· Tech stocks remain in limbo

Technically Speaking

The abject failure of the DJ Industrials to gain any traction from the confirmation signal resulting from a new high on the DJ Transports gives the bears ample fodder to chew on and hammers another nail in the coffin full of excuses used by the bulls to suggest why markets can still go higher. Markets of all stripes have maintained a steady upward climb since the summer months and there comes a time when stocks cannot climb any higher. This time may have arrived. As is always the case however, we have no means to know the future but predicate our beliefs on charts composed of volume and price data.

The current situation is certainly an interesting study for the potential onset of a bearish drop in stock prices. The week began with small increases in the technology sector, namely the Nasdaq twins but gains didn’t extend to other sectors of the market and by the middle of the week, signals of buyer fatigue became apparent. Friday’s remarkable drops in price on all indexes combined with volumes that matched or were heavier than daily volumes this week was a clear sign, that at the margin, the majority of shares are in weaker hands, which are willing to dispose of them quite hastily.

For both the DJ-30 Industrials and the S&P 500, price dipped on Friday to around the 25-day moving average and in both cases, the 40-day moving average has been the lower boundary for their respective prices since the month of August 2006. There is not a doubt that if price were to slide through that key level, sell programs would be triggered sending markets much lower. And these levels are already very close with the 40-day MA on the DJ-30 residing at 12,508 and for the S&P 500, at 1427.

The Nasdaq chart is even more ominous with the recent development of a right shoulder as part of a head and shoulders formation. The neckline for this formation on the ND-100 is located around 1750 while the corresponding neckline on the ND-Composite is approximately 2400. Surprisingly, the tech-heavy Nasdaq could sustain quite a hit yet still be considered within a rising channel that began development in 2003. The current bottom of the channel is located near 2075 on the ND-Composite.

Gold is one bright, shiny spot in the markets of late as the price of gold surged on Friday to close above $672 for the April futures contract. This exceeds the most recent highs and now sets up a test for the May 2006 highs. We consider this a key break that is worth following but strangely, the stock we would have recommended would be Yamana Gold (AUY) but it dropped a few cents on heavy volume on Friday so we are cautious for the moment. One could always take a position in the ETF however, which is GLD, and profit from the rise in gold prices.


New Buy Recommendations (in order of preference):

None.   

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.