· Economy slowing or growing?

Market Synopsis

The employment report for the month of April was released on Friday morning showing an increase of a less than expected, 88K new jobs. Market pundits immediately took this figure to be a godsend commenting that the Federal Reserve was now in a position to cut interest rates when it meets this week. This action is hardly likely.

Certainly, this employment report is evidence of a slowing economy and were one to scan the press release, they could be forgiven for any apprehension associated to the household survey, which pointed out that 77K more people were unemployed in April than in March. This survey also outlined a loss of 468K jobs in April however this was balanced to some degree by the drop in the civilian labor force of 392K. Ironically, the household survey often takes a backseat to the headline figure, which is developed through the use of surveys of     companies and there are those who will argue the superiority of one over the other insofar as accuracy is concerned.

Nevertheless the slowness evident in the job market in April may be more representative of the past tense since other data released earlier in the week painted a far more optimistic picture of the economy. Two particular items were the ISM Purchasing Managers survey for April showing a surprising rise to 54.7% from 50.9% in March. This rise was notable as it comes after seven months of declines and with the strong surge above the 50% level, a clear return to an expansionary mode. The other significant number was the orders for US factory goods, which increased 3.1% in March, the largest gain in a year. Granted a 38% rise in aircraft orders had a large impact on the final figure however orders for all capital goods were higher by 4.8% demonstrating that businesses were prepared to invest and orders for durable goods were higher by 3.7%. Finally, there was some indication that inventories are being realigned closely with sales thus removing the cloud of bloated inventories, a cause of problems earlier this year.

When the Federal Reserve meets in midweek, a perusal of this latest data added to the housing industry woes already factored in and the likelihood of further weakness in construction will be sufficient to assure the Fed that despite signs of improvement, the notion of staying the course on interest rates is the right course especially given that inflation probably remains somewhat above their comfort zone.

Technically Speaking

The four major indexes continued to roll along in the upward direction marking five consecutive weeks of upward moves and this occurred on steady to increasing volumes. Given this movement we expect some retracement in markets this week but we would not expect a break in the overall direction of the market at least in the timeframe of the next couple of months.

The key factor is the S&P 500 index, which has a date with destiny. It now lies only 48 points below its all-time high reached in early 2000 amounting to a relatively close 3% move. The magnetism of this high water mark coupled with the general rise in market indexes is drawing in investors and we will surely see it top this level sometime over the next few months.

New Buy Recommendations (in order of preference):

Intercontinental Exchange Inc. (ICE)  This firm’s endeavors at opening up new electronic trading markets and purchasing markets such as the NYBOT are paying off. The latest quarterly results released on Tuesday witnessed an increase of 183% in net income y-o-y and an increase in revenues of 152% over the same time frame. The chart had been forming a base since the middle of March around the $125 level but the results provided the impetus for a break out move on Thursday on heavy volume and this was extended a little higher on Friday offering further emphasis. On the weekly chart, the week ended with a Lindahl buy signal on the boost in volume and a significant outside price bar.

New Short Sales  

None.

Stock Positions to Sell/Exit:

American Superconductor (AMSC)  This stock has moved little over the time that we’ve held it and with the rise in stock markets, the risk that a general market decline affects it grows thus we consider it prudent to exit this position.

Ipsco (IPS)  A definitive agreement to be bought was announced this week and we see little upside potential from this point forward. The agreement calls for a purchase price of $160 per share, which is not that far from the current price.

We were exited from positions in LNOP and WFR this week as their respective stops were touched.

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.