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Friday’s employment report only serves to question the value that the Bureau of Labor Statistics offers as a government department. Not only are they incapable of providing a close approximation of the number of new jobs in a one month period, they cannot even state with any authority whether there was a gain or loss of jobs. Indeed, instead of a drop in payrolls of 4K in the month of August as was previously reported four weeks ago, the BLS now claims that 89K new jobs were created mostly due to a miscalculation in the number of jobs in public schools. What is the value of a statistics department if the statistics provided are so inaccurate that they necessitate large-scale revisions in the months that follow?

Some analysts have already begun ignoring the government data sources in favor of relying more on the monthly ADP survey, which excludes government employment in its calculation. In their survey for September, ADP had estimated that 58K new jobs had been created last month and they revised their total for August to a gain of 27K, down 11K from the initial estimates given a month ago. In their defense, ADP at least, was correct in estimating that there had been a gain in the number of jobs.

The stronger than expected increase in employment has sharply reduced expectations of another rate cut when the FOMC meets again at the end of the month. The market is now pricing in a 46% chance of a rate cut – a decline from the 72% chance before the jobs report was released. Regardless of the Fed’s actions, the damage has already been done and the Fed has sent a clear message to investors: the dollar’s value has a lower importance than the need to provide liquidity in the face of an economic tsunami targeting large Wall Street-based investment institutions.

What promises to be interesting is the reaction from the markets when September inflation figures are released on Friday. With the significant decrease in the dollar’s value, there is the greater likelihood of higher core inflation. Meanwhile the overall figure will be influenced greatly by crude oil hovering around $80 a barrel and could apply new downward pressure on the dollar further benefiting the price of gold.

In fact, gold is in a sweet spot at this moment and could spike to new multi-year highs. As the dollar is driven lower by investors whose propensity to hold dollars is lessening, there are concerns expressed by other nationals, most notably those under the euro umbrella, that the euro cannot be left unmanaged and that a rise in its value will mean economic hardship for some European nations. These leaders will do their best to weaken the euro currency effectively leaving gold as the only viable substitute as a store of value.

Technically Speaking

Friday’s strong performance on all markets ensured that the final index, the S&P 500, would also achieve a new high for 2007. All of the other large cap markets had already accomplished this goal before Friday. Volume remains a weak point however and as we’ve mentioned on a few occasions, this latest surge occurred without strong support from firm trading volumes. The risk that we perceive is that this rebound, which has accomplished much in terms of price, has been at the cost of a broader, more meaningful upward push.

Smaller capitalization stocks have not participated to the same extent as the largest and this is most evident in a comparison of the Nasdaq Composite chart to the Nasdaq 100. Measuring the difference in gains since the previous highs reached on July 19 gives us a gain of 2.22% on the Nasdaq Composite versus a 4.71% gain on the Nasdaq 100. Clearly the largest 100 non-financial companies on Nasdaq have experienced an outsized gain when compared to their smaller brethren over this brief period.

Some may consider this an example of sector rotation away from small caps into large caps but this theory neglects to consider that overall volumes have declined significantly meaning that the rise in large cap stocks has not occurred on a equivalent rise in volumes. Therefore the conclusion is that our confidence in the current rally is less than it would be were there more evidence of trading volumes to support the increase in stock prices.

New Buy Recommendations (in order of preference):

Canadian Pacific (CP) – Coming off a strong gain from Friday, CP is positioned to begin a march higher toward the previous high of $85 reached in July. Moreover, it is unlikely that CP will stop at that point but rather a continuation of the climb should find it closer to the $100 level as a first level target. The entire railroad sector received a boost from investors on Friday but it is CP, which appears to be the best candidate for new buys.

Expeditors Int’l of Washington (EXPD) – Friday’s move of more than $2 per share signaled renewed buying in EXPD and a forthcoming test of the 2007 high that was reached in August. Taking out resistance at that high will be a critical step in advance of a test on the all-time high for this stock touched in July 2006. Completion of a move above $58 would leave only open sky above. Support is building around $48 having pushed through this envelope for the second time in recent weeks.

Chindex Int’l (CHDX) – On Friday, this stock broke through previous resistance at the $26 level on heavier than normal volume and in the process broke free of the trading range in which it found itself for the past eleven months. The bottoms occurring in March and August 2007 on the monthly chart are important indicators that there was solid underlying support for this move.

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