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The Fed’s decision to remain on the sidelines was a clear signal to the market that a change in monetary policy would not be forthcoming in support of a stronger dollar. Despite all of the unusually stern language used by the Fed in recent weeks, in an overt attempt at talking up the dollar, the inaction represented by this week’s meeting was not lost on investors as they immediately exchanged their dollars for oil and gold. Though the Fed waxed on regarding the threat posed by inflation, their inability to act on these convictions proves just what little ammunition they have left in their arsenal. Truth be told, they are simply ship captains trying desperately to steady a vessel through stormy seas and though they present a strong front pretending to have control of a situation, clearly their actions are more analogous to passengers rather than drivers.

Oil and gold were the true beneficiaries of the Fed’s largesse as both charged higher in the midweek reaction to the rate decision. In recent weeks both had settled into ranges and were waiting patiently for some catalyst to help them over the hump. Undoubtedly, these two commodities are the most visible sign that investors are growing impatient with government inaction. The printing presses are working overtime producing more dollars and rendering the currency a mere fraction of its previous self so naturally there comes a point where the people’s faith is broken. This point is different for everyone but we see from the technical indicators and the rising prices of these two particular commodities that more and more people have come to the conclusion that owning something tangible of a certain value is worth more than holding US dollars.

Ironically, it was just a few years ago that investors considered owning real estate as a worthy investment. But as they have discovered to their chagrin, when the supply increases much faster than demand, a top is reached and a slide begins.

The question then becomes can commodities such as oil and gold replicate that situation? Possibly but unlikely since exploration and development of both occurs on long timelines and with the increase in competition for present supplies, a competition that exists on a global scale and not just a country-wide scale, a similar situation is unlikely to occur for many years.

Technically Speaking

The markets reacted very bearishly to the inaction of the Federal Reserve in midweek. In particular, the Dow Jones Industrials looking perhaps for a catalyst, used the decision as a reason to sell and barely finished positive Wednesday afternoon after having been much higher earlier in the day. The sell-off continued on Thursday but once the low from March was violated, little could stand in the way of a full rout continuing into Friday. The DJ-30 has now given up most of the gains from 2006 as well as those in 2007.

The S&P 500 leaned over and settled near the lows of January and March but did not violate the lowest close of 2008 on March 10. Nonetheless, returning to the point of a double-bottom is more often a bearish signal than not and we would expect that very soon, this support level will fail much the same as it did for the DJ-30.

The tech sector continues to outperform the broader markets and this due namely to the absence of financial sector stocks in the Nasdaq twins. On Friday, the ND-100 managed to rebound enough to post a marginal gain and both markets remain well above their corresponding March lows.

Importantly, consideration should be given that all markets closed higher than their openings on Friday and this occurred on very heavy volume suggesting that at the least, they have reached oversold levels and a bounce higher is in the cards to start the week.

New Buy Recommendations (in order of preference):

Gasco Energy (GSX) – This small gas producer is ramping up production and attracting interest if we are to believe the technicals. As it has moved higher from below $2.50, it gained solid support at $2.75 and when that level was taken out, solid support was found now at $2.75. Currently similar support resides at $3.25 but with Friday’s strong move on very heavy volume, it is unlikely that we will even see a test of that particular price level.

Hercules Offshore Inc. (HERO) – Here we have another oil and gas driller whose chart has signaled once more the beginning of a new leg higher. This has been a stepper since the year began and Friday’s move on high volume points the major direction for this stock.

Azz Inc. (AZZ) – Unusual name but clearly a break out above the $40 level is now imminent after being range bound for over 12 months. Friday’s move on heavy volume saw it close at its 2008 high.

Gold Companies: Goldcorp (GG), Kinross Gold (KGC), Yamana Gold (AUY) – Gold has broken out this week and we consider these three producers as the best positioned technically, to profit from the move. (They are listed in order of preference). All had gaps higher for the last two days of the week and could be ripe for a little selling action as their prices retrace and stochastics are overbought adding to this downside pressure.

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