Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)

Traders are evidently waiting until next week’s Fed decision on interest rates before acting if we are to read anything from the moderate and declining trading volumes this week. There is a palpable amount of fear among investors as the uncertainty of a rate cut varying from none to 50 basis points is juggled with the threat of recession.

Nonetheless, it is quite ironic that former Fed Chairman Alan Greenspan’s memoirs are being published tomorrow, one day before this key meeting takes place. We clearly remember the time when Greenspan spoke of the threat of deflation in 2002, but with one stock bubble magically replaced by a housing bubble and virtually free money to inflate it, deflation simply became a distant memory in the hands of this maestro. Now with the housing sector crashing, the direct effects of the housing collapse are appearing across the US while the financial debris of shoddy lending practices is spreading like a contagion around the world. We will see some of the results of the financial effects when quarterly earnings reports from the likes of Goldman Sachs, Lehman Brothers, Bear Stearns, and Morgan Stanley are released this week.

The strong potential that the FOMC will lower interest rates on Tuesday has ignited another fire in the meantime. The US dollar, as measured against a basket of currencies, dropped to its lowest level ever this week as investors sold dollars to buy stronger currencies supported by stable interest rates. A weaker dollar translates to greater volumes of exports but also higher import prices and consequently higher inflation rates, which are usually remedied by increasing the interest rate. Thus there is now a strong potential for the US to be mired in a recession while needing to combat inflation – a situation referred to as stagflation. Moreover a falling dollar will offer no incentive to foreign holders of US debt of which China and Japan are the two largest. Already there has been some reduction in their positions over the past few weeks therefore any sustained effort to further reduce their holdings of US treasuries will put upward pressure on longer term interest rates.

Technically Speaking

All of the major indexes finished this week higher but on a significant decrease in trading volume. The percentage increases were however, remarkable ranging from 1.4% on the Nasdaq Composite to 2.5% on Dow Jones Industrials. Normally increases such as these would elicit more bullish attitudes in investors but given the present turmoil and the uncertainty of the Federal Reserve’s actions, there is no such confidence at this juncture.

As for gold, the December futures contract ended the week above $700 touching a high not seen since July 2006. The threat of inflation and a weaker US dollar coupled with the rise in Asian gold consumption is putting a bid under gold and we don’t see this sentiment diminishing in the near future.

New Buy Recommendations (in order of preference):

Network Equipment Tech (NWK) – This week NWK stock broke out from the range of $7-11, which has been holding it since the beginning of the year on heavier than normal volume. On the daily chart, Friday’s move completed a Lindahl buy signal while the weekly chart shows us that the price has ended the week near its high for the past three weeks. On the monthly chart, we see that NWK is closing in on the highs from both 2000 and 2004.

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.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price