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Clearly the Federal Reserve has not quit trying to shove liquidity into the banking system using every means at its disposal. This week, the announcement that the US central bank would accept bonds backed by such questionable investments as car loans and credit cards barely caused a ripple of criticism as the Bernanke-led Fed extended its efforts to inject liquidity into frozen credit markets. The Term Auction Facility (TAF) begun in December remains the Fed’s most useful and popular method for banks needing access to funds. Since the program began, the Federal Reserve has steadily increased the amount available from $20 billion per auction to the current $50 billion however, on Friday, the Fed announced that this facility will see a shocking 50% increase to $75 billion per auction in May. Thus the total amount of monthly lending soars from the original $40 billion per month (given that there are two auctions per month) to $150 billion and this, with a wider choice than ever for collateral.

Many analysts are ignoring this troubling sign of potential financial collapse and instead dwell on small, arguably insignificant signs of a rebound occurring. But a rebounding economy is far from a sure thing at this stage. Analysts always on the look out for a silver lining were quick to point out that Friday’s employment report was not as bad as expected, that the March factory orders indicated a potential turnaround in the economy and that the initial estimate of first quarter GDP was evidently not recessionary at 0.6%.

So let’s take a closer look at these numbers.

While the media is quite willing to trumpet the 1.4% jump in factory orders in March, a quick glance at the numbers reveals that the increase is due in large part to a 2.6% rise in non-durables while a lowly 0.1% rise in durable goods orders acts more as a drag. In case there is any doubt as to the relative size of each, they are, in fact, virtually equivalent in total dollar amounts.

The employment report was better than expected but as is normally the case, these initial estimates are prone to extraordinary revisions over the next two months and though the loss was not as bad as expected, there is little reason to pat themselves on their backs if the economy continued to shed jobs.

The GDP figures are similar in that they require two more revisions before establishing a final figure. It is not terribly unusual to see modifications to GDP amounting to 0.6% so concluding that growth did occur is a little premature at this point.

Technically Speaking

Markets finished the week higher and the fact that two of the major indices surged above their respective 200-day moving averages strongly suggests that further moves higher should be expected.

The Dow Jones Industrials and the Nasdaq-100 both topped their 200-day MA’s and we now expect that in the short term the S&P 500 as well as the Nasdaq Composite will also accomplish the feat.

Resistance is building however on the weekly charts as all four of the indices’ stochastics are cresting at significantly overbought levels. While the potential for staying overbought on the weekly is quite possible for extended periods of time, these charts are arguing for some temporary relief that could put a damper on overall market returns in the very short term. One company in particular that might cause a strong reaction is Cisco Systems, which is due to report their quarterly results on Tuesday.

It is worth noting that weekly trading volumes remain on the low side indicating certain reluctance to participation from many corners of the market.

New Buy Recommendations (in order of preference):

Photon Dynamics (PHTN) – The tech sector is now performing relatively stronger than the broader markets and this stock in particular is positioned to move higher. Since bottoming in December and January, this company has been a steady climber but even more impressive has been the strong volumes evident on up days as opposed to volumes on down days. The gap higher on April 17 has seen some backing and filling and now the stock is poised to continue its move higher.

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