· Stocks begin to recover albeit on weak volume

· June payrolls show 132K increase

Market Synopsis

The June employment report was not terribly surprising on the surface with the announcement of 132K new jobs, as we had already noted a growing economy ostensibly picking up steam in this second quarter. The ISM Purchasing Managers surveys had given us strong indication of an upturn in economic activity in recent months and the bearish news tended to be concentrated on sub-prime mortgages and varying financial entities, not production.

Unlike in previous months, the June report held a glimmer of hope. We had questioned the strength of recent employment statistics as revisions had been invariably negative however this latest report surpassed all expectations. To summarize, April’s reported rise of 88K jobs was revised to 122K and May’s increase of 157K was revised to 190K, a total increase of 67K jobs. Normally, we would consider a revision of this magnitude to be representative of more than simply a glimmer of hope but given the on-going concern that we have for construction industry job figures, which continue to show flat employment levels, our sense of caution trumps this announcement.

Very few economic announcements are expected this coming week though near the end, both June retail sales and monthly trade figures will be released. There’s much anticipation regarding the retail sales figures due to poor weekly numbers of late released by the retail group, the International Council of Shopping Centers and the key weekly figures provided by the Redbook Index from Redbook Research. Due to sharply falling automobile sales and consumers’ retrenching, expectations are for a fall of 0.3% in June.

Notwithstanding the paucity of economic news, this week marks the beginning of quarterly results to be released. Expectations for profits of the S&P 500 have been lowered to approximately one half of the first quarter’s gains. There are some pockets of strength expected however and large cap technology is one of these areas with sizable gains anticipated from the likes of HP, Microsoft, Apple, and Dell.

Technically Speaking

The four major indexes conspired to offer us a non-committal bullish signal this week as they collectively moved higher on weaker, holiday-inspired volumes. All of the markets with the exception of the Dow Jones-30 edged higher on all four trading days but it was the Nasdaq brothers that were especially strong gaining more than 2% over the course of the week.

This apparent change of leadership could be an important signal of a rotation in sector leadership or it could simply be the manifestation of an abrupt sector rotation within the broader indexes where strong gains in one area are being balanced by fierce losses in another. The lack of diversity in Nasdaq-traded companies prevents a similar occurrence on the tech-centric exchange.


New Buy Recommendations (in order of preference):

Silver Wheaton (SLW)  We dip into precious metals for this recommendation as both gold and silver ended the week with strong moves across the spectrum of precious metal stocks. SLW figured prominently among these advancing issues as it closed at a new all-time high and in doing so, completed the wedge/flag formation, which had developed over the course of the last year and a half. This important breakout indicates a new leg upward has begun.

Excel Maritime Carriers (EXM)  This shipping company jumped on Friday on heavier than normal volume and set a new high for the year. Moreover, this push higher occurred after a firm bottom had developed at the $22 level and gives us the signal that the recent congestion of the past two months is now behind it.

Lufkin Industries Inc. (LUFK)  Much like our other recommendation in oil and gas services, GRP, this company appears to be firing on all cylinders now. Friday’s move on solid volume carried it just below $68, which is a new high for 2007 and the highest it’s been since the second quarter of 2006. This stock looks ready now to attempt a new high over the $71.50 level.

New Short Sales  

None.

Stock Positions to Sell/Exit:

We recommended selling ICE and GNA last week and although the stocks have recovered partially, we prefer to be on the sidelines with respect to these companies.

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.