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Expectations are for a quiet holiday-shortened week to close out May though a second estimate of first quarter GDP might generate some mild reaction, as could Tuesday’s release of consumer confidence for the month just ending. The lower expectations are rooted in the idea that weak numbers are expected and there is little chance of any substantial difference to the contrary in those figures.

What we have then is a market waiting for the next shoe to drop. Resetting mortgages, foreclosures, and their ilk have owned the headlines for the past several months but there is still no visible end to this debacle. Today, UBS announced that they were selling $22 billion in residential mortgage-backed securities to a private equity firm for $15 billion and providing financing for 75% of this amount. If that weren’t enough, the bank also announced they would raise further capital of $11 billion, which corresponds closely to the amount of financing being provided in the aforementioned transaction.

It is perhaps quite ironic that a Swiss bank has been tangled up so deeply in the sub-prime mortgage web but we believe that their candid revelations are merely an appetizer to what lays ahead for other European and US banks.

In large contrast to the banks’ woes is the rejuvenation of the price of gold. Gold formed a W-bottom after reaching its low at the beginning of May and has rebounded firmly these past three weeks. The key level to watch is $960 an ounce for the June futures contract. A move breaking through resistance at that level would represent a firm confirmation of the leg upward.

Technically Speaking

Markets broke through a key technical support this week when the lower channel boundary of the upward rising channel was violated by the two broader markets of the four major averages. Support was broken near 12850 on the Dow Jones Industrials and near 1410 for the S&P 500. While the tech sector as represented by Nasdaq did not succumb to the same breakdown, the drop is disconcerting and applies significant downward pressure to this sector. For the record, the equivalent points of interest for the Nasdaq 100 and the Nasdaq Composite are 1925 and 2420, respectively.

These markets being roughly correlated, it would appear that it’s only a matter of time until the tech sector joins the slide. As it stands now, the Nasdaq twins managed to close slightly above their respective May closing lows. Working in favor of the bulls however is the fact that trading volume declined sharply on Friday (due probably to the holiday weekend) and that stochastics are quickly sinking into oversold territory giving traders a reason to think twice before selling more.

A bounce here would probably prevent the Nasdaq twins from falling through their respective support levels on this turn but wouldn’t likely generate sustained upward momentum. In the case of the broader averages, a bounce could bring them back up to the lower channel line if only to test this new resistance level before sinking back once more.

An interesting point here is that the 200-day moving averages for the S&P 500, DJ Industrials and the Nasdaq Composite have remained key resistance levels while the same cannot be said for the Nasdaq 100. The ND-100 broke through this average on the first trading day in May and having tested it as support early in the month, it is currently testing it once again.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We were exited on the stop for Precision Castparts (PCP).

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