the income that is being generated. In the last quarterly report, they announced that their revenues grew 89% y-o-y and the net income grew 220% y-o-y. From a technical point of view, the stock broke new ground on Friday pushing through the previous high and resistance from Feb’s high. Inasmuch as the total float is less than six million shares, it would not take much to put upward pressure on its share price.

 

TGC Industries (TGE) – This company is a provider of seismic data acquisition services and has been expanding to exploit the need for more accurate readings of the geology in oil and gas exploration. This week, they announced their strong quarterly results and there are high expectations that demand will continue to outstrip supply in these service offerings. The chart gapped higher on Monday and while this would have been the ideal entry position, the jump in price on Friday coupled with the high trading volume is telling us that this stock has much further room to move. Certainly the break above $12 was very significant for it represented a move through the resistance of the August ’05 high.

 

 

New Short Sales 

 

None.

 

Stock Positions to Sell/Exit:

 

Nasdaq Stock Market (NDAQ) – This stock has performed badly and part of the fault lies in the fundamental issue of dilution. The board has opted to increase the float in order to raise money ostensibly to pay for the large chunk of the LSE bought recently. We would prefer to close our position here for there is little upside potential in the short to intermediate term.

 

 

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

85.71

 
B

03/27/06

Anadigics

ANAD

6.85

8.98

 
B

11/14/05

Birch Mtn Resour.

BMD

6.65

7.43

 
B

02/21/06

Cdn Natural Res

CNQ

58.00

60.20

 
B

03/20/06

LSI Logic

LSI

11.25

10.65

 
H

01/30/06

Nasdaq Stock Mkt

NDAQ

45.98

37.42

 
SELL

01/09/06

Nuvelo Inc.

NUVO

12.95

16.37

 
B

01/09/06

Progenics Pharma

PGNX

29.70

23.00

23.00
SOLD

11/07/05

Redback Networks

RBAK

11.78

22.40

18.00
B

03/20/06

RTI Int’l Metals

RTI

47.70

60.14

 
B

01/09/06

Seabridge Gold

SA

9.49

10.40

8.00
B++

01/09/06

Sierra Wireless

SWIR

13.60

18.01

 
B

04/10/06

Silver Wheaton

SLW

11.06

11.24

 
B+

02/27/06

Stereotaxis

STXS

13.57

11.84

11.00
H

03/27/06

Texas Industries

TXI

64.55

57.00

57.00
SOLD

11/14/05

Tom Online

TOMO

20.66

25.10

23.90
B

03/08/04

Transcanada Corp

TRP

21.34

29.56

28.00

B

 

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price