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Economic data will be front and center this week given the availability of another month’s results. The most important reports are the employment report due out on Friday and the ISM’s Manufacturing index, which is released tomorrow morning.

Analysts will closely scrutinize these two reports since their previous month’s data were remarkably bearish. The January employment report showed a surprising loss of 17K jobs and the ISM Manufacturing index rebounded from a sub-50 level in December to reach 50.7% in January. Fifty percent being the dividing line between expansion and contraction in the economy.

As we progress through the early months of 2008, these numbers take on added significance in the contest of declaring a recession. On one side we have the government talking heads including none other than the President, assuring the population that there is absolutely no recession as evidenced by the latest revision of fourth quarter GDP measuring 0.6%. The other side naturally insists that we are in a recession and that the current GDP will reflect that slowdown since it is a continuum from 2007 anyway.

There is good reason to believe that we are most certainly in a recession. Putting aside the low probability that the government would actually reveal bad news before it became official (see: affirmation of strong dollar policy), the latest economic data showing rising unemployment albeit from a low level, waning economic activity as shown by the ISM Manufacturing and Services indices, and the marked decline of the Conference Board’s Leading Economic Indicators, which have declined every month since July with the exception of September, prove that the there is a conspicuous slowdown occurring in the economy. Moreover, the stock market remains entrenched in a downward trend after peaking in October and this indicator is arguably the best predictor of a coming recession.

Technically Speaking

All indexes finished the week and the month in established downtrends and more importantly, this occurred despite forceful attempts to break out of this trend with a bullish rally. By midweek, the broader markets were mere inches from the early February peaks especially on the Dow Jones Industrials however those levels resisted these attempts and succeeded in repelling the bulls.

Tech sector performance was an altogether different experience with the Nasdaq brothers far weaker and never truly threatening to break above the levels reached on the first day of February.

Friday’s weak performance though has dramatically changed the potential for further rallies. While the broader markets, DJ Industrials and S&P 500, still hover over the low closes of February and several points above the January lows, the fierce drop on Friday has evidently sapped their strength and they appear very close to recommencing their decline to new lows. On the DJI, a close below 12,609 would clarify its status and the similarly, a close below 1316 on the S&P would signify a new leg downward had begun.

The Nasdaq brothers are noticeably weaker than the broader market and Friday’s slide resulted in the Composite index hitting a new low close for the month. The ND-100 managed by the barest of margins to avoid a similar fate but is well positioned to accomplish this bearish feat early in the week. A new close below 2252 on the Composite index and a close below 1714 on the ND-100 would send a clear statement that the downside direction is in force.

New Buy Recommendations (in order of preference):

None.

New Short Sales

Bank of Montreal (BMO)

UBS (UBS)

We add two new short sales on our list of banking and investment firms. Both of these candidates gapped lower at the open and closed Friday at new lows for both the year as well as 2-year terms. Further, both companies share extraordinarily weak charts displaying much more downside potential.

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