Edition 25 - Chartered 4th March 2011

8/7/2019 Edition 25 - Chartered 4th March 2011

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Chartered

Fortrend Securities - Wealth Management

Joel Hewish is an Investment/Financial Adviser at Fortrend Securities and manages the Wealth

Management division. The opinions expressed are his own and do not represent those of Joe Forster or

the International Advisory division.

Edition No. 25

4th

March 2011

Bottom Line: Volatility is back and it is overdue. I do have some concerns that the focus of the recent sell-offis because of the unrest in the Middle East and not because of the structural issues being faced by heavily

indebted Western Economies. However, this could also be the reflection of a change in social mood. From a

valuation and technical perspective, everything is in place for a correction of a substantial size and even for

a top of major significance, but the extensions which have occurred over the past 6 months are tempering

my conviction in the recent correction at this stage. There still might be one more subdivision upwards

before we see the long awaited pull back and potentially a third major market top in most markets in 12

years, so remaining nimble and prepared is key. Investors should use the price strength from the lows in

May/June 2010 as an opportunity to reduce risk and position their portfolios to profit from this

opportunity!!

Chart 1

S&P 500

The S&P 500 appears as though it may now have completed the ABC corrective pattern which first

commenced out of the lows of March 2009.

It is still very early days but it is now possible to count the pattern from the lows of July 2010 as a

completed 5 wave pattern to finish off a Wave C of intermediate degree of Wave 2 of primarydegree.


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Irrespective of whether this is the major top I have been anticipating or not, Elliott Wave Theorysuggests that we should at least see a little more weakness before any uptrend resumes. If in fact it

does.

There is now sufficient evidence to suggest that being a little more risk averse would be a prudent

strategy for this stage of the market recovery.

It is true that economic numbers are stronger than they have been over recent years and economic

growth in the United States is projected to remain strong in the United States, never mind the 0.4%downward revision to 4th GDP from 3.2% to 2.8% last week. But the same could be said for the

global economy leading into and even after the 2007 market tops.

The fact is that the stock market always moves before improvements or slow downs are reflected

in the economy. The reason being is that all it takes is a click of the mouse button or a call to your

broker to reflect changes in an investors mood. For economic growth numbers to start slowing or

improving, firstly you need economic data which is released weeks and months after the close of

the respective reporting periods, but it also takes longer for decisions on business investment and

capital expenditure to first be approved and for transactions to actually settle. So there will

inevitably always be a lag in economic data.

Case in point, most developed markets topped in October or November of 2007, US GDP didntturn negative until the reporting of the 2ndquarter of 2008, which wasnt reported until half way

through the third quarter or 2008. While GDP growth slowed significantly in the first quarter to 1%,

by the time this was reported half way through the 2nd

quarter of 2008, you would have missed the

top by about 6 months.

Similar examples can be found at almost all major tops and bottoms. So how does one then try to

identify where a top or bottom is likely to occur, and how significant that top or bottom is likely to

be. There needs to be an environment which is conducive for such an event. That is, valuations

might be stretched or extremely attractive, yields extremely high or low, momentum might be

waning, sentiment might be registering extremes of optimism or pessimism. When you mix this

with underlying structural weaknesses or strengths, then you should be able to put a high

probability of a particular event occurring and as a money manager, adjust your portfolios tomanage these risks and profit.

It is my view that there is no such thing as Black Swan events. These rogue events tend to give

plenty of warning signs before they occur. The surprise comes because you chose not to pay

attention or dismissed the possibility of them occurring because they take longer to unfold than

you initially expected. But when they do, they are often upon us too fast to be able to manoeuvre

around them with a clear mind.


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Chart 2 S&P 500 A closer look

The S&P 500 has made its first initial steps outside of the rising bearish wedge pattern after

completing what appears to be a Wave 5 of 5 of C.

It could yet be possible that this correction is in fact the end of Wave 3 black and as such the start

of Wave 4 black, and if that is the case, we would still expect one more final push to the upside to

complete Wave 5 black. A break above 1,344 will likely mean that Wave 5 has commenced. If past

experiences mean anything, a rally for a further few months might still be on the cards.

Were the Oscillator to turn negative, the S&P 500 to break convincing below the uptrend support

line and several other indicators to fall into place to confirm the change in trend, then

opportunities to profit from the decline could be upon us.

But for now we have to watch and let the market tell us what it is going to do.

Chart 3 - S&P ASX 200

The S&P ASX 200 has pulled back in line with US and European markets. Once again it is still too

early to determine whether or not prices have peaked for our market.


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If the above labelling is correct, at some stage shortly, we should expect a break below the uptrendline.

However, the proximity of the S&P ASX 200 to the April 2010 high still allows sufficient scope for

the market to rally above and set a new recovery high.

If a break above the recovery high was to occur, a change in the labelling in the short term would

be required, but it would only serve to realign the wave count with overseas markets.

The long term bearish outlook still remains the preferred interpretation of the waves. How long ittakes for the secular bear market to resume, we cannot be sure, but we are potentially very close

to that time.

Both the S&P 500 and S&P ASX 200 remain finely balanced at this stage.

Chart 4 S&P ASX 200

The S&P ASX 200 is once again testing the lower rising trend line.

At this stage, not much more can be said that hasnt already been said over recent editions.

A break below the lower trend line would be the first indication that a change in trend was

potentially playing out.


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Chart 5 CBOE Volatility Index

Periods of high volatility precede periods of low volatility and periods of low volatility precede

periods of high volatility.

The VIX index has pulled back into the 16 to 20 region and once again spiked outside of this region.

Prior to November 2010 and the recent spike over the past week, from the beginning of the credit

crunch, a pull back into the 16 to 20 region and a subsequent spike outside of the region has

tended to coincide with turning points of significance in the S&P 500.

The recent spike outside of this 16 to 20 range, to the upside, could be a warning of future

volatility to come.

Chart 6 USD/EURO Cross Rate

The USD/EURO cross rate looks as though it is forming a combination corrective pattern combining

a flat correction as signified by W with a zigzag ABC pattern, as signified by Y, joined together with

an ABC correction as signified by X.

This is my best interpretation and if this is correct, Wave C of Y should soon complete to

commence Wave 3 up.


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There is another alternative which allows for slightly more weakness than that allowed in theabove wave count which would also be a combination correction involving the decline from June

2010 to November 2010, but at this stage well just have to wait and see how it all unfolds.

Despite the weakness in the short term, the longer term up trend which appears to be unfolding

over the past three years, still remains intact and a reversal of fortunes for the US dollar shouldnt

be too far away.

Chart 7 AUD/USD Cross Rate

The Australian dollar looks as though it might be showing more bullish tendencies in the short

term, potentially heading towards $1.05.

If this is the case it would still mean that the medium term subdivisions are in their final phaseswith the trend upwards into the final exhaustion phase.

I have left the wave count that I have been using for the past few editions in place but this would

change if a break above the December 2010 high occurred.

The AUD has not broken above its December 2010 high just yet, but it is flirting with it. A break

above would provide a final target towards approximately $1.05, a break below the January 2011

low would indicate the trend change to the down side is likely in place and the recent move from

the low in January is corrective.

The key point to note here is that the longer term cycles and wave counts are down but there

might be the potential for a month to a few months of strength left.Allow it to unfold. Any spike above the December 2010 high will be a risky play to be involved in for

investors, while if you are patient, the reversal to the downside will be much less risky to play and

should prove much more profitable.


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Chart 8 Spot USD Gold

The spike in gold to a new high means that gold is now extending to the upside in a final 5th Wave

move.

Gold now has the potential to rally for a further month or two but playing gold long at this stage of

the trend is risky.

If you are patient, an opportunity to play gold on the downside should present within the next few

months and this will likely prove to be a less risky proposition and provide scope for larger profits.

Now is the time to be watching the markets closely and looking to play the unfolding markets, but keep

positions small as risks are high in both directions at present.

Opportunities to play both sides of the market

The innovation in the exchange traded funds market in the United States has opened up an enormous

opportunity to play all types of markets in all directions without the necessity of using leveraged and

complex derivatives products. If you are interested to know how you can protect your wealth and also

profit from this opportunity, I strongly encourage you to contact me today!!

Interested to know more about Elliott Wave Analysis and the science of

Socionomics?

For those people new to Elliott Wave Analysis and wanting to understand the principals behind it and thedevelopment of the new study of Socionomics, the Institute of Socionomics, in conjunction with Elliott

Wave International, have just released this new introductory video

http://www.socionomics.net/hhe/video/stream/flash/default.aspx?page=1to help newcomers to this new

way of thinking and analysis. It is recommended viewing for anyone even slightly intrigued, whether you

are a believer or a sceptic. It provides for some very interesting viewing.

I hope you have enjoyed this edition of Chartered and found the content of interest. If you would like me

to analyse a particular market or chart from a technical point of view, please email your requests to

[email protected] I will endeavour to look at any requests in upcoming editions.

In the meantime, if you would like to arrange a time to discuss your portfolio and some of the strategieswhich can be used to help you navigate the prevailing market conditions and profit from this opportunity,

please do not hesitate to contact me on 03 9650 8400 or 0401 826 096.
http://www.socionomics.net/hhe/video/stream/flash/default.aspx?page=1http://www.socionomics.net/hhe/video/stream/flash/default.aspx?page=1mailto:[email protected]:[email protected]:[email protected]://www.socionomics.net/hhe/video/stream/flash/default.aspx?page=1


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Kind regards,

JOEL HEWISHB.Bus (Bank & Fin), GDipAppFin, GCertFinPlan, SA FinInvestment / Financial Adviser

FORTREND SECURITIES -WEALTH MANAGEMENTAustralian Financial Services Licence No. 247261

Chartered is a fortnightly publication from Fortrend Securities Wealth Management and is provided for thepurpose of general information only. The views and opinions expressed in the publication are those of Joel

Hewish and do not necessarily match those views of Joe Forster and Fortrend Securities International

Advisory. This publication is provided as general information only and does not take into account yourpersonal circumstances, aims and objectives and should not be considered personal advice. You should firstconsult a licensed Investment or Financial Adviser before acting on any of the information provided in this

publication.

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Edition 25 - Chartered 4th March 2011