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Emerging from the holiday weekend, global stock markets can only look forward to more dire predictions of the fallout from credit tightening worldwide. The contagion has spread from the sub-prime meltdown to consumer credit deterioration, unemployment and the very real risk of recession. Moreover, the underlying fear remains that a Japanese 1990’s-style depression will engulf the economies of North America and Europe thus triggering a global slowdown that developing economies will not be immune to.

One of the clearest indications of this economic slowdown is the Baltic Dry Index, which is a measure of the shipping rates of dry bulk commodities. The index has fallen approximately 30% just since the beginning of the year as traders began to fret over the slowing global economy. For stock market bulls, the possibility exists that the sharp drop in this index is symptomatic of Chinese attempts to lower the price of iron ore under long-term contracts, a key ingredient to profitably manufacturing steel. In the past few weeks, iron ore shipments to China have slowed considerably with many analysts believing that they had been previously hording iron ore and are now applying pressure to negotiate a lower price for future shipments.

Close to home, fears of a recession grow unabated and on Friday, President George Bush called on Congress to enact a program offering tax relief to both consumers and businesses. Generally speaking, the program that he envisions would offer temporary income tax relief to individuals and encourage businesses to invest. The price tag of such a program was put at $140 billion and could entail rebates twice as large as 2001’s emergency tax relief. Naturally, the logical question is where will this money come from – another bond financed by foreigners?

Technically Speaking

With ever increasing trading volumes, stock indexes moved to test new lows this week culminating in Friday’s sell off after the White House announcement of unspecified tax relief. The sharp increase in volume suggests that there is potential for a bounce of indeterminate strength from these levels but for those having a perspective longer than a few days, any bounce at these levels is quite unlikely to alter the overall downward trend that’s occurring here.

Technically, new breakdowns occurred in both the S&P 500 as well as Nasdaq when horizontal support lines found at their respective levels of Spring 2006 highs, broke down.

Stochastics are vastly oversold and could conceivably rebound strongly from current levels however the drop in equities is still fresh in the minds of investors and the mere thought of buying stocks here causes certain trepidation. Undoubtedly investors’ confidence has been shaken and the anxiety level has risen. A rebound under such conditions is unlikely to be sustained and as such we make no recommendation to buy shares.

New Buy Recommendations (in order of preference):

None.

New Short Sales

Old Republic International (ORI) – This bond insurer is in one of the sectors that is being punished the most both today and of late. Technically, the breakdown on Thursday below support at $14 was a clear signal to sell this as it once again returns to a weak position after having moved sideways since November.

Target Corp. (TGT) – Retailers have been another sector hit hard the past few months though Target really only began to falter in the autumn of 2007. The latest attempt to rebound failed near resistance at $52 and now we look for this company to drop considerably. We might be a little premature with this one however given the state of stock markets around the world today and overnight, it is extremely unlikely that this stock could stand immune to the action surrounding it.

Stock Positions to Sell/Exit:

Our remaining longs were exited this week and we are left only with shorts.

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