Stockscom Report for
Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)
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Tech stocks remain in limbo
Market
Synopsis
Equities reversed course again this week with an extremely large move on Thursday and this occurred on much greater volumes with breadth that could only be described as overtly bearish. These reversals though, are becoming commonplace it seems as traders react violently to the data of the day. Furthermore, the price action implies a much greater sense of incertitude surrounding the economy. Implicit in the stock market activity of the past few days there is an indication that investors have little confidence that the future economic trends 6 or 12 months down the road will lead to significant economic growth. Technically, it represents a lateral move bereft of conviction and though no trend has established itself, given the length of this bullish rally (starting in Jul/Aug), there is a strong likelihood that a downward cycle will begin.
Technically Speaking
Tech shares and in particular the Nasdaq twins were once again the indexes the most damaged by the selling this week. Even more surprising though was that the loss on the Composite index was less than the loss on the ND-100 (which comprises the 100 largest companies on ND). Inasmuch as this index is a subset of the Composite, it is rarely the case that over a week, the loss on the ND-100 is 50% more than on the Composite index. A loss such as this is a strong indication of weakness in the Nasdaq’s largest members and represents a warning sign for investors.
Still, 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. It is worth mentioning that the lower boundary of this channel lies currently in the neighborhood of 1475 on the ND-100 and around 2075 on the Composite index.
As for the Dow Jones and the S&P 500, both ended the week near their respective 40-day moving averages with intraday moves that tested these levels. Whether or not this line is strong enough to support the indexes remains to be seen however given the bearish turn of the past two weeks we have our doubts that this moving average will support prices.
We mentioned last week that the Dow Jones Transports index had been on an upward bias since late December but it too was hit by a wave of selling this week and could potentially falter. A drop below 4500 on the Transports index would represent a bearish shift in the outlook and would induce further selling from those trading from a technical perspective.
New Buy Recommendations (in order of preference):
MEMC Electronic Materials (WFR) – On Friday, WFR released its quarterly report and the strong earnings gave a 20% boost to the stock price. Despite the obvious potential for some substantial retracing of this move, we recommend purchasing this stock as the sharp rise was sufficient to top the 2006 high near $49 and consequently produced a break out signal from possible congestion. Weekly and monthly charts of WFR confirm the buy signal found on the daily.
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 |
54.77 |
49.90 |
B
|
|
12/26/06 |
Cheniere Energy |
LNG |
29.15 |
28.05 |
25.80 |
H
|
|
10/23/06 |
Coca-Cola Co. |
KO |
46.75 |
47.83 |
47.00 |
B
|
|
09/25/06 |
Cognos Inc |
COGN |
35.20 |
44.17 |
40.00 |
B
|
|
12/11/06 |
Credence Systems |
CMOS |
5.02 |
4.87 |
4.50 |
H
|
|
01/22/07 |
Crown Castle Int’l |
CCI |
36.21 |
35.41 |
33.00 |
B+
|
|
01/16/07 |
Echostar Comm |
DISH |
40.36 |
39.41 |
37.00 |
H
|
|
01/03/07 |
Fronteer Dev’t Grp |
FRG |
9.53 |
10.29 |
8.00 |
B
|
|
11/13/06 |
Goodyear Tire |
GT |
18.00 |
24.70 |
20.00 |
B
|
|
10/23/06 |
I-Flow Corp |
IFLO |
15.02 |
16.11 |
15.00 |
B
|
|
12/11/06 |
Isis Pharma. |
ISIS |
12.53 |
10.43 |
10.00 |
H
|
|
10/30/06 |
Millennium Pharm |
MLNM |
11.58 |
11.24 |
10.50 |
H
|
|
11/13/06 |
NYSE Group |
NYX |
96.50 |
101.14 |
90.00 |
B
|
|
12/26/06 |
Qiao Xing U Tele |
|
13.67 |
15.75 |
13.00 |
B
|
|
01/22/07 |
Videsh Sanchar N. |
VSL |
22.04 |
21.90 |
19.50 |
B
|
|
11/06/06 |
Watts Industries |
WTS |
41.25 |
42.24 |
37.75 |
B+
|
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted
price