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Losses are trimmed – rebound
continues
Market Synopsis
The market has grown to accept the fact that the Fed led by Chairman Ben Bernanke will go forward with an increase in overnight interest rates of a quarter percent on June 29 after weighing his words and those of his colleagues over the past several days. Bernanke spoke three times in speeches this past week and stayed on-message as the media prefers to call it. While not expressly calling for higher interest rates, nothing in his speeches left analysts contemplating his intentions any further. Perhaps the Chairman has learned rapidly from his initial miscues as he relied on data from rising energy prices to press his case for a increased threat of inflation that must be contained. Ironically, despite the Fed’s expectations of inflation flowing through energy prices for quite some time, there has been little proof of it actually provoking higher prices in finished products.
Given that the Bernanke-led Fed has every intention of raising interest rates a 17th consecutive time, the question that follows is what are the chances that a further rate increase will occur when the FOMC meets again in early August. In spite of assurances from the Fed that they have become data-dependent, there is a very real potential to overshoot on interest rates and trigger a sudden slowdown in the economy. Fortunately, the data so far doesn’t indicate that possibility occurring, though May has indeed been found to be slow. But early indications are that the economy has rebounded the past few weeks as evidenced by the Philly and NY Fed Indexes, lower initial claims for unemployment and the release of the U of Michigan survey of consumer sentiment that recorded a rise for the first time since March.
Most analysts however are expecting some significant slowing in the economy later this year and most likely caused by the drop in housing sales as the large inventory of unsold homes starts to take its toll on the economy and home owners grow impatient with the length of the sales period. If the slowdown doesn’t show up in data by August the Fed may mistakenly increase interest rates once more and with overnight rates at 5.5%, adjustable-rate mortgages become prohibitively expensive fueling a rush to the exits of housing speculators as well as marginal borrowers.
Technically Speaking
Markets did indeed rebound beginning earlier in the week with Thursday’s broad-based gains leading the way. Longer-term support on the three major indexes lent a strong hand in generating this bounce in equities with particular emphasis on the S&P 500 where support held near 1220 corresponding quite nicely with the 40-week moving average.
The Dow Jones remains the strongest index with the 200-day moving average providing necessary support to keep the bulls’ dreams alive. This index contrasts sharply with the weakest of the bunch and that is the tech-centric Nasdaq, which is languishing almost 10% off its high reached just two months ago.
At this point, we don’t believe that the buying spree has exhausted itself just yet though it did take an apparent break on Friday. Nonetheless we do see this latest swing higher being of limited strength and a return to selling is expected though timing is uncertain. With less economic news to study this week and more quarterly results to ponder, anticipated good news from corporate bodies could spell more than a little respite from selling.
New Buy Recommendations (in order of preference):
None.
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 |
|
06/12/06 |
First Marblehead |
FMD |
48.85 |
50.80 |
42.70 |
B
|
|
11/07/05 |
Redback Networks |
RBAK |
11.78 |
19.00 |
19.00 |
SOLD |
|
06/05/06 |
Seabridge Gold |
SA |
11.00 |
9.50 |
9.75 |
SOLD |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price