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

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Share prices rebounded with renewed vigor this week but are nonetheless unconvincing leading into the long holiday weekend beginning on Thursday. However, as we’ve noted on many occasions, the days leading up to a holiday often bring out buyers willing to push up the prices of stocks and we see no reason for this tradition not to continue.

Naturally, Thanksgiving also marks the traditional start to another Christmas season and undoubtedly, retailers will be watching how this one progresses as early forecasts predict a far slower seasonal buying binge than we’ve seen in recent years. The housing crisis is responsible for some dark clouds hanging above the heads of consumers unlike previous years and the tales of foreclosures and auctioned houses are appearing more frequently in the media. This air of doom and gloom discourages consumer spending as people take a more conservative view of their own financial situation and opt to reduce expenses.

The rising price of crude oil warrants consideration as well as this increase winds its way down to the price of unleaded gas. Higher gas prices leave less disposable income in the pockets of consumers and contribute to worries of the rising cost of living. Government statistics conveniently exclude inflation in fuel and food, which seems nonsensical given the necessity for both. The CPI for October was released on Thursday this past week and showed a rise of 0.2% after stripping out the food and energy price increases. Including these categories bumped up the rate to 0.3% with energy prices responsible for the lion’s share of the increase having jumped 1.4% during the month.

Technically Speaking

Market indexes rebounded after the substantial sell-off of the week before. The resultant bounce was expected and varied in strength between the weak broader indexes, the Dow Jones and S&P 500, and the relatively stronger tech sector represented by the Nasdaq twins. The financial sector of the former determines the overall strength in the broader markets and although this sector responded strongly early in the week, by the end of the week, much of its gains had evaporated.

The key question remains though if this double bottom formed by the bottoms of August and November will sustain the markets and be used as a base for building another leg higher. Technically, the only market action that would satisfy chartists of believing another move higher was in the cards, would be new highs in both the broader markets as well as the tech sector described by Nasdaq. Anything less than a new high would only be highlighted as market weakness and a prelude to another leg downward. A downward move such as this would be confirmed once the November bottom was violated.

Perhaps a sideways market is the most likely direction given the strong headwinds of a slowing economy and a depressed financial sector competing against the seasonal tendency of autumn lows and a customary market rise moving into the fourth year of a presidential term.

New Buy Recommendations (in order of preference):

None.

New Short Sales

Merrill Lynch (MER)

Bank of Montreal (BMO)

Allied Irish Banks (AIB) – Similar to the last call, we recommend adding to our short positions with other financial sector stocks. All three of these selections have charts suggesting that there is a strong likelihood for further weakness despite small attempts to rebound midweek.

Stock Positions to Sell/Exit:

There were other positions this week whose share price touched the recommended stop loss points and were consequently sold. We add COGN to the list of recommended "sells" as an offer to purchase it was made by IBM earlier this week.

Also two of the stocks held short were covered this week as their volatile rebounds sent us to the exits.

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.

¹ Peabody Energy spun off its coal assets into Patriot Coal on Oct 31 at a ratio of 1 share of PCX for every 10 shares of BTU held.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price