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

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A great whipsaw marked the past week with the Fed rescue of Bear Stearns and the subsequent cut in overnight interest rates providing the catalyst for a sharp rebound in equity markets and an equally stunning reversal in commodity pricing. While equities rose, the previous rise in commodities was abruptly halted as metals such as gold and platinum, grains including wheat, corn and soybean, and energy futures, the most important being crude oil, all experienced drops of extraordinary magnitude.

There are two significant reasons for this rebound. The first was the tremendous short covering that resulted as all shorts attempted to exit their positions at the same time. The second was engineered by the Federal Reserve on Tuesday when they decided against lowering the trendsetting overnight interest rate by 1% but instead opted for a smaller cut of 0.75%. The smaller cut signaled the Fed’s confidence in the interest rate and the resilience of the economy, weak though it may be, which in turn sparked bullish interest in the dollar.

Investors witnessed a powerful bounce as a result and the stronger dollar fueled additional gains in commodity-sensitive issues while conversely causing sell-offs to occur in stocks that are more positively correlated to the prices of these commodities.

There is only an even-chance likelihood that stocks will extend those gains in the coming week because the indexes have shown an inability to sustain any rallies and there remains the caveat that further blow-ups similar to Bear Stearns would only serve to shake investors’ confidence in the economy and could cause a rapid sell off in equities. Notwithstanding this belief in a continued rebound, the primary trend in this market is still down and data to be released this week on durable goods orders and house sales will probably reinforce the view that the economy has tipped into a recession.

Technically Speaking

Market indexes finished the holiday-shortened week higher but are edging now into overbought stochastics, which will hinder the bulls’ progress. Clearly the rebound begun on Monday was the key event for the week from a technical perspective and Thursday’s bullish rise combined with higher volumes was immensely helpful to the bulls.

Often the days leading up to holidays do result in a positive mood for investors and stock prices rise, which could explain this week’s market action to a certain degree.

It is also noteworthy that several reversals have occurred in the past few sessions – two positive and two negative – and since these have not been aligned, they add further to the confusion and drive home the market’s susceptibility to being swayed in one direction or the other. In such an uncertain environment, investors are unlikely to commit wholeheartedly to introducing new money into investments.

Given that markets closed below recent highs on Thursday, these technical levels must be breached if this rally is to be sustained. This means that for the broader markets, the Dow Jones Industrials must reach 12,750 and the S&P 500 needs to break through 1365. As for the tech sector, the Nasdaq Composite would need to break resistance at 2290-2300 and the ND-100 at 1780 to see an extension to the rally.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We were stopped out of several gold positions 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