Stockscom Report for Sunday Nov 25 2007

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

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

  • Dow Theory generates sell signal
  • Financials remain particularly weak

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    Technically Speaking

    Stock market indexes waited until the dying minutes of Wednesday’s pre-holiday trading to generate an important Dow Theory sell signal. The close Wednesday was below that of August 16, the previous low, and follows a failure to reach a new high after the Dow Jones Industrials topped out in early October. The sell signal is also supported by the Dow Transport index, which tested lows not seen since the third quarter of 2006 this week.

    Interestingly, the S&P 500 did not confirm the major sell signal with a new low of its own. On Wednesday, the S&P managed to keep its head just above the previous low water mark set on August 16 leaving the broader markets in search of other indicators to confirm or deny the existence of sell signals.

    The tech-heavy Nasdaq twins remain the strongest of the major indexes with both indexes currently situated well above their respective August lows and displaying no sign of imminent risk to this position. Nevertheless, even these indexes are not without signs of weakness. The Nasdaq Composite index closed Wednesday below its 200-day moving average but bounced on Friday to close once more above this key level. It is worth noting however that the Nasdaq-100 has remained well above its own 200-day moving average establishing that the largest non-financial companies trading on Nasdaq have been less affected by the bearish market activity of the past couple of months.

    Apart from the tech sector’s singular strength, other indications point to some possible strength in the coming days though the extent remains impossible to determine. One clear indicator is the very oversold condition in the weekly stochastics measure of the DJ Industrials. A quick comparison of similar conditions on this index indicates that a rebound can be anticipated in the weeks that follow. Another is the strong bounce witnessed on the holiday-shortened Friday and its extension occurring this evening both on futures markets and in overseas centers. Working to contain any irrational exuberance among investors will be the key economic data to be released over the next couple of weeks including housing data this week, durable goods orders and employment data for the month of November.

    New Buy Recommendations (in order of preference):

    None.

    New Short Sales


    None.

    Stock Positions to Sell/Exit:

    We continued to pare our longs as protective stops were reached this week.

    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
    10/08/07 Chindex Int’l CHDX 30.44 30.25 28.00 B
    10/15/07 Cognos Inc. COGN 51.04 57.20 46.00 SOLD
    11/05/07 Evergreen Solar ESLR 12.13 12.59 11.80 B
    10/29/07 Memc Electronic WFR 72.06 64.80 64.80 SOLD
    11/01/07 Patriot Coal Corp ¹ PCX 37.50 33.33   H
    10/29/07 Peabody Energy ¹ BTU 58.50 52.61 46.00 B
    10/29/07 Tyler Technologies TYL 15.79 15.82 14.80 B
    10/29/07 Uranium Resource URRE 11.91 11.00 11.00 SOLD

    Shorts
    Date of Entry Name Symbol Entry Price Current Price Stop Action Rating
    11/19/07 Allied Irish Banks AIB 42.26 41.24 46.00 S
    11/19/07 Bank of Montreal BMO 58.13 56.52 60.00 S
    11/05/07 Credit Suisse CS 61.05 57.17 61.00 S
    11/19/07 Merrill Lynch MER 55.64 53.54 61.50 S
    11/05/07 Morgan Stanley MS 57.88 49.89 56.00 S

    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