Market Synopsis
This was a generally quiet week as the warm-up to another season of
quarterly results began. There were two important pieces of the economic puzzle
released just before the weekend: the retail sales for June and the trade
numbers for May. With retail sales slipping 0.9%, the consensus is that the
consumer is showing strong evidence of being tapped out and durable goods sales
would seem to bear this out. As the housing industry struggles with lower sales
and ever larger inventories, the demand for furniture, appliances, electronics
and building materials has suffered a sharp downturn and there is no recovery in
sight. The effect of this drop in sales carries an especially heavy weight in
overall retail sales figures and is the primary reason for this being the
biggest fall since August 2005.
Investors took more solace from the trade gap growing to $60 billion because
despite the growth in the gap, the increase in exports exceeded imports when
adjusted for price increases and the trade gap essentially remained flat. The
weaker dollar thus played a key role and continues to enhance export prospects
across all markets as US products become cheaper in local currencies. Perhaps
the biggest threat though in such a scenario of a deflating dollar is the
potential for higher energy prices and this is one area that will be closely
monitored.
This week the International Energy Agency issued the Medium-Term Oil Market
Report warning that demand is inexorably growing while production and
development of new sources is seriously lagging. Their concern was that non-OPEC
exploitation of conventional sources was declining rapidly and not being
replaced adequately while OPEC production was unlikely to fill the production
gap unless Iraqi supplies increase substantially or Saudi Arabia succeeds in
ramping up their own production.
Technically Speaking
Tuesday’s very bearish action in equities was completely reversed and
contradicted by price action on Thursday, which rendered new highs for both the
S&P 500 and the Dow Jones30. Meanwhile the Nasdaq brothers jumped to new 2007
highs remaining well below their respective all-time highs reached in 2000.
Despite their strong performances, there is still some question of the
reliability of the new highs in the broader markets (S&P, DJ) because of
price-volume relationships that suggest that these new highs are not occurring
on sufficient volumes and this pattern keeps us exercising certain caution with
respect to increasing prices.
New Buy Recommendations (in order of preference):
Chase Corp. (CCF) This company’s vastly improved quarterly results was the main
reason for its midweek jump and we believe given its improved outlook, there is
likely to be much greater upside potential at this point. Technically, the leap
above its all-time high was a strong indication of a break in resistance and now
this level will be transformed into support.
FreeSeas (FREE) This dry bulk shipping company is another that has posted
strong earnings and with the rise in recent months of day-rates for these ships,
this company is poised to capitalize on the higher rates. The chart has been
rising in steps since the beginning of the year and Friday, it took one more
step to achieve a new high and is indicating that further steps are likely.
New Short Sales
None.
Stock Positions to Sell/Exit:
We recommend selling Lufkin after it was knocked down in midweek upon the
release of its lowered profit forecast for the year. At this point, the upside
has been effectively removed for several months at the very least.
We also sold LNG on the recommended stop this week.
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.
Date of EntryNameSymbolEntry PriceCurrent PriceStopAction Rating
04/30/07Allied Waste Ind.AW13.3713.9413.00B
06/11/07Amer Sci & EngASEI56.2558.9354.80B
12/26/06Cheniere Energy LNG29.1537.0037.00SOLD
06/25/07Columbus McK.CMCO31.1533.4028.00B
05/29/07Dycom IndustriesDY29.3231.2128.00B
06/11/07EuroseasESEA14.9214.6913.35H**
07/09/07Excel Maritime EXM28.5232.4627.50B
03/26/07Fronteer Dev’t GrpFRG12.4012.9811.00B+
11/13/06Goodyear TireGT18.0036.0331.00B
03/12/07Grant PridecoGRP46.7556.8452.50B
07/09/07Lufkin IndustriesLUFK67.8065.31SELL
04/30/07Portfolio Rec. Ass.PRAA56.1764.4553.80B
07/02/07Robbins & Myers RBN53.6059.3350.00B
07/09/07Silver WheatonSLW13.4413.9812.00B
07/02/07SJW Corp.SJW33.4532.9430.00H
03/19/07Tsakos Energy NavTNP49.5074.0065.00B
03/26/07Vasco Data Sec’yVDSI17.9224.0620.00B
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price