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Technically Speaking

The major indexes soared on the news of the Bernanke Fed’s surprise rate cut of half a point. (More on this topic next week.) Tuesday’s jump was a powerful sign of buying on a points-gained basis for all of the indexes however volume, though strong, was not typical of other large volume days that were experienced in the period between late July and the middle of August. Moreover this comparison of price action is quite notable considering that the previous period fell in the middle of the summer season when trading normally slows down.

All of the indexes finished the week much higher with the Nasdaq-100 having an especially important move leaving it just below its 2007 top of 2060 reached in July. The broader indexes, the Dow Jones Industrials and the S&P 500, have also to contend with the potential for new highs in 2007 as they too are closing in rapidly to their respective tops. Ditto for the Nasdaq Composite index. While the potential is obvious, the lack of supporting volume is equally obvious and consequently, we would be cautious about predicting new highs.

In theory, the interest rate cut will ultimately inflate the money supply, which historically means more money finds its way into the stock market thus inflating stock prices. We watched this process in 2002 when the previous Fed Chairman, Alan Greenspan, oiled the printing presses, lowered interest rates and engineered a rebound in the collapsed stock bubble and ensured the beginning of a housing bubble in conjunction with a bubble in asset pricing. While we expect a similar action with the latest Fed move, we are nevertheless concerned by the possibility of a double top forming, a very bearish formation on charts.

Perhaps the biggest wild card is the declining US dollar, which was left to flutter in the breeze as investors massively sold dollars to buy other higher yielding currencies after the Fed rate cut. With a falling dollar, consideration must be given to the profit potential after accounting for dollar depreciation when investing in stocks. Now there is extra special consideration given to this currency dilemma because of the risk potential for a run on the dollar on world currency markets given that the dollar passed through very long-term chart support. This possibility is the reason that gold performed very strongly this past week and has tremendous potential in the days and weeks ahead.

New Buy Recommendations (in order of preference):

Euroseas Inc. (ESEA) – We return to a shipping industry stock that we had recently recommended as the volatility in this sector has ceased and there appears to be the beginning of another move higher. ESEA finished a strong week with a gap higher on Friday after having completed a double bottom touched on Aug 16/Sept 14.

Tsakos Energy Navigation (TNP) – Similarly we recommend re-entering positions on TNP, another stock in the shipping sector. TNP broke through resistance at the $70 level this week and successfully tested it for support on Thu/Fri. The double bottom on this stock in Aug and Sept was almost identical to ESEA and both ESEA and TNP completed Lindahl buy signals on their respective weekly charts.

Yingli Green Energy (YGE) – This is a speculative recommendation since this solar industry company recently went through the process of an IPO and therefore has a short history. Nevertheless the chart is quite bullish and the daily chart shows a clear break through the $20 resistance level leaving open sky above at this point.

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