Stockscom Report for Sunday Mar 4 2007
Publisher: Colin Alexander
Editor: Ken Wilson (450-691-4617)
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
- ·
Stock markets begin long-awaited correction
Market Synopsis
This past week’s performance had been expected for several weeks as the
continuous rise in stock markets was met with increasing belief in the
infallibility of equities as an investment vehicle. The global leader in stock
market appreciation was China’s Shanghai-listed shares, which had risen more
than 130% in 2006 and the frothiness of this particular bubble was exemplified
by the Chinese reference to the stock market as “dubo ji” or the slot machine.
On Tuesday, Chinese shares dropped 9% on rapidly spreading rumors that the
government was keen to clamp down on the rampant speculation in order to avoid a
far-ranging market crash that would potentially provoke civil unrest. Already
the Chinese government must manage the increase in “mass incidents” from 8,700
in 1993 to 74,000 in 2004 and there is no doubt that the number for 2006 was
even greater. But was this fall in Chinese shares responsible for the stock
market weakness on this side of the Pacific Ocean or was it simply the catalyst?
Stock markets on this side of the ocean had been rising virtually non-stop since
the month of July. Indeed, until Tuesday’s fall, the Dow Jones Industrials index
had not fallen once below its 40-day moving average since August. Thus the
markets here were in dire need of some retracement and the drop in Chinese
shares was just the trigger needed to initiate such a dive.
For now we label this drop as a retracement however this label could change. The
US economy is slowing down as evidenced by the 7.8% drop in durable goods orders
in January, which was reported this week. While the 60% collapse in aircraft
orders could carry the blame for a large portion of the monthly losses, there
were losses across all categories with very few exceptions. Later in the week,
the ISM Purchasing Managers survey hinted that these production losses were
alleviated in February as the index rose to 52.3% from January’s 49.3%, an
indication of economic expansion on the factory front.
The wild card in all this appears to be the housing sector. Conspicuous by the
largest monthly decline in 13 years of new home sales, January’s 16.6% fall was
sufficient to provoke questions concerning the health of the housing market. A
fall of this magnitude is not only characterized by a sharp drop in building
materials, but also by durables such as furniture and appliances. Furthermore,
were the housing sector to experience a true bear market, there would be the
inevitable reductions in employment both in construction and real estate
contributing to a weakening employment situation.
Technically Speaking
Equity indexes across the board were subjected to selling from
Tuesday onward. Charts were unequivocally bearish as the week ended and, having
broken various support levels, the most likely outcome is that they each will
test their respective 200-day moving averages. Notwithstanding these tests,
there is a strong potential for markets to form rebounds as stochastics have
rapidly migrated to oversold territory and consequently, there is this
possibility and we should be prepared for it. A bounce here though would not
result in new highs for any of the stock indexes since far too much technical
damage has been wrought. The most that bulls could hope for would be a bounce of
approximately 50-60% of the losses before renewed selling takes hold. The
subsequent tests would naturally be the initial lows from which the bounces
occurred or failing that, the respective 200-day moving averages.
We recommended gold in the last couple of weeks as the price of gold on global
markets pierced certain technical levels however precious metals were not
effective hiding places during the sell off experienced this week. Our position
in GRS was abruptly exited this week however we believe that the chances favor a
stronger rebound in gold than equities and that new highs would result.
New Buy Recommendations (in order of preference):
None.
New Short Sales
None.
Stock Positions to Sell/Exit:
Obviously many of our stops were touched this week, exiting us from various
positions and we have initiated or modified many of the remaining stops to
prevent unnecessarily large losses.
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 |
| 02/26/07
|
Avici Systems |
AVCI |
9.45 |
8.76 |
8.10 |
H |
| 01/08/06
|
Barr Laboratories |
BRL |
52.57 |
49.90 |
49.90 |
SOLD |
| 12/26/06
|
Cheniere Energy |
LNG |
29.15 |
28.30 |
25.80 |
H |
| 10/23/06
|
Coca-Cola Co. |
KO |
46.75 |
47.00 |
47.00 |
SOLD |
| 12/11/06
|
Credence Systems |
CMOS |
5.02 |
4.50 |
4.50 |
SOLD |
| 01/22/07
|
Crown Castle Int’l |
CCI |
36.21 |
33.00 |
33.00 |
SOLD |
| 02/26/07
|
Dynamic Materials |
BOOM |
35.34 |
29.65 |
29.00 |
H |
| 01/16/07
|
Echostar Comm |
DISH |
40.36 |
41.82 |
39.80 |
B |
| 01/03/07
|
Fronteer Dev’t Grp |
FRG |
9.53 |
10.00 |
10.00 |
SOLD |
| 02/20/07
|
Gammon Lake Res |
GRS |
17.56 |
16.00 |
16.00 |
SOLD |
| 11/13/06
|
Goodyear Tire |
GT |
18.00 |
27.19 |
23.50 |
B |
| 10/23/06
|
I-Flow Corp |
IFLO |
15.02 |
15.00 |
15.00 |
SOLD |
| 01/29/07
|
MEMC Elec Mats |
WFR |
51.90 |
49.87 |
48.00 |
H |
| 10/30/06
|
Millennium Pharm |
MLNM |
11.58 |
10.50 |
10.50 |
SOLD |
| 12/26/06
|
Qiao Xing U Tele |
XING |
13.67 |
16.19 |
15.50 |
B |
| 02/26/07
|
Vasco Data Sec’y |
VDSI |
18.33 |
16.60 |
16.00 |
H |
| 02/26/07
|
Vital Images Inc. |
VTAL |
36.67 |
31.38 |
30.00 |
H |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price