Stockscom Report for Sunday Oct 29 2006

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

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

· 3^rd quarter GDP – 1.6%

Market Synopsis

The release of the third quarter GDP headlined the past week as unexpected non-growth of only 1.6% for the past three months proved to be the slowest quarterly growth since the first quarter of 2003. For those analysts (and Fed officials) who have been suggesting that strong economic growth is introducing inflationary pressures, this was akin to a splash of cold water. Though at first glance, the report is perhaps troubling for some, there were some bright spots with consumers’ spending increasing quarter over quarter and business investment increased at an 8.6% clip, over the 4.4% increase seen in the second quarter report. But it was investments in housing which was the biggest negative with a drop of 17.4%, the largest decline in that category since the first quarter of 1991.

When analyzing the initial GDP report, one should keep in mind that the report is subject to a couple of revisions since much of the final month’s (September in this particular case) key data has not been released and/or confirmed and this often has an impact on the final numbers.

The fragile housing situation was highlighted on Thursday with the report on new home sales for September that showed a rise in sales of 5.3% from August and a fall of 9.7% in the median price, the largest drop in the median price since December 1970 and this same median price of a single-family home has fallen 2.5% in annual terms, a first time occurrence.

Interestingly, the rise of 5.3% in sales is statistically meaningless since the possibility of statistical error is so great that there may not even have been a rise in sales at all. Naturally, this puts into question the whole concept of the usefulness of government data.

Technically Speaking

The GDP report acted as a catalyst triggering a widespread sell off of equities on Friday, which was certainly not a bad thing for bulls in general. For the entire month of October, the Dow Jones and the S&P 500 have seen their respective measures of stochastics on daily charts in overbought territory and this simply cannot continue forever. At some point, some selling needs to occur in order to bring health back into the market for the longer it moves higher without interruption, the more painful would be the decline. Trading volumes on the Dow Jones increased into the decline on Friday though this was not the case for either the S&P or Nasdaq and bulls are likely to construe this as a positive.

Glancing at the charts what immediately strikes us is the distance by which the Dow Jones and the S&P have moved away from their respective 25- and 40-day moving averages. Normal retracements in the past have taken these indexes back to their averages in a strong market. Thus we would expect some downward movement in these averages in order to alleviate the upward parabolic turn that they have taken of late.

The Nasdaq Composite market managed a new high for 2006 on Thursday therefore it is comparatively underperforming the broader large capitalization indexes. This index also does not share their overbought condition with respect to stochastics. The daily price bar chart is well above its 25-day moving average however it is not excessively so and a couple of sessions comprising some more selling would be sufficient to send the index back to its moving average.

In short, the danger for bulls is that the decline might be more painful than expected given the tremendous rise that we’ve seen in the past month. But a retracement is required in order to bring back some health into equities trading.

New Buy Recommendations (in order of preference):

Varian Medical Systems Inc. (VAR) – This firm designs, manufactures, sells and services equipment and software for treating cancer with radiation. They released their impressive fourth quarter results this week and this triggered a sharp rise in the share price negating the development of a sell signal on daily charts. The large gap opened on Thursday was instrumental in generating this week’s very bullish outside price bar on the weekly chart and it is this price bar on the weekly chart that signals the beginning of a new leg higher.

Millennium Pharmaceuticals (MLNM) – This company specializes in the development of drugs to treat cancer, namely myeloma. Thursday’s and Friday’s moves sent the stock to its 2006 high on heavier than normal volume. Thursday’s rise completed a Lindahl buy signal on the daily chart and from a long-term perspective, the weekly chart displays a breakout move from the range bound price action since the beginning of 2005.

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
10/16/06	Anadigics Inc.	ANAD	8.21	7.40	7.40	SOLD
10/16/06	Bitstream Inc.	BITS	9.81	9.98	8.90	B
10/16/06	Bovie Medical Sys.	BVX	8.39	8.33	7.45	B
10/23/06	Cerner Corp	CERN	46.96	47.66	44.00	B
10/23/06	Coca-Cola Co.	KO	46.75	46.87	45.25	B
09/25/06	Cognos Inc	COGN	35.20	37.22	33.00	B
10/23/06	Corrections Corp	CXW	46.40	45.40	43.50	H
10/09/06	DuPont	DD	44.95	45.55	43.50	B
10/02/06	Global Payments	GPN	43.80	43.26	40.00	H
10/23/06	I-Flow Corp	IFLO	15.02	15.58	13.50	B+
10/16/06	Miramar Mng Corp	MNG	4.34	4.58	3.60	B
10/02/06	NII Holdings	NIHD	62.27	66.60	60.00	B
10/09/06	Rediff.com India	REDF	16.50	16.18	15.25	H
10/16/06	Tessera Tech.	TSRA	36.30	33.80	33.80	SOLD

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price