Stockscom Report for Sunday June 4 2006

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

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

· Losses are trimmed – rebound continues

Market Synopsis

The May employment report was on tap for Friday and the announced 75K new jobs elicited a strong positive response upon its release immediately followed by a more negative reaction, as investors believe this could let the air out of the asset inflation bubble if we presume that the inflation fighting strategy of the Fed would continue.

On June 28/29, the FOMC convenes another meeting and comes to a decision on interest rates for overnight money. Current guesstimates are putting the odds for a rate increase at even money and if the Federal Reserve paused to take a break from the consecutive rate increases, they would be sending a message that the Fed is easing its policy of tightening the money supply to prevent inflation.

It is no absolute certainty that the negative swing in stock prices on Friday was in fact, due to the belief that the Fed would continue to raise interest rates. However, the 75K increase in jobs, though well below expectations for 175K new jobs, was sufficient enough to drop the unemployment rate to 4.6%, the lowest rate since July 2001. Consequently, investors should not expect the Fed to be complacent in the face of extraordinary wage pressures inherent in attracting necessary talent when the pool of available labor appears to be contracting.

Nevertheless there are several factors that the Fed will examine in order to decide interest rate policy and employment is simply one very large factor. One must however keep in mind that most analyses of the economy are forecasting a slowdown in the second half of the year and we are seeing evidence of that scenario in the latest ISM figures that showed a decline in the Purchasing Manager’s survey from April’s 57.3% to May’s 54.4%. The ISM has declined steadily in the early part of 2006, which lends support to the thesis of a coming slowdown in the economy.

Technically Speaking

The various stock markets extended their respective rebounds this past week and for technicians, the negative finishes on Friday only served as slight retracements that do not dictate a change in direction. More important, is the question of how long can we expect this rebound to continue for we consider this move to be limited in scope inasmuch as the charts have turned abruptly bearish.

Nasdaq’s move on Thursday was surprisingly strong in points but lacked the superlative volume that a bullish move would entail. Perhaps the best that we can expect for now is a rise to somewhere near 2270 leaving it below the gap left open from May 11. It is worth noting however that the index bottomed out last week at the lower boundary of an upward channel guiding price since mid-2004. Whether this support will be sufficiently strong is a key watchpoint in the days ahead.

The Dow Jones uncovered support at 11000, which judging by the weekly charts was expected given the high in early 2005 around 11K. Regardless of the relatively weak rebound thus far, the DJ has been the strongest of the large cap indexes and we don’t really expect the tech sector to suddenly retake the leader’s position.

In the case of the S&P 500, the key support level was and continues to be the 200-day moving average. Similar to Nasdaq, the strong rise in points on Thursday would have been that more impressive had it been accompanied by strong increasing share volume. Unfortunately, this was not the case. With volume declining rapidly into the weekend, the sustainability of the rebound is put into question.

New Buy Recommendations (in order of preference):

In recognition of the current bounce, we recommend that investors be very patient in re-entering positions. A judicious use of capital is an excellent strategy and will serve investors well through the choppy investment seas that we are experiencing.

Titanium Metals Corp (TIE) – We view this stock as very similar to RTI, our recent holding in the titanium industry. However after careful consideration, our analysis tells us that TIE is likely to perform stronger than RTI and for that reason alone, we choose TIE. On the daily chart, TIE completed a Lindahl buy signal on Friday and the weekly chart demonstrates inherent strength with the now-completed retracement and the subsequent extension of its rebound. Furthermore, recent tests near the $30 support level were an unmitigated success.

Seabridge Gold (SA) – Gold has begun rebounding after having bottomed near $620 however there are still many gold stocks constrained to lower values. The few names that are demonstrating strength include the likes of SA and MNG but with Friday’s completion of a Lindahl buy signal, we much prefer SA especially with the extraordinary volume seen on Friday accentuating the move.

US Global Investors (GROW) – Lastly, a return once more to a former recommendation. This relatively small boutique investment firm is growing both revenues and net income in rapid fashion. As with the other two recommendations, GROW also managed to complete a Lindahl buy signal on the daily chart but to our chagrin, it failed to clear the most recent highs near $24.40, which would have solidified our belief in its bullish attitude. Nevertheless, the chart does represent a good opportunity at this level and with a small float of only a little more than six million shares outstanding, there is built-in competition for shares.

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
11/07/05	Redback Networks	RBAK	11.78	24.14	18.00	B

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price