Stockscom Report for Sunday Sep 24 2006

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

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

· Latest PPI inflation shows pressure subsided

· Fed pauses once more on interest rates

Market Synopsis

Besides the expected tame wholesale inflation figures released at the beginning of the week, stock markets were keen to see how the housing industry is doing and what the Fed would say in their post-meeting communiqué.

While the housing numbers were weaker than expected, there is no noticeable panic in the industry. Certainly there are pockets in many regions where housing sales are far lower than they were a year ago and this is giving rise to anecdotal evidence of difficult situations however most talk appears centered on a current slowdown in the industry with the lingering potential threat of something much worse. As these sales numbers are highly volatile, we are often reminded to analyze the data in terms of the pattern that emerges from six months of data.

Housing was also on the minds of the Federal Reserve governors as they met this week to decide on interest rate policy. The midweek meeting of Fed governors resulted in no surprises as the Fed voted to keep interest rates at 5.25%, pausing for the second consecutive time. Interestingly, the Fed has never extended a rising interest rate cycle after three consecutive pauses therefore if the Fed chooses to stand pat once more at the next meeting scheduled for Oct 24, the likelihood is great that the next move in interest rates will be lower not higher. Naturally, analysts ask themselves if this cycle of interest rate hikes was composed of one too many as the Philly Fed Index dropped to –0.4 from a +18.5 in August. The index is a measure of manufacturing in the region and its slide into negative numbers has touched the lowest level since April/03 and thrust the ISM manufacturing Index due to be released on Oct 2 into the spotlight. A negative value here would indicate a nationwide contraction and increase the potential for a future recession.

Although the prevailing mood shifted at the end of the week as sentiment took on a more bearish tone, there is nonetheless an overall bullishness to equities markets. Based on the premise that the Federal Reserve could engineer a slower growth rate and avoid a recession (the dreaded R-word), investors have begun participating as growth in trading on the long side has evidently increased.

Technically Speaking

While the S&P 500 managed to reach a new high for 2006, it reversed course perhaps in sympathy for the DJ-30, which aimed for a new 2006 high and an all-time high but was rebuffed. Still the positives out-weigh the negatives and these large cap indexes plus the tech sector of Nasdaq are extending their moves to the upside. Though finishing the week lower was regarded by many analysts as bearish, these indexes are the subject of some retracement work here after having performed strongly the past eight weeks. Since no technical support levels were breached, there is no reason for bulls to dislike the current market action.

The Nasdaq remains well below its own highs for 2006 however it crossed through the resistance of its 200-day moving average this week only to settle just below the average by the close of Friday. The strength required to push it back through the 200-day MA is not likely to quickly dissipate and we should see a concerted push upward once more through this moving average.

New Buy Recommendations (in order of preference):

Cognos Inc. (COGN) – This software company released its results at the end of the week and it generated enough excitement to transform sentiment into broadly positive helping price to make a clear break through the 200-day moving average. The gap higher on Friday morning combined with the gap lower in mid-May to create an island bottom – a very bullish signal. Moreover the outside bar on the weekly chart completed a Lindahl buy signal that had been developing.

Citrix Systems Inc. (CTXS) – This week and last, CTXS regained the 200-day moving average and filled an important downside gap left since mid-July. Earlier in August, CTXS had bottomed right above key support levels near $27 and, on the weekly chart, the 40-week MA has been very supportive showing the way for price.

New Short Sales

None.

Stock Positions to Sell/Exit:

US Global Invest (GROW) – We were exited at the end of the week in a period of concentrated selling. This stock may be prone in the short term to certain price weakness based on the technical damage sustained on the last two sessions of the week.

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
08/21/06	Brush Engineered	BW	26.36	25.52	24.00	H
09/18/06	Kendle Int’l Inc	KNDL	31.00	31.84	29.80	B
09/18/06	ON Semiconductor	ONNN	6.36	6.13	5.75	H
09/05/06	US Global Invest	GROW	27.32	27.32	27.32	SOLD
09/18/06	XM Satellite Radio	XMSR	13.60	13.35	12.50	H

Short Sales:

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
08/21/06	Caterpillar	CAT	68.25	62.77	67.50	S

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price