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Edition 14 - Chartered 1st September 2010

Edition 14 - Chartered 1st September 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 Sep 02, 2010
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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. 14 1st September 2010 Bottom Line: As per my expectations, financial markets continued their sell-off during the fortnight. The next meaningful sell-off now appears to have commenced. Major equity markets have either completed a topping formation, are completing a topping formation or are already well entrenched in the next phase of their downtrend. My expectation is that September and October should provide swift and broad declines. The next leg down in the larger degree bear market has now been confirmed. Limited time remains to protect yourself from the next leg down and profit from this opportunity!! Chart 1 – US S&P 500

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The head and shoulders topping formation continues to unfold in the manner as per my expectations. Price declines since the countertrend rally high in early August 2010 have been consistent, however my expectation is that as Wave 3 of minor degree begins to unfold further and market participants begin to realise that all is not well; the declines should begin to gather momentum. The Oscillator is currently sitting around -40. Given minor degree Wave 1 registered a peak negative reading just shy of -100 in May 2010, we should see the Oscillator provide a reading at least greater than this reading, but less than the intermediate Wave 3 degree reading of approximately -210 registered in October 2008.

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A test of the neckline, as signified by the blue line connecting the troughs of February and July 2010, should occur over the next month and could happen this next fortnight. My expectation is that there should be a test at some stage during September or October which will see the market break through this neckline and see the market move towards the 800s zone before taking its next meaningful breather. The moves to the downside are unfolding impulsively with volume confirming my interpretation of the waves.

Chart 2 – US S&P 500 – A closer look

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The trend line connecting the high in April 2010 with the countertrend high in August 2010 should provide resistance for any future countertrend rallies going forward. It could even provide a nice place to look for possible future reversals of countertrend rallies for traders looking to enter short positions, if the opportunities arise.

Chart 3 – S&P ASX 200

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The S&P ASX 200 continues its move to lower prices. Once again, connecting the highs of April 2010 and the countertrend rally high of August 2010 should prove to be a difficult place for the market to move through should any future counter trend rally move towards the line. Volume continues to spike on the down moves and retreat on the up moves giving confidence that Wave 3 of minor degree is beginning to unfold. As per the S&P 500, we should see the S&P ASX 200 price declines begin to gather momentum through the months of September and October with a target level of at least the 3800s being reached before the market takes a meaningful breather.

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Chart 4 – S&P ASX 200 – A closer look

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Taking a closer look, volume continues to peak as the index makes new troughs. Using volume spread analysis, this often represents a selling climax. In this instance, prices will then tend to move upwards in a countertrend move or will move sideways before resuming the next move down. For the most part though, the lows will be lower as will the highs.

Chart 5 – USD Spot Gold

• • • •

Given the recent price action in the US dollar spot gold price, now is an opportune time to revisit how the metal is faring. In previous editions of Chartered, I had mentioned that gold appeared to have peaked in June 2010 and that it was likely that the gold price should begin to move lower from that point onwards. Recent price action serves to support this view. Although the price of gold has rallied from late July 2010 through to late August 2010, when analysing the rally, there is sufficient evidence to suggest that this rally was a Wave 2 countertrend rally and prices should begin to rollover from here. As yet the moving averages do not confirm this view; however the moving averages should be used as a confirmatory trend signal only, not as an early indicator of market tops or bottoms. Evidence supporting my view includes; the Elliott Wave count which is confirmed by the Oscillator strength, indicating that the rise from February through to June 2010 was a 5th Wave. The Oscillator peaked in December 2010 in line with what I have labelled a Wave 3 peak in price as it should. The divergence of the Oscillator strength as prices rallied through Wave 5 confirmed an uptrend losing momentum, as it should.

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Chart 6 – Gold ETF – GLD

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The Gold ETF (GLD) is showing peaks in volume through the down move from late June 2010 through to early July 2010, confirming the impulsive nature of the move. The lack of volume in GLD through the rally from late July 2010 into late August 2010 also adds further strength to the argument of it being a countertrend rally. The final pieces of the puzzle fell into place on Thursday night with the Up Thrust and subsequent test last night, both into an area of previous resistance. The high volume in last night’s bar, as signified by volume being higher than the previous several bars indicates sellers are coming into the marker at those prices. The rally has come extremely close to ruling this interpretation of the wave count out, but it hasn’t done so yet. While anything is possible in financial markets and sometimes things just happen, my view is that the June 2010 high is highly likely to remain in place and that GLD and the US Spot Gold price should start to move downwards shortly from here to begin the next leg down.

Chart 7 – AUD/USD Spot Cross Rate

The AUD versus the USD appears to have completed a countertrend rally from the lows in May 2010. I view this as a countertrend rally because of the strength shown on the Oscillator during the declines during May, the ability to count the price decline in 5 waves and the non-overlapping nature of the waves. I view the upward move from May 2010 to August 2010 as a countertrend move because of the overlapping nature of the waves, the lack of strength in the Oscillator during the move and the failure for the move, at this stage, to have broken above the resistance line as marked by the red line on the chart connecting the peaks in November 2009 and April 2010. Adding further strength to this assessment is the cross of the 50 day moving average and the rolling over of the 200 day moving average which provide a high conviction assessment that the trend has changed and the downward move has now commenced. If this assessment is correct, Wave 3 which is unfolding will likely see the AUD fall below USD$0.80 before taking a meaningful breather.

Chart 8 – USD/EURO Spot Cross Rate

The USD not only appears to be in an uptrend against the AUD but also appears to be rallying again against the Euro. This is consistent with my view that during the next 18 – 24 months the USD should rally against most major currencies while traditional asset markets decline. The 50 day moving average crossed above the 200 day moving average in February and the move since the low in November 2009 has been impulsive. With the USD taking a breather since June 2010 and correcting almost down to the 200 day moving average, the USD has now bounced since early August 2010 and appears to be commencing the next leg up in the rally against the Euro. I currently count this rally in the USD against the Euro as being a Wave 3 up and as such should provide the strongest move to date as signified by the Oscillator.

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Chart 9 – S&P 500 Up/Down Performance Since 1950

• • •

Courtesy of a recent note to clients from Wayne Whaley of Witter & Lester, he provides this insight into the monthly performance of the S&P 500 since 1950. As evident above, the S&P 500’s best performing month in terms of number of months in positive territory since 1950 is December. On the flip side, although October has had its fair share of market collapses, September is the only month over the past 60 years to have more down months than up months.

Chart 10 – S&P 500 Monthly Performance Since 1950

• • •

Once again courtesy of Wayne Whaley, the month of September also produces the worst median and average performance return over the same period. On the flip side, November provides the strongest median monthly return while December provides the strongest average return. Curiously, the technical patterns suggest that there is a strong chance that history could be repeated.

This fortnight has seen some disastrous figures come out of the United States and certainly do not support the notion of a slow and gradual improvement, but rather unearth the unfortunate fact that the United States is moving head first into the second leg of the Global Financial Crisis and a double dip recession. If you are a reader of Chartered, you are fortunate enough to already know this, but just in case you still have any doubts, the link below provides a 5 minute interview with esteemed former Merrill Lynch economist and now Gluskin Sheff & Associates Chief Economist David Rosenberg on CNBC. http://www.youtube.com/watch?v=cbATZcck0Vg&feature=player_embedded If you missed the figures released over the past fortnight: • Annual Gross Domestic Product for the 12 months to 30 June 2010 was revised down to 1.6% from the previously estimated 2.4%, a revision of some -33%. However, Wall Street rallied on the day because it was above the revised estimate of 1.3% Wall Street economists had been expecting. This rally has now been largely retraced. Secondly, the housing sector has had the floor pulled from under it as a result of the expiry of the tax breaks affording to home purchases and as a result is again back into free fall. According to the National Association of Realtors, home sales for the month of July plummeted 27.2%, the data series’ biggest one-month fall ever.

As such I 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. 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 jhewish@fortrend.com.au and 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 strategies which 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. 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 Joe Forster and 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.

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