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Santa Claus came early for the auto industry as it got its wish just in time for Christmas and in time to pay their ever-nervous creditors. Two of the Big 3, GM and Chrysler, will be receiving both an immediate cash infusion of $13.4 billion and a further $4 billion is likely to be available in February. The money is contingent upon having a restructuring plan in place by March – a plan which would include no bonuses or incentives for their top 25 employees and a wage schedule for union workers that matches foreign producers’ lower wages in the US.

By far the toughest part of the deal is for the companies to prove that people will buy their cars. Over the past couple of decades, Americans have been voting with their checkbooks purchasing more and more vehicles made by manufacturers other than the Big 3. Issues related to product quality and running costs including gas consumption are considered to be prime reasons for the shift.

On Friday, both the President and the Treasury Secretary spoke of the need to prevent a massive bankruptcy especially at this time when the economy is declining so rapidly and financial markets are chaotic. A bankruptcy of one of the Detroit Three would add additional pressure to an already tense situation.

Since the TARP program is being used to fund this bailout, there is no need for legislation and therefore no deal needs to pass through both the House and Senate. Moreover, if the auto industry finds itself in another cash-crunch, a possibility that many analysts think is likely, the new Administration will have the freedom to divert more funds from TARP to Detroit if so desired.

Technically Speaking

Easing into the holiday-shortened week, little action is expected with many investors and trading staff choosing to take a break for the entire week, consequently trading volumes are expected to be on the light side. This lack of volume could manifest itself in unusual price moves as well for stocks lacking a certain liquidity.

Once again this past week, the tech sector led the parade of major indices albeit with mild gains up to 1.5% for the Nasdaq Composite. The broader indices, the Dow Jones Industrials and the S&P 500 finished in mixed fashion with the S&P just under 1% higher while the DJ-30 eased a little more than 0.5%.

Stochastics on the daily charts for all four of the major indices have turned down from overbought levels and we would expect some near term selling as a result. Interestingly, stochastics on the weekly charts have rebounded firmly from their oversold condition in the past few weeks and are noticeably more neutral.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We were exited from our short position in JNJ.

Portfolio Comments:

New stops have been added in bold 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