Chartered

Fortrend Securities - Wealth Management

Joel Hewish is an Investment/Financial Adviser at Fortrend Securities. The opinions expressed are his
own.

Edition No. 7
9th June 2010

Bottom Line: Markets around the world have been sold-off on significant volume and ferocity. We now
view the S&P ASX 200 as being in the early stages of its next leg down within the context of a larger degree
bear market, while the US S&P 500 is heading quickly in the same direction. Expectations are for significant
declines in the large majority of asset classes, gold and property included. We view the likelihood of most
share markets falling below the lows of 2008/09 within the next 2 years as very high. Expectations are also
for further material weakness in the Australian dollar versus the US dollar. Our expectation is for the
Australian dollar to trade in the range of USD$0.50 and USD$0.60, but an AUD below USD$0.50 would not
come as a surprise during this same period. If you have not moved to manage these risks and take
advantage of this opportunity, you need to ask yourself WHY NOT, and begin to do something about it!!

Chart 1 US S&P 500

In the last edition of Chartered we highlighted the possibility of the S&P 500 etching out a head
and shoulders pattern as its final topping formation before the next movement down. For the
moment it still remains a possibility. Support remains around 1,050 to 1,060.
We still cannot definitively declare that the uptrend for the S&P 500 has now finished and a new
trend down has commenced, however, all the evidence clearly points to this as being the most
likely outcome.
 Ideally I would like to see support around 1,050 1,060 broken before I can confidently say this is
the case.
Any bounce into higher territory will likely encounter resistance initially around 1,100 and then
1,150.
Investors and traders should continue to expect large swings in prices as the markets remain
cautious and nervous.

Chart 2 S&P 500 A closer look

We showed in the last edition of Chartered that it was possible to count a 5 wave move down from
the peak in April 2010 to the most recent intraday low on the 25th May 2010 and highlighted that a
bounce was likely.
While we experienced some initial form of a bounce in the short term with an intraday rise to
1,105 just 4 trading days ago, at this stage the bounce has really been anaemic at best with the
market largely moving sideways.
The recent characteristics of the price action, for my mind, represent more of a complicated and
messy corrective pattern.
Smaller time frames than the daily appear to show a lot of overlapping waves with no clear trend
really coming to light.
This type of price movement therefore adds further confidence that a larger degree trend down is
still in force and once this corrective price phase completes, the larger degree downtrend will
continue.
For those that are new to Elliott Wave or those that are still trying to put together all the pieces, it
can be useful to know that it is not necessarily all that important to be able to label all the
corrective waves as well as Robert Prechter and other more expert Elliott Wave technicians, myself
NOT included, but rather understand the 3 fundamental rules of Elliott Wave and being able to
identify that the wave is corrective.
If you are at least able to identify that the wave is corrective, regardless of the form it ends up
taking, you can be more confident that once it ends, prices will resume that larger degree trend.
For the moment that larger degree trend continues to point down.
Chart 3 - S&P ASX 200

As far as we are concerned, the S&P ASX 200 has completed its countertrend rally from the lows of
March 2009 and has now commenced the initial stages of the next leg down. Like the S&P 500, the
S&P ASX 200 appears to be in a corrective move over the past 2 weeks.
You will notice that on the chart above there are two (2) blue arrows pointing down to the
negative oscillator readings where Waves 1 are labelled.
Given we know that Wave 3 and Wave C are the strongest waves in the direction of the larger
trend, it should therefore be reasonable to assume that Wave 1 of Wave 3 or C should also be
stronger than Wave 1 of Wave 1 or A of the previous move down.
Given our view that the S&P ASX 200 has now commenced the next leg of the larger degree
downtrend, we highlight that the first wave down from April 2010 to May 2010 now shows an
oscillator reading that is larger than the previous Wave 1 of 1 or A down (as we currently label it).
We also note, though, that it is not stronger than Wave 3 down of the previous Wave 1 of 1 or A.
This further evidence, that others might call coincidence, fits very nicely with our outlook.
Assuming that our labelling is correct on a primary and cycle degree, we would actually expect this
to be the case. That is, most waves down should show a higher negative reading on the oscillator
than the corresponding waves down through primary degree Wave 1 or A. In fact we will be
looking for this to confirm our view.
Chart 4 S&P ASX 200 A closer look

As per the S&P 500, the S&P ASX 200 has completed a 5 wave move down, albeit a little more
aggressively than in the US market did. Our market has since risen from its 5 wave completion but
once again the overlapping nature of the waves suggests that this bounce is corrective.
As far as catalysts for primary degree Wave 3 are concerned, there appears to be no shortage. European
sovereign debt, US sovereign debt, Japanese sovereign debt and the next wave of US home mortgage
resets are just a few. However, until recently I have struggled to identify a plausible reason as to why the
larger degree wave count for the US market will likely have a 5th wave down to complete Cycle Wave C.
This report from 60 Minutes in the United States helped to identify what could be the leader of that 5th
Wave. According to one renowned analyst, we are still only a third of the way through sorting out this
mess.
http://www.youtube.com/watch?v=6kAfuFGi7bY

Phase 2 of this bear market has begun and it is going to be quite an experience. However, if you manage
your risks prudently and move early to position your portfolio in the appropriate areas, it could also
present some of the greatest opportunities to make money we have ever seen.

The greatest uncertainty provides the greatest opportunity.

As such we strongly encourage you to contact us to discuss your portfolio, how it is positioned, how you
can manage the risks and prosper during these uncertain economic times.

We 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
jhewish@fortrend.com.au and we 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 strategies
which can be used to help you navigate the prevailing market conditions, please do not hesitate to contact
me.
Until next time, have a great fortnight!!!

JOEL HEWISH B.Bus (Bank & Fin), GDipAppFin, GCertFinPlan, SA Fin

Investment / Financial Adviser
FORTREND SECURITIES - WEALTH MANAGEMENT
Australian Financial Services Licence No. 247261

Chartered is a fortnightly publication from Fortrend Securities Wealth Management and is provided for the
purpose 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 Fortrend Securities International Advisory. This
publication is provided as general information only and does not take into account your personal
circumstances, aims and objectives and should not be considered personal advice. You should first consult
a licensed Investment or Financial Adviser before acting on any of the information provided in this
publication.