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Edition 26 - Chartered 17th March 2011

Edition 26 - Chartered 17th March 2011

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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 Mar 18, 2011
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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. 2617
th
March 2011
Bottom Line
:
Volatility is back and it was overdue. Markets began selling-off several weeks ago and therecent turmoil in Japan gave the sell-off the impetus it needed to the give the downside correction a kick along. For a while now I have been talking about the heightened risks within global financial markets and those risks have now begun to show themselves. While predicting the events over recent weeks would havebeen extremely difficult and perhaps even impossible, we were given plenty of warning signs leading up tothis moment to suggest that not all is right and risks were elevated. From a valuation and technical perspective, everything was and still remains in place for a correction of a substantial size and even for atop of major significance. Most global markets are now showing signs of technically breaking down and apotential significant trend change could be at hand.
Investors should remain nimble and reduce their exposure to the risks in financial markets where appropriate. Always remember that uncertainty bringsopportunity!! 
Chart 1
S&P 500
Is the market on Route 666? For those of you unaware, the S&P 500 price index bottomed inMarch 2009 at the index level 666. The big question readers of Chartered will no doubt be asking....is this the commencement of the next leg down in the larger secular bear market or will it turnout
to be yet another false start and corrective phase? The answer is I’m not 100% sure, but we should
be taking serious note of recent declines given the evidence that is in place. The probability isextremely high.
 
 
Since the recovery high on 18 February 2011 the S&P 500 has made two lower lows and one lowerhigh, indicating that a potential trend change could be at play here. We should be treating the S&P500 with the utmost caution at present as the market is subdividing to the downside following thecompletion of a 5 wave Elliott Wave pattern to form what looks like a C Wave of what currentlylooks like being an ABC corrective pattern.According to Elliott Wave theory, if the market is still in an uptrend, then the most likely place for adownside correction to finish is approximately where Wave 4 of the previous uptrend completed.Based on this guideline we could expect a correction back to the lows of November 2010 around1,173.
 
While I have given numerous reasons as to why I view the rise from July 2010 to the recent high aslikely being a subdivision of a countertrend rally, rather than a Wave 3 of a new bull market, froman Elliott Wave perspective, if this recent decline was the start of a Wave 4 decline and the rise toFebruary 2010 a Wave 3 advance rather than a Wave C advance as currently shown, then thedecline currently being experienced cannot fall below the April 2010 high of 1,219 as this would bea violation of the Elliott Wave rules. As such, a decline below 1,219 would put to rest this possiblebullish wave count alternative and will give greater evidence that more substantial falls will belikely over the coming 12 to 24 months.
 
At the moment we should expect further downside before a good sized relief rally. What happensafter the decent sized relief rally will determine whether a major top is in place.
I’m looking first for
5 clear waves to the downside and 3 clear waves up and a commencement of a new downmovement before being able to make a more informed determination.At the moment I can only see 3 waves to the downside.
Chart 2
S&P 500
A closer look
The recovery high of the S&P 500 currently stands at 1,344 on 18 February 2011. Since then themarket first declined to 1,294 on 24 February 2011, rose to 1,332 via a three wave pattern on 3March 2011 and then proceeded to decline below the first low of 1,294 to close below that levelover the past two trading days.In terms of levels to be considering at this stage, if considering shorting the market, a close of theS&P 500 above the 18 February 2011 high of 1,344 would be the first level to be placing aprotective buy order. From an Elliott Wave perspective, if the market rises above the recovery highof 1,344, the above wave count would be incorrect and some other wave count would be at play.
 
 
With regards to the market action since the recovery high, given the 3 wave countertrend rally thatoccurred between 24 February 2011 and 3 March 2011, there is a good probability that furtherweakness is likely over the coming weeks and months.According to a number of indicators which I follow, we should still expect further weakness for atleast a few more weeks. The degree of the correction and Elliott Wave structure should give usclues as to whether or not a major top has been put in place.
Chart 3 - S&P ASX 200
For some time now I have persistently argued that the S&P ASX 200 has been displaying significantinternal weakness and the wave structure of the advance was telling us that the S&P ASX 200 wasnot a healthy market.That weakness has come to the foreground in recent weeks with the S&P ASX 200
underperforming the US’s S
&P 500 index. At the time of writing, the S&P ASX 200 had declined7.8% versus the
S&P 500’s
6.5% decline.The S&P ASX 200 is now back trading at levels it was 6 months ago.

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