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

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

Ah, the cockroach theory! For those unfamiliar with the cockroach theory, it states simply that there is never, absolutely never, just one cockroach. Similar to the situation of cockroaches in a dwelling where there is never only one cockroach, there is never just one cockroach when applied to the finances of public companies. A change in the environment that causes one company to admit to being adversely affected does not leave all other companies in the same sector unscathed.

This theory was in grand evidence this week with the first sighting observed in Carlyle Capital, a bond fund that is part of the Carlyle Group, a well-connected private-equity business. On Thursday, they announced that due to illiquid markets related to the sub-prime quagmire and demand for redemptions, they would be unable to continue operations. On the same day, in an unrelated development, Drake Management, a hedge fund management firm announced that it was mulling its options including shutting down its largest fund and returning money to its investors. The firm admitted that the sub-prime crisis had meant that its banks were demanding more cash and collateral to back their loans on what had been heretofore, safe mortgage investments.

However Friday’s announcement was the shocker of the week with the prestigious firm, Bear Stearns being rescued by an unlikely combination of JP Morgan and the Federal Reserve. According to the firm’s CEO, the bank’s liquidity dried up completely in the previous 24 hours as its clients and counterparties deserted it en masse. And tonight, the announcement that it is being sold for a lowly $2 per share in a stock-swap deal with JP Morgan, is raising alarm bells everywhere.

In connection with the sale, the Federal Reserve has approved another cut in the overnight interest rate of a quarter percent. The FOMC meets this week and it is anticipated that at least another 50 basis points will be cut from the o/n rate and quite possibly 75 basis points.

Overnight markets are showing fierce reactions to these latest developments with the US dollar down heavily versus the yen and euro while gold is observed jumping $22 an ounce. Overnight trading in index futures is also taking a reactionary stance with both the S&P futures and Nasdaq futures down more than 2%. While this appears to be beneficial to our recommended positions, we would caution investors that this could represent a capitulation of sorts and result in a rally of short-covering though to be fair this would seem to be a low percentage risk.

Technically Speaking

While the large jump on Tuesday had us concerned that we were on the cusp of a bear market rally, by week’s end and certainly with the news this evening, we know now that the market has further to go on the downside. It is notable that with the exception of the Dow Jones Industrials, all other market indexes finished the week lower than they began.

The likelihood has increased tremendously that the previous 2008 lows touched in January will be tested and this, probably as soon as tomorrow if present overnight trends continue unabated.

Evidently we remain concerned that government interventions and/or a general capitulation by investors could cause markets to rebound forcefully however we apply a low percentage risk to this possibility. Fear is becoming palpable in the market and this more than anything has the power to drive markets lower.

New Buy Recommendations (in order of preference):

None.

New Short Sales

Toronto Dominion Bank (TD) – The chart has weakened considerably on this stock and it has reverted back to its downward trend indicated a few sessions ago when it completed a Lindahl sell signal. Furthermore, its weekly chart shows the clear double top near $70 and emphasizes the head and shoulders formation begun in the spring of 2007 and nearing completion at this moment.

Stock Positions to Sell/Exit:

We covered our positions on HSBC Holdings and Franklin Resources 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.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price