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

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All eyes are once again on the Federal Reserve as the nation’s central bankers grapple with the inflationary forces of crude oil and food prices on one hand while balancing a weakening economy on the other. Indeed, this last week of June finds the Fed convening one more meeting to decide on interest rate policy before the summer begins.

This timely meeting promises to have a little more discussion on raising rates than previous ones, due not only to the presence of the noted inflation hawk, Jeffrey Lacker, the President of the Federal Reserve Bank of Richmond, but also to some new inflation hawks. While Mr. Lacker is not a voting member at this time, both Charles Plosser, the President of the Philadelphia Reserve and Richard Fisher, President of the Dallas Reserve are voting members and during the last meeting held in May, they both voted in the minority to hold interest rates steady.

Evidently, two voting members is not sufficient to win a vote however the notion that inflation is heating up and is detrimental to the US economy through a weaker US dollar is a notion gaining much traction these days in Washington. The Fed Chairman, Ben Bernanke, has made a point of addressing the eroding value of the dollar in recent speeches and emphasized his conviction that the dollar was becoming undervalued. This blatant attempt to talk up the dollar by the country’s top banker no less is being met with a fair bit of disbelief.

Nevertheless, the Federal Reserve will not raise interest rates when the meeting adjourns. This is first and foremost an election year and historically, the Fed has not made important changes to monetary policy in the months leading up to election day. So at the end of the day, the Fed will carefully craft a message that people should prepare for higher interest rates at some point down the road – just not today.

Technically Speaking

Stock markets and in particular, the Dow Jones Industrials, were invariably weak on Friday. Heavy volume in a session marking the expiration of futures and options on index trading served to contribute a strong bearish tone to the trade. The DJ-30 settled only inches above its March low and the key support level of 11,750, which marked the old resistance until late 2006.

It was a similar story for the S&P 500 but the S&P remains well above its March-low of 1273 – a circumstance that results from the stronger influence of very weak financials on the Dow Jones. The tech-heavy Nasdaq twins benefited from the switch to tech issues of the past several months and are in no immediate danger of breaking through their April bottoms despite the sharp fall of nearly 2% this week.

Friday’s strong wave of selling could combine with oversold stochastics on the weekly charts of the broader markets to produce a quick bounce into the new week. The tech sector does not benefit from a similar technical environment with weekly stochastics only now turning down after remaining overbought for an extended period.

Perhaps most importantly though, is the formation of a triple bottom on the Dow Industrials. The lows occurring in January, March and now June have been largely supported at 11,750. Now this support is coming under fire as traders test it for the third time, an occurrence, which rarely is resolved in bullish fashion. A failure at this point would open up the possibility of a test near 11,000.

New Buy Recommendations (in order of preference):

Oilsands Quest Inc. (BQI) – This oilsands development company has jumped to a new 2008 high over the past few sessions and is poised to continue marking new highs. With high energy pricing and strong buying interest, there is now very good likelihood that the 2006 high will become an item of the past.

New Short Sales

Citigroup (C)

ICICI Bank (IBN)

Merrill Lynch (MER)

Nissan Motor (NSANY)

We want to add these stocks to our current short sales – all have touched new lows in 2008 in the past few sessions or are very close to doing so. Also they are similar in that they appear to be mere moments away from starting new downward legs though it should be noted that MER having failed at the $40 level has probably already begun this particular leg.

Stock Positions to Sell/Exit:

Nearly all of our longs have now been exited mostly through the use of stops that were triggered this past 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