· Stock markets rebound strongly this week
 

Market Synopsis

This week, there was a second instance of an unusual event in stock trading that occurred over the past few sessions. On Wed of this week, up trading volume surpassed down trading volume by a 9:1 ratio on NYSE. A similar occurrence happened on Mar 6 and the proximity of these two occasions has prompted many technicians to rethink the current, popular notion that the markets are heading lower.

This signal was developed by Martin Zweig many years ago and argues that a trading day characterized by a 9:1 ratio of up volume to down volume or the exact opposite, is likely to see follow through in the dominant direction in the days afterward. He added a caveat though that this signal is susceptible to giving false signals due to other market activities. But if this signal occurred at least twice in a three-month window, the chances were much greater that this signal would be reliable and would result in a greater-than-average return in the stock market. He went on to add that even if there were a day where the 9:1 ratio worked in the opposite direction for one day (down in this case) as it did on Mar 13, the return on investment would still be above average in the short term.

Meanwhile housing statistics grabbed the attention of most investors this past week as existing home sales increased for the third consecutive month, a feat that hasn’t occurred in three years. Since an existing home sale is counted after the closing of the deal, these figures are considerably more reliable than sales of new homes which are counted before the deal is consummated and often mislead due to the number of cancellations. Thus the sales increase was significant but analysts cautioned that inventories of unsold homes, which increased 5.9% to 3.75 million, suggests that foreclosures are starting to have a strong effect on housing numbers and could dampen the sector for several months.

Technically Speaking

Despite the turmoil in the weeks following the sharp drop in share prices in late February, stock indexes have begun a process of stabilization however, technically, there is little reason for bulls to get excited. The daily price charts have yet to complete the rebound and the extreme bout of selling in those last days of February lent a distinct negative flavor to the charts. What is particularly bothersome is that while there were two days of a positive 9:1 ratio, total trading volumes on these days was substantially less than on those days where stock prices headed south. Currently, the losses on the major indexes from their peaks reached in Feb, amount to between 1.5 and 3.0% but the key for bulls is that these losses are narrowing especially after this week’s strong performance.

Until the losses are entirely erased, a dark cloud will hover over stock indexes and bears will maintain their upper hand. Resistance on all four indexes, the Dow Jones, the S&P 500 and the Nasdaq twins, is located at the Feb 26 close which in the case of the Nasdaq twins is marked by a gap lower adding to the bearish tone.


New Buy Recommendations (in order of preference):

Lanoptics Ltd. (LNOP)  This stock has a relatively small float however the strong move higher on Friday presages further upward movement as this company has seen its stock price move in step-wise fashion higher over the past 15 months. Technically, it has used its 200-day moving average as a verification of support both in July and recently at the beginning of this month with both ending successfully. The weekly chart’s big gain this week on heavy volume continues a pattern going back several months and indicates the early stage of a new leg higher. Perhaps more importantly, the month of March is shaping up to be a strong outside month signaling further bullish moves.

Ipsco (IPS)  We go back to the well for the next three recommendations as all three have been recommended previously starting with Ipsco. This producer of steel pipe products is the subject of heavier than normal buying of late culminating in a gap higher on Thu and a strong rise this past week. The weekly chart shows a clear break out setting up from a lateral movement that has contained this stock price for the past year. The monthly chart is completing the third bar higher as we close out March and the weekly chart has just completed a Lindahl buy signal.

Fronteer Development Group (FRG)  This recent recommendation was stopped out a few weeks ago with the break in stocks at the end of Feb but it has since stabilized and begun recovering. We want to own this stock as a proxy for both uranium and gold as well as knowing that, technically, it is set to break higher once the $12.55 high from Mar 16 is breeched. Both uranium and gold have been steadily moving higher in the past few weeks and while gold may be retracing previous gains, uranium is simply moving to new higher prices due to an imbalance in the supply/demand ratio.

Vasco Data Security Int’l (VDSI)  Once more we have a recent recommendation that was stopped out too quickly with the drop in share prices in late Feb. Since that time, it has largely recovered all of its lost value and, technically, shows signs of a re-emergence. The weekly chart completed a Lindahl buy signal this week and the daily chart could duplicate this effort quite easily on Mon.

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.