Stockscom Report for Sunday Nov 5 2006

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

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

·        Midterm elections on Tuesday

Technically Speaking

The past week was remarkable for the dominance of sellers across all markets. The four major market indexes, the DJ, S&P 500 and the Nasdaq twins experienced a much-needed retracement that can only benefit the indexes in the long term. While some of this selling was quite severe, their respective charts were not seriously damaged since this leg higher had occurred over an extended period of time with little time for retracement.

The most immediate situation is the midterm elections on Tuesday and while there is a certain expectation that the Democrats will gain from this election and may even assume control of one or both chambers, the uncertainty surrounding this election is cause for some nervousness. Market indexes have rebounded strongly from their summer lows until this most recent period of selling. An election result deemed to be unexpected could become the catalyst for a period of renewed selling, which would effectively take stocks down further in a general bout of selling. Given this environment, we continue to show a preference for tight protective stops regardless of the risk of being exited on whipsawing price activity.

The flip side of the election story is that with the removal of this layer of uncertainty, stocks may in fact, be the beneficiaries of a pop in price. Stochastics on all four indexes have dropped to near oversold levels and will be in a position to rebound very soon. Glancing at support/resistance areas on the daily charts, we note that the Nasdaq-100 should find support above 1675 while the Nasdaq Composite finds similar support around 2300 or perhaps slightly below this level. For the DJ-30, there is support that lies at around 11,750 and for the S&P 500, equivalent support is found at 1350. All of these support areas correspond roughly to their respective 40-day moving averages.

New Buy Recommendations (in order of preference):

Fronteer Development Group (FRG) – Fronteer is involved in the mining/extraction of precious metals and uranium. Uranium is of particular interest because the global supply- demand equation is extremely favorable for price increases in uranium as world demand surges. Friday’s price move to a new 2006 high signaled that a new leg had begun as price topped the previous high of $7.27 on heavy volumes over the past two days.

Watts Industries (WTS) – This is a water company dedicated to the control, conservation and quality of water in N America and Europe. WTS reached a new 2006 high this week on better than expected quarterly results. On the weekly chart, the double-bottom from the fourth quarter of 2005 combined with the third quarter of 2006 give a very good indication of the technical strength. On the monthly chart, the most recent rise in price has completed the formation of a Lindahl buy signal.

Allis-Chalmers Energy (ALY) – ALY is an oil and gas service company whose stock price has been range bound between roughly $9 and $19 for the better part of a year and a half. The move late this week suggests that ALY is breaking out finally from this range. On the weekly chart, the Lindahl buy signal completed this week on heavier than expected volumes added particular strength to the signal.

Syntax-Brillian Corp (BRLC) – BRLC designs and manufactures large screen HDTV’s. Its stock price closed at a new 2006 high on Friday and this large move on Friday had the additional effect of closing above the 2005 high as well as setting up a challenge to the 2004 top.

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.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price