· Stock markets begin long-awaited correction
 

Technically Speaking

Expectations were high for a rebound in the days following the sharp fall in stock prices and indeed this past week resulted in a bounce for all indexes. However the most significant characteristic was the total lack of support from volume, which dropped steadily as prices attempted to climb higher. Bulls had suddenly become extraordinarily cautious given the amplitude of the decline and evidently were in no hurry to reinstate any long positions until there was some further clarity on the prospects of the economy.

Though volumes were reduced, there is still the possibility that the rebound will be extended this week even as the tech-heavy Nasdaq twins settled with marginal losses on Friday. Normally, we would expect the subsequent rebound to retrace a portion closer to 50% of the decline (the S&P 500 has rebounded just over 2% after having lost close to 6%).

Despite the losses, this period should be considered a long overdue correction serving to inject some health into a market that had clearly become overcrowded with bulls. The key indicator for us is the 200-day moving average, which remains comfortably below the current price levels for all of the indexes. If this level were to fail, we would be inclined to take a more cautionary stance.



New Buy Recommendations (in order of preference):

Grant-Prideco (GRP)  This oil service company performed strongly in the second half of the week on the daily chart and completed an outside bar on the weekly chart on a large increase in volume. For close to a year, GRP has been held to a trading range of $34-50 but this now appears to be weakening markedly and the stock looks set to break out. Fundamentally, the prospect for oil service stocks is quite strong given the increased demand for drilling equipment as exploration and production efforts have ramped up in the months following the sharp rise in petroleum prices.
Nymox Pharmaceutical (NYMX)  This stock would tend to be a little more speculative however there is strong indication in its chart that long positions will be rewarded. After marking a sharp rise in price at the beginning of February, there was a period of backing and filling but price has consistently held at support located near the 25-day moving average. The break out on Friday has the makings of the start of a new leg higher.

New Short Sales  

None.

Stock Positions to Sell/Exit:

Several more recommendations were exited this week at their stops. The very nature of a stop protects against uncertain losses but is irritating at times due to the sudden bounce in the former direction. That being the case, we continue to cast a glance at the following stocks: GRS, VDSI, and FRG and would be interested in buying if current prices hold, which in the case of GRS and, to a lesser extent, FRG will depend greatly on the price of gold.

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.