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

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Technically Speaking

The long-awaited rebound began this week with the financial stocks leading the way. The broader markets thus benefited most from the reversal of the past few weeks. The Dow Jones Industrials rose on three consecutive days of rising volume while the S&P 500 largely reciprocated this action however its close Friday was only slightly higher than Thursday’s and completed on lower volume.

The tech sector represented by the Nasdaq twins shared initially in the rebound however Friday’s action signified an abrupt change of character. On the last day of the week, both Nasdaq indices gapped markedly lower, albeit on lower volume. This price action may have been a result of the rapidly shifting stochastics from oversold to overbought territory on the daily charts but a cursory look at other similar gaps suggests that this action represents a directional change.

As we had warned for the past few weeks, a rally in this bear market was a near certainty so we cannot be surprised. Short covering was bound to begin at some point and the bottleneck pressure of short sellers reaching for the exits at the same time puts buying pressure on stocks. Stochastics on the weekly charts had plummeted to very oversold regions and needed to be resolved before any substantial extension of the bear market could occur.

Moving forward, we would expect that within the broader markets, the DJ-30 could see a move to the 11,800-12,000 area and on the S&P 500, a similar move to the 1300-1320 area could be generated in the context of a bear market rally.

In contrast to the broader market, the tech sector’s move on Friday strongly suggests that a continuation of the bearish structure may be in the cards for this group. Stocks such as Ebay, Google, Microsoft, and Apple all have fallen sharply in the past few sessions applying significant downward pressure on the index. The issue that arises from this theory is that markets have tended to be highly correlated in recent years and bifurcations between the broader markets and the tech markets have become rare. One factor that may explain the different behavior is that the tech sector has not truly violated its March lows though the Nasdaq Composite came very close on Tuesday. The continuation of a decidedly bearish price action may be associated to the propensity of these indices to fall below their own March lows thus confirming their own bearish markets.

New Buy Recommendations (in order of preference):

YRC Worldwide Inc. (YRCW) – This trucking firm has rebounded from its low reached in January and has progressively moved higher showing signs of distinct buying pressure especially this week with the drop in the price of crude oil. Friday’s rise on increasing volume stopped short of producing a new 2008 high however it did succeed in extending the latest move above the 200-day moving average. Essentially, this recommendation is leveraging the drop in oil prices and judging by the very near term chart of crude oil, there is reason to short oil at this moment.

New Short Sales

None.

Stock Positions to Sell/Exit:

Several of our short positions were covered at their respective stops this week with the rebound in the financial sector.

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