Stockscom Report for Sunday July 29 2007
Publisher: Colin Alexander
Editor: Ken Wilson (450-691-4617)
Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)
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Stocks experience heavy selling
Market Synopsis
We remarked in last week’s newsletter that the previous Friday’s decline
was simply the one meaningful moment of the entire week and, though we expected
further declines, we were indeed surprised by the amplitude of the sudden
reverse.
Blame was assigned to the credit markets as lending has tightened and credit
spreads have widened considerably in the past 6-8 weeks. Now, non-prime
borrowers are being confronted with substantially higher interest rates and
additional covenants as concerns rise with the state of lending practices. Much
of this new reality is due to the failure of a large number of sub-prime lending
institutions found especially in California and the difficult situation that
others have admitted to. Case in point was Countrywide Financial, a key mortgage
lender that reported its quarterly results on Tuesday. Though perhaps best known
for its involvement in the sub-prime lending market, its diminished quarterly
profit was blamed more on write-downs in its prime lending practice. Countrywide
revealed some startling statistics: delinquencies in prime home-equity lending
increased from 1.77% to 4.56% y-o-y and delinquencies in sub-prime lending
increased from 15.33% to an astounding 23.71% over the same period. The CEO of
Countrywide stated that he expected recovery in housing not to take place until
2009.
The housing picture worsened as the week progressed. On Wednesday, it was
reported that existing home sales dropped 3.8% in June to the lowest sales pace
in almost five years. The inventory of unsold homes fell however by 180K, but
this was due largely to the thousands of homeowners who chose to take their
houses off the market having grown impatient with the inaction. Still at the
June sales rate, it would take 8.8 months to liquidate the current inventory
overhang.
Thursday extended the disappointing housing news with the release of new home
sales for June. The unexpected drop of 6.6% confirmed the worst for the housing
industry and has observers searching for comparable situations throughout the
history of housing statistics. Since new home sales data is subject to large
sampling and statistical errors, the standard deviation is a very high 11% and
trends are only considered reliable over a minimum of six months. Thus the
six-month moving sales average is now down 22% from last year.
Despite the difficulties in the housing market, the economy rebounded firmly in
the second quarter. GDP was announced on Friday as 3.4% on improved trade
figures and inventory replenishment. This quarter was a vast improvement on the
first quarter’s reading of 0.6% but economists are now concerned more about how
the economy will develop moving forward especially in light of the situation in
housing. The consumer has proved resilient so many times in the past but the
specter of falling home values imparting a discouraging tone to consumer
spending has many economists scaling back their forecasts.
Technically Speaking
Technically, the drop in equity values took its toll on charts of the indexes.
The S&P 500 probably exhibited the most bearish outlook of the four major
indexes with a move that has violated by the thinnest of margins, the highs from
February, a major support area. Moreover, it completed this move on extremely
high volumes emphasizing the strength of this push. While the index is now
oversold, it is clear that the next support level is the 200-day moving average
at 1448, a moving average that has not been touched since August 2006.
The Dow Jones Industrials fared slightly better; as the heavy selling was not
translated into heavy percent drops in the index. Support was uncovered at the
previous lows located near 13,250 and well above the February high around
12,750, which coincidentally is where its 200-day moving average lies.
The Nasdaq twins provided the most interesting contrast of all the indexes.
While the Nasdaq-100 found strong support at its June highs near 1950, the
larger Nasdaq Composite, an index representative of the entire Nasdaq trading
world, settled for support located just above its June lows near 2550. Not far
below this level is the support from the February highs, which remains an
obvious target.
New Buy Recommendations (in order of preference):
Anik Therapeutics Inc. (ANIK) The biotech firm received much-anticipated
acceptance from the FDA this week for a new product that provoked strong buying
even as other stocks were melting down. Though the daily chart is strong enough,
it is the weekly and monthly charts showing a strong break from previous
resistance around $19 that are the most convincing.
Synchronoss Technologies (SNCR) This has been a strong performer for most of
its short history however the release of its strong quarterly results on
Thursday evening provoked renewed buying. On all timeframes, daily, weekly and
monthly, this stock is a steady buy and the only question is timing. We buy on
the basis of the gap up on heavy volume on Friday as seen on the daily chart.
New Short Sales
None.
Stock Positions to Sell/Exit:
As expected we were exited from a wide variety of stock picks upon hitting our
stops. In recent weeks, we had cautioned our readers that the potential for a
slide was real and we had recommended tight stops as a consequence. With the
exception of Chase Corp (CCF), our losses were quite negligible and overall they
were easily surpassed by the gains managed both on the positions exited as well
as those still held.
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 Entry
|
Name |
Symbol |
Entry Price |
Current Price |
Stop |
Action Rating |
| 04/30/07
|
Allied Waste Ind. |
AW |
13.37 |
13.00 |
13.00 |
SOLD |
| 06/11/07
|
Amer Sci & Eng |
ASEI |
56.25 |
54.80 |
54.80 |
SOLD |
| 07/16/07
|
Chase Corp. |
CCF |
19.95 |
16.00 |
16.00 |
SOLD |
| 06/25/07
|
Columbus McK. |
CMCO |
31.15 |
28.00 |
28.00 |
SOLD |
| 05/29/07
|
Dycom Industries |
DY |
29.32 |
28.00 |
28.00 |
SOLD |
| 06/11/07
|
Euroseas |
ESEA |
14.92 |
14.93 |
13.35 |
B |
| 07/09/07
|
Excel Maritime |
EXM |
28.52 |
36.85 |
32.00 |
B |
| 07/16/07
|
FreeSeas |
FREE |
9.08 |
7.90 |
7.70 |
H |
| 03/26/07
|
Fronteer Dev’t Grp |
FRG |
12.40 |
11.00 |
11.00 |
SOLD |
| 11/13/06
|
Goodyear Tire |
GT |
18.00 |
31.00 |
31.00 |
SOLD |
| 03/12/07
|
Grant Prideco |
GRP |
46.75 |
52.50 |
52.50 |
SOLD |
| 07/23/07
|
Omnicell Inc. |
OMCL |
24.49 |
23.23 |
21.00 |
H |
| 04/30/07
|
Portfolio Rec. Ass. |
PRAA |
56.17 |
57.50 |
57.50 |
SOLD |
| 07/02/07
|
Robbins & Myers |
RBN |
53.60 |
52.72 |
52.00 |
H |
| 07/09/07
|
Silver Wheaton |
SLW |
13.44 |
13.40 |
12.00 |
H |
| 07/02/07
|
SJW Corp. |
SJW |
33.45 |
30.00 |
30.00 |
SOLD |
| 03/19/07
|
Tsakos Energy Nav |
TNP |
49.50 |
71.68 |
65.00 |
B |
| 03/26/07
|
Vasco Data Sec’y |
VDSI |
17.92 |
26.38 |
22.00 |
B |
New stops in BOLD
* Stop on a closing basis
** Buy if above entry price
*** Split-adjusted price