Stockscom Report for Sunday Jan 21 2007

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

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

· Tech stocks pull a reversal

· Rebound in oil stocks beginning?

Market Synopsis

Stock markets played a game of role reversal this holiday-shortened week. Once trading began again on Tuesday, the mild retracement that we expected turned into a rout on heavy volume especially noticeable on the tech-heavy Nasdaq market. Now the tech sector had been the market leader of late and its rise from the summer lows was a remarkable feat therefore expectations of a retracement were running high. It only took the release of some quarterly results from the likes of Apple, IBM and Intel to trigger a sell-off in the tech space as a gaggle of analysts sought excuses for the negative performance of these stocks. Other stocks were naturally caught in the downdraft and also saw their prices sink as a result.

A performance such as this by the recognized leader would normally provoke similar actions within other indexes and while this may be the case for the S&P Midcap index and the Russell-2000, which did in fact follow the Nasdaq’s lead to a large extent, the same cannot be said for the broader large cap indexes, namely the S&P-500 and the DJ-30. Thus we can conclude that while this move was an important indicator of near term bearish action in tech-related equities and presents a situation that must be dealt with in prudent fashion, we have yet to see any reason to change our opinion of stocks in general.

One reason for the superior performance of the large cap indexes was the rebound in oil and oil service stocks. With the significant losses seen recently with energy-related shares and the more severe drop in the price of crude oil whereby the February futures contract tumbled from the $80 level to this week’s $50 area, there was certainly downward pressure on the S&P 500 index. Interestingly, the drop in share prices was not as sharp as the price of crude oil and the low on the Amex Oil Index (XOI) was reached on January 11, a week before the low was reached on the futures contract. Though still early, this price action suggests that oil companies may have put in their lows already and are prepared to rebound.

Technically Speaking

Tech shares and in particular the Nasdaq twins were the indexes most damaged by the selling this week. The key points that we consider worth watching are the support lines at 2400 on the Composite index and 1750 on the ND-100. Breaking support at these points strongly suggests that a move to the lower end of the upward moving channel would be in the cards. Thus the Composite index could drop by approximately 300 points and still be within this channel but again we emphasize that the first line of support would need to fail before such a test could be even considered.

These tech shares were recognized as being the leaders as the year began only a few sessions ago but ironically, we are back to where we began with the original leaders, the Dow Jones Industrials and the S&P 500, in the pilot’s seat. These two indexes have managed to remain mostly in their upward moving channels and are located near their respective lower boundaries at this time.

It is worthwhile to point out that the Dow Jones Transports index has been on an upward bias since late December and has the 2006 top in its sights. Lower energy prices have undoubtedly been responsible for at least part of the Transports gain in the past few weeks. More importantly, a new high on the Transports index would confirm the rise in the Industrials according to Dow Theory – something which has been lacking for several months and caused many analysts to downplay the new highs on the Industrials average.

New Buy Recommendations (in order of preference):

Crown Castle Int’l (CCI) – This firm is one of the largest owners of transmission towers for cellular services in the US. As with most of its peers, it has suffered through losses as the tremendous cost of infrastructure build-out has meant heavy borrowing costs. However companies such as this one are just now beginning to see the light of profit. Friday’s move breaking through resistance near $36 as well as its 8-month trading range on double the normal volume was key to the developing daily chart while the weekly chart showed us that the support of the 40-week moving average was strong enough and the monthly chart now has an outside bar in the upward direction.

Videsh Sanchar Nigam (VSL) – VSL is one of India’s global communication providers but even more than this – it is the largest carrier of wholesale voice traffic in the world and the third largest telecom network behind only MCI and AT&T. It is part of the Tata Group of companies, one of the largest conglomerates in India whose tentacles touch a wide spectrum of industries. In recent years they bought Tyco’s undersea fiber optic cable for pennies on the dollar and then did much the same with Teleglobe’s assets in more recent times. The stock gapped up on the daily chart to begin the week and is now within a couple of bucks of topping the 2006 high. Reaching this level would also mean breaking through the one and a half year trading range, which has contained its share price. There are Lindahl buy signals on both the weekly and the monthly charts supporting a continuation of the upward movement.

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
01/08/06	Barr Laboratories	BRL	52.57	55.23	49.90	B+
12/26/06	Cheniere Energy	LNG	29.15	27.92	25.80	H
10/23/06	Coca-Cola Co.	KO	46.75	48.26	47.00	B
09/25/06	Cognos Inc	COGN	35.20	43.27	40.00	B
12/11/06	Credence Systems	CMOS	5.02	4.95	4.50	H
01/16/07	Echostar Comm	DISH	40.36	40.05	37.00	H
01/03/07	Fronteer Dev’t Grp	FRG	9.53	10.00	7.25	B
11/13/06	Goodyear Tire	GT	18.00	24.22	20.00	B
10/23/06	I-Flow Corp	IFLO	15.02	16.08	15.00	B
12/11/06	Isis Pharma.	ISIS	12.53	11.04	10.00	H
10/30/06	Millennium Pharm	MLNM	11.58	11.23	10.50	H
11/13/06	NYSE Group	NYX	96.50	99.96	90.00	B
12/26/06	Qiao Xing U Tele	XING	13.67	15.05	11.85	B
11/06/06	Watts Industries	WTS	41.25	40.68	37.75	H

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price