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With earnings season waning and a paucity of economic data to be released, there is little reason for share prices to rally into the new week. Perhaps the most important data to be revealed will be the January retail sales on Wednesday, which are expected to be quite discouraging. Department stores have already reported that sales were entirely weak for the month and auto sales slid 6.3% to the second lowest level in a decade.

Meanwhile, the Federal Reserve Chairman, Ben Bernanke, will appear later in the week before the Senate Banking Committee along with the Treasury Secretary, Henry Paulson, in order to explain how they missed identifying the housing bubble and what could be done to prevent it from happening again. Naturally, there are many analysts and observers who remain stunned that the Fed could not see what was plainly obvious to them that housing prices doubling over 3-5 year periods is not just unsustainable but results in sharp declines mirroring the rises.

Clearly the news has taken on a bearish character over the past few months and all data point to a significant slowing of the economy. There are many analysts that consider that we have already entered a recessionary phase and there are others, most notably, President Bush who are emphatic that the economy is still growing albeit at a slower pace. Essentially this is a case of splitting hairs since everyone agrees that the economy is doing poorly and there are several vital concerns such as the credit market turmoil and the depressed housing sector that represent serious threats to a vibrant economy.

One of the most visible signs that investors have begun to doubt central bankers’ abilities is the rising price of commodities, but namely gold. Currencies worldwide have fallen against gold and we are now approaching the key level of $1000/ounce, as investors increasingly perceive gold more and more as a store of value and a protector of wealth.

Technically Speaking

Markets settled much lower after last week’s rally as the overbought stochastics seen last Friday indicated that the market had clearly overextended on the buying side and was ripe for a return to selling. All markets finished substantially lower though the tech sector had one positive that the broader markets could not claim since the Nasdaq brothers managed to extend Thursday’s rally through the close of Friday.

Volume on the decline was arguably mediocre to average but in bear market declines, this is quite common and does not argue for a bullish rebound. By Friday, all market indexes exhibited stochastics that were borderline oversold but this condition would in no way limit further declines when markets open on Monday morning. (A glance at overnight markets confirms that as the S&P futures contract is currently 5.0 points lower).

From a technical point of view, it was worthwhile noting that resistance levels were key to this latest failed rally. On the DJ-30, the 12,750 level, which was the low from November and just below the low close of August, was the key to containing the rise in prices. Likewise, we see a similar situation in the S&P 500 where the corresponding resistance was located near the 1400 level and again, this stood firm. In the tech sector, the key resistance levels were the 2440 area of the Nasdaq Composite and 1850 on the Nasdaq-100 both of which had sufficient strength to rebuff attempts to cut through resistance.

New Buy Recommendations (in order of preference):

Randgold Resources (GOLD)

DRD Gold (DROOY)

Compania de Minas Buena (BVN)

Kinross Gold (KGC)

Barrick Gold (ABX)

Though we are not gold bugs, the progressively higher January and February lows reached as part of the retracement following the surge beginning near the end of December is worth taking note of. Gold is now prepared to test higher ground and with central banks printing money as fast as possible, there is every reason to believe that $1000/ounce gold is not far away. The list above represents a judgment call on those most likely to gain above average returns over the near term in order of preference.

Stillwater Mining (SWC) –

Stillwater is arguably the only noteworthy producer of the platinum group metals in the Western Hemisphere while South Africa is the largest producer in the world of PGM’s. In late January, South Africa’s electrical utility hit the wall in electricity production. It simply could produce no more due to the lack of investment in infrastructure over many years causing limits to be reached in production of electricity, something that it had warned about in November 2005. Now it is asking for a 10% reduction in demand from the various mining companies in South Africa in order to avoid excessive demand causing black outs. As a result, the price of platinum and palladium has soared to new highs and carried SWC along for the ride. While the increase in its share price has been nothing short of extraordinary, there is no reason over the short term to believe that South Africa can rectify its energy problems so the likelihood of further price increases remains very high.

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