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Edition 17 - Chartered 13th October 2010

Edition 17 - Chartered 13th October 2010

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Published by Joel Hewish
Chartered is a free fortnightly publication from Fortrend Securities investment/financial adviser Joel Hewish.
Chartered is a free fortnightly publication from Fortrend Securities investment/financial adviser Joel Hewish.

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Published by: Joel Hewish on Oct 15, 2010
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09/23/2013

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Chartered
Fortrend Securities - Wealth Management 
 Joel Hewish is an Investment/Financial Adviser at Fortrend Securities and manages the WealthManagement division. The opinions expressed are his own and do not represent those of Joe Forster or the International Advisory division.
Edition No. 1713th October 2010
Bottom Line
:
Financial markets appear to be in the later stages of their corrective patterns which have persisted for the past 3 ½ months. Major equity markets have either completed a topping formation, arecompleting a topping formation or are already well entrenched in the next phase of their downtrend. Global equity markets are now showing similar extreme technical and bullish sentiment readings to thosedisplayed just prior to market tops registered in April 2010, January 2010, May 2008 and October 2007. Thetechnical and investor sentiment evidence now overwhelmingly supports the resumption of the next legdown in the not too distant future.
Limited time remains to protect yourself and profit from thisopportunity!! 
Chart 1 – US S&P 500
 
The S&P 500 continued its rise higher over the past fortnight, albeit at a much slower pace.
 
Piece by piece the evidence continues to line up for another significant decline in share markets inthe not too distant future, but predicting when has been troublesome.
 
The rally from the June 2010 low to date has been surprising in the face of the technical evidencesupplied to date, but still remains well within the boundaries of the rules of the current wavecount, but we will have to see how it all pans out.
 
 
I continue to reiterate that stocks remain highly susceptible to a change in sentiment as technicaland sentiment indicators continue to flash red at extreme levels.
 
Higher prices cannot be ruled out, nor can a break above the April 2010 highs, despite the warningsigns, but I seriously question the logic of continuing to remain overly exposed to equity marketswithout taking out some form of insurance against these risks.
 
The risk/reward trade-off continues to remain significantly skewed in favour of further marketweakness over the medium term.
Chart 2 – Chicago Board of Options Exchange - Volatility Index (VIX)Chart 3 – S&P 500
 
Yet another piece of the bearish picture has fallen into place this week with the Chicago Board of Exchange’s Volatility Index (VIX) slipping into complacency territory.
 
Since October 2007, the VIX has been an exceptional indicator of imminent market weakness.Since that time period, when the VIX has fallen into the 16 to 20 region and bottomed, it hassignified the commencement of another leg down in the S&P 500.
 
 
The past several days have now seen the VIX move into this region. Investors should continue to beon high alert.
 
The green circles above outline each of these instances and the ensuing market declines thatfollowed.
 
A turn in the VIX to the upside, now, would be a clear signal that the next sell-off is underway.
Chart 4 - S&P ASX 200
 
The S&P ASX 200 continues to move largely in step with the S&P 500, however, yesterday saw a1.7% decline which appeared to have occurred on little news.
 
We continue to look for guidance as to where the Australian market is likely to head by looking atthe US market, and as per the S&P 500, the S&P ASX 200 wave count remains intact.
 
As with the S&P 500, a rise above the April 2010 highs will rule this wave count out and areassessment of the wave count will be necessary.
 
The question from there then becomes, would that alter the bearish view of the markets andglobal economy.
 
So let’s review what is currently being experienced in the US economy at present.

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