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September 15, 2003

Lights out - part 2
by David Chapman

With the US Dollar once again beginning a breakdown, gold breaking out and the market continuing the roll over pattern we have been witnessing for the past several weeks the easy thing would be write about these topics again. A looming trade war between the US and China would have negative ramifications for both parties and other countries. This would be a continuance in the growing trade wars that we find eerily similar to the 'beggar thy neighbour' policies of the 1930's that was a major contributor the Great Depression.

The Israeli/Palestinian conflict threatens to deteriorate further once again potentially dragging others into the conflict. The situation in Iraq and Afghanistan is also deteriorating and remains a constant threat. Jobs continue to disappear in the US and the budget and trade deficits are deteriorating further. It is now estimated that the US budget deficit will soar to over $525 billion in the upcoming year or $1.4 billion/day. So we can understand the reasoning behind wanting to devalue the dollar, as this would monetize the debt. But it is clearly a very dangerous game just the actual shooting conflicts are and any of them could trigger a major stock and bond market collapse and a further rush into gold.

Pushed to the backburner once the crisis passed was the blackout of August 14, 2003. While this was just a one-day event with a few days of lingering after effects the real impact of this event would only be appreciated (or really not appreciated) if it had continued for a longer period. The fact that it didn't is no reason for complacency or thinking that it can't happen again. North Americans are the world's largest consumers of energy. Energy, particularly fossil fuels, are a depleting resource where potential huge shortfalls are now foreseeable in the future.

There were a few editorials on the subject in the immediate aftermath. Even fewer mentioned it from the stock market side. One written by Anne Papmehl in Investor's Digest of Canada (Blackout's fallout - Issue 18/03 - September 19, 2003) queried whether there would now be a shift in interest to the alternative energy stocks after the power outage. She noted that analyst Andrew Bradford; an energy analyst with Raymond James Equity Research in Calgary said that while after the California blackout of 2001 that 'Energy stocks went absolutely berserk during the time & but as soon as it was over, it was over.' We repeat this because this appears how the public and both the political and industrial leaders treat this. As soon as the lights come back on all is forgotten and we go back to sleep.

On a more ominous note William Thorsell writing in the Globe and Mail (Paranoid and prudent: Chaos looms, be prepared - September 8, 2003) premised that 'we tend to deny how serious it could have been.' While the blackout was a 'dramatic but momentary insight into the abyss' it only gave us 'glimpses of the horrors that might have been.' The atmosphere for the one night of the blackout was generally a party. But can one imagine what would happen if the lights were out for a week or more?

As Thorsell premises we would soon have major problems with water, food and heat (if it was in the winter). As he notes, 'without heat (one day), water (three days) and food (five days) what would happen to the social order in a city of 2.5 million souls?' Indeed what would happen in an area with 50 million souls, which was how many were affected on that fateful day in August?

Yet when I pick up articles, even ones written by myself, the focus is usually on money, the debt, gold, the war on terrorism but not about alternative energy and preparing for a potential catastrophe that would hurl us from the 21^st century to the 18^th century. We recall the seemingly crazy preparations by the Y2K proponents that, well, seemed crazy at the time. In a world with fragile energy sources, huge under investment in the energy transmission sector, our over reliability on fossil fuels that are largely available only in a the volatile and war driven Mid-East and Central Asia and the remaining risk of a terrorist attack that might center on power sources then the Y2K scenario that never materialized may one day become reality. For one day we experienced what Iraq is generally facing on a daily basis. Even Saddam got the lights to turn on quickly following the end of Gulf War I.

The Boy Scout motto is 'Be Prepared' and even Thorsell concludes, 'Blame would be no substitute for prudence. Tragedy would have no excuse.' But the problems of August 14 haven't gone completely unnoticed. We are seeing a number of interesting technical basing and breakouts on the charts of alternative energy stocks. These companies are at the forefront of potential partial solutions to our energy problems. So there deserves to be some focusing on these companies.

A few were the focus of Anne Papmehl's article outlined above. They were Ballard Power Systems Inc. (BLD-TSX, BLDP-NASDAQ), Hydrogenics Corp. (HYG-TSX), Plug Power (PLUG-NASDAQ), and Energy Conversion Devices (ENER-NASDAQ). From a technical analysis perspective all four are definitely worth a look as they are currently either in a very strong basing pattern (BLD, PLUG) or coming out of a basing pattern (ENER, HYG). The timing looks excellent to have all four in any alternative energy portfolio.

Sticking only to alternative energy stocks the following are either in interesting basing patterns or in the process of breaking out. These include Fuel Cell Energy (FCEL-NASDAQ)

(www.fce.com), Millennium Cell (MCEL-NASDAQ), (www.millenniumcell.com), Medis Technologies (MDTL-NASDAQ) (www.medisel.com), Satcon Technology (SATC-NASDAQ) (www.satcon.com), and Syntroleum (SYNM-NASDAQ).

Canadian stocks whose patterns look very supportive include Palcan Fuel Cells Ltd. (PC-TSXVEN) (www.palcan.com, 604-422-8868), Global Thermoelectric (GLE-TSX) (www.globalte.com, 403-204-6112) and Sustainable Energy Technologies (STG-TSXVEN) (www.sustainableenergy.com, 403-508-7176).

We are showing the weekly charts of four of the above (MCEL, SYNM, PC and GLE). These plus all of the others are currently trading above their 40 week moving average and volume has increased. The 13 and 40 week moving averages are all turning up. Some are super penny stocks like STG. Given the bases that have developed on a number of these stocks the odds appear to favour that they could be in the early stages of new up moves. In all cases use any recent lows as stops. We would consider all of the above stocks either speculative or in the case of the penny stocks highly speculative.

To many the events of August 14, 2003 was a one off and a bit of a party. To some, particularly the elderly living in high rises, it was an ordeal. But as we have noted before there is a real risk of it happening again or experiencing series of rolling blackouts unless steps are undertaken to make huge investments in transmission and further encourage investment, research and usage of alternative energy. The stocks in the alternative energy sector are technically coming off a period of basing following lengthy downtrends in some instances. While the immediacy of the event does attract some attention there needs to be sustained attention in order to keep what may be the beginning of up moves going. The current signs are very encouraging and investors should look at them carefully. The result could be as good as owning gold stocks.

DavidChapman.com
Technical Scoop

Charts and technical commentary by:
David Chapman of Union Securities Ltd.,
69 Yonge Street, Suite 600,
Toronto, Ontario, M5E 1K3
(416) 604-0533
(416) 604-0557 (fax)
1-888-298-7405 (toll free)

David Chapman is a director of Bullion Management Services the manager of the Millennium BullionFund www.bmsinc.ca

Note: The opinions, estimates and projections stated are those of David Chapman as of the date hereof and are subject to change without notice. David Chapman, as a registered representative of Union Securities Ltd. makes every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete.

The information in this report is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does Union Securities Ltd. assume any responsibility or liability. Estimates and projections contained herein are Union's own or obtained from our consultants. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any securities and is intended for distribution only in those jurisdictions where Union Securities Ltd. is registered as an advisor or a dealer in securities. This research material is approved by Union Securities (International) Ltd. which is authorized and regulated by the Financial Services Authority for the conduct of investment business in the U.K. The investments or investment services, which are the subject of this research material are not available for private customers as defined by the Financial Services Authority. Union Securities Ltd. is a controlling shareholder of Union Securities (International) Ltd. and the latter acts as an introducing broker to the former. This report is not intended for, nor should it be distributed to, any persons residing in the USA. The inventories of Union Securities Ltd., Union Securities (International) Ltd. their affiliated companies and the holdings of their respective directors and officers and companies with which they are associated have, or may have, a position or holding in, or may affect transactions in the investments concerned, or related investments. Union Securities Ltd. is a member of the Canadian Investment Protection Fund and the Investment Dealers Association of Canada. Union Securities (International) Ltd. is authorized and regulated by the Financial Services Authority of the U.K.

Copyright © 2002-2008 David Chapman

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