· Stocks continue their climb to new heights
 

Market Synopsis

The dual threat of a forced slowdown of a red-hot Chinese economy and a slowdown in the domestic economy has analysts debating the potential for a sharp economic nosedive later this year. While the leading economic indicators had already argued that we had entered a period of festering slowness in the economy here, the release of the first quarter GDP on Friday was convincing proof. The US economy slowed to a 1.3% real annualized growth rate in the first quarter of 2007 as a severe slump in the housing market combined with high energy prices to dampen economic activity. The report went on further to underline the fact that the previous twelve months has seen real GDP rise by only 2.1%, the slowest rise since the twelve month period ending in the first quarter of 2003.

Meanwhile some analysts remain skeptical of any doom and gloom predictions preferring to concentrate on the domestic job situation. Inasmuch as jobs are steadily created and wages increase, these analysts believe enough income is generated on a national level to allow the government to muddle through despite the trade and fiscal imbalances. And certainly the American consumer has rarely given analysts reason to doubt their seemingly infinite capacity to spend.

Over in China, the government there is grappling with the announcement that first quarter GDP was 11.1% - well above the 10.4% forecasted rate. But with a greater need to provide jobs to the flood of immigrants moving into cities in order to prevent (more?) social unrest, the threat of over-investment leading to overcapacity and further deterioration in the banks’ financial conditions takes a backseat to these overriding concerns. Indeed, the government announced this weekend that reserve ratios for banks would increase by 0.5% in response to the higher than expected GDP, but no mention was made of a hike in interest rates implying that they are quite comfortable with these growth numbers.

Here in the US, the Conference Board believes that slower growth will persist this summer, though as usual, much depends on the consumer. The consumer’s willingness to spend in spite of historically low savings rates will depend directly on the job situation as job growth would appear to be the key factor in consumer confidence. And given the news from China this weekend, the government there is unlikely to disturb the strong growth seen in the first quarter beyond raising reserve ratios thus keeping Chinese business people happy.


Technically Speaking

All four major stock markets extended their winning ways this past week completing rises on their respective weekly charts. Market internals though, have begun to display negative signs with ratios of rising issues/declining issues and rising volume/declining volume becoming more bearish. Surprisingly, the S&P 500 finished the week higher even while four of the five trading days saw the S&P close lower.

At this point, the propensity for the markets to continue upward is limited as earnings season winds down and stochastics have already prolonged their stay in overbought territory. The market has a need to retrace some of the gains recently acquired.

Nevertheless, it is worth mentioning once again that the S&P 500 has an impending meeting with its all-time high of 1553, last reached in 2000, which lies some 60 points north of its current position. As the S&P index drives closer to this mark, the market will become fixated with this level much like the Dow Jones was fixated with its 2000 high in recent months.

MEMC Electronic Material (WFR) performed in a technically bad manner on Friday upon the release of its quarterly results. Despite having doubled GAAP net income y-o-y, traders were evidently hoping that the company would announce a blow-out quarter far exceeding expectations. We would prefer to keep the protective stop where it is for now and see what transpires this week before taking any action on this stock.

New Buy Recommendations (in order of preference):

Allied Waste (AW)  Friday’s move on heavy volume has put this stock squarely in the beam of technical headlights. The move effectively, though not completely, indicated that a break out in price was approaching, as this stock has been range bound between $12 and $14 since October 2006. The clear range offers as well, the benefit of a natural loss-cut, being the lower boundary or $12, which could be useful when quarterly results are released on Tuesday.

Portfolio Recovery Association (PRAA)  This receivables collection firm is growing quickly and proves it with its quarterly results, of which the latest were released this week. The 14% gain in the stock price on Wednesday on heavy volume was a clear indication that investors are buying into this story and the surge in price succeeded in clearing the overhead congestion and resistance located near the $49 level. On the monthly chart, the move last week completed the development of the Lindahl buy signal, adding further support to the technicals.

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.