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·
Losses are trimmed – rebound
continues
Market Synopsis
This promises to be a busy and volatile week in stocks inasmuch as the Federal Reserve has made no secret of its intention to utilize economic data in order to develop its interest rate policy. Between the release of the wholesale inflation data on Tuesday and the consumer inflation data on Wednesday, Federal Reserve Chairman Ben Bernanke of printing press fame, will be presenting speeches on Monday, Tuesday, and Thursday. And considering Bernanke’s penchant for explosive words in place of the enigmatic, semantically-challenging former Chairman Alan Greenspan, the potential for wide market swings has increased exponentially.
The latest missives from various FOMC governors lean toward an increased awareness or threat of inflation seemingly preparing the terrain for not just one quarter point hike at the end of this month, but another in early August when the next FOMC meeting takes place. Beyond that time is likely to be a period of reflection as many analysts both private and government, consider the potential for a slowing economy in the second half of 2006 to be increasingly likely.
Perhaps one piece of good news was the release of April trade data this week that was lower than expected. The first three months of the year saw shrinking trade data each month, which was even more impressive. However the widening of the trade deficit to $63.4 billion was not unexpected given that the price of oil jumped sharply causing the deficit in oil imports to increase by $1.9 billion and this alone accounted for the increase from March’s data. Still the total trade deficit is much larger than last year’s after four months and if it were to continue on this pace, the deficit for all of 2006 will surpass the figure from 2005.
Technically Speaking
The markets continue to be roiled and this week the cause of much of the technical damage was the comments by Fed Chairman Ben Bernanke. His hawkish commentary about inflation threats was sufficient to send bulls into hiding and bears to come out swinging.
The Nasdaq market was left hung to dry but the oversold nature of stochastics could combine with some support located at the bottom boundary of the rising channel from mid-2004 to generate a healthy bounce. Nevertheless a bounce here would probably only serve to carry the Composite index to the neighborhood of 2250-2275 before it collapsed once more.
Stochastics could also cause bounces in both the Dow Jones and the S&P 500 as well with both markedly lower in price and deep into oversold territory. The DJ made a stand on Friday at its 200-day moving average, which has supported it since early November 2005. While this MA could provide a platform from which a rally could be initiated, we doubt strongly that this would be anything more than temporary.
The S&P slid through its 200-day MA earlier in the week but similarly, there is a very good possibility that the market could bounce at this point and we would target 1300 as a potential top.
A solid reliable bounce in equities would offer us the opportunity to position ourselves short in certain equities, an option that we don’t particularly have as long as the very near term risk for markets is to the upside.
New Buy Recommendations (in order of preference):
First Marblehead Corp (FMD) – This finance company thrives in the business of educational loan services with an emphasis on designing and implementing student loan programs. For the past three months, FMD has been in a rock-steady consolidation but with Friday’s gap higher, the stock is signaling that a new move higher has begun. On the weekly chart, the Lindahl buy signal is leading price to a new 52-week high and suggests a move toward the all-time high reached in 2005 is possible.
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 |
20.83 |
19.00 |
B
|
|
06/05/06 |
Seabridge Gold |
SA |
11.00 |
10.67 |
9.75 |
H
|
|
06/05/06 |
Titanium Metals |
TIE |
39.35 |
34.95 |
34.95 |
SOLD |
|
06/05/06 |
US Global Investor |
GROW |
24.25 |
21.63 |
21.63 |
SOLD |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price