Chartered

FortrendSecuritiesWealthManagement

EditionNo.2
31stMarch2010

BottomLine:Theinternalstrengthofglobalstockmarketsappearstobeweakeningoverrecentmonths.
Whilehigher prices are stillpossible,evidenceismountingthatwecouldbeclosetotheendofwhatwe
currently label a Wave 2 countertrendrally fortheS&P 500 with the S&PASX 200 possibly in the initial
stagesofitsnextlegdown.Investorsshouldbeconsideringwaysinwhichtomanagethisrisk.

Chart1USS&P500

Althoughtheprogresshasbeenslow,theS&P500continueditsadvanceintohigherterritoryover
thepast2weeks.TheS&Pisnowveryclosetoreachingasignificantlevelofresistancebetween
1,200and1,300.
Atthisstageonecouldexpecttoseesomechoppypricesfirstlyaround1,200withthe1,300level
providingthemostsignificantpricebarrier.
TherecentstrengthintheOscillatoralsoappearstobeeasingoverthepastweek.
Investors should be wary as the market moves into the 1,200 to 1,300 region as these areas
providethemostlogicalplaceforamarkettop,ifoneistooccur.
Chart2USS&P500Acloserlook

AfterasteadyrisefromtheintermediatelowinFebruary2010,thepast10tradingdayshavebeen
quiteastruggleforthemarkettomakeanyprogressasthebullsandbearsbattleitout.
GiventhestrongrecoverysinceFebruary2010,theRSItradingaround70,theOscillatorsoftening,
andtheindextradingtowardstheupperregionoftheBollingerBands,it isnotunreasonableto
expectsomeshorttermsofteninginpricesoverthecomingweekorso.
Whetherthispresentsaturningpointhowever,isanotherquestion.
One further point to raise is that the most recent bar (30 March 2010) appears to resemble
somethingverysimilartoadoji.Althoughinthiscaseitsnotinitspurestform,adojiisabarthat
resembles a cross type formation, with the opening left side tick and closing right side tick on a
pricebarfinishingatthesamepoint.
Adoji,whenitoccurs,canoftenbeareliableindicatorofafuturebreakoutinprice.
However,determiningthemostlikelydirectioninwhichapricebreakcouldoccurdependsonthe
contextinwhichthedojiitsselfoccurs.
Inthisparticularchart,giventhecontextofitsoccurance,itsnotunreasonabletosuspectthatthe
breakoutwouldlikelyfavouradownwardmoveratherthanabreakouttotheupside.
Chart3S&PASX200

The S&P ASX 200 continues to remain below its recovery highs set in January 2010, although its
gettingveryclose.
UnlesstheS&PASX200breaksthehighsofJanuary2010,Iwillcontinuetolabelthedeclinefrom
January2010toFebruary2010asaWave1of1of3orCandtherecoveryfromFebruarythrough
tolateMarchasWave2of1of3orC.
Inshort,itstillappearsasthoughatthisstage,weareintheinitialstagesofwhatlookslikethe
nextlegdown.
IfabreakabovetheJanuary2010recoveryhighoccursoverthecomingweeksitwill,atthisstage,
onlyservetochangetheshorttermwavecountwhilethelongertermbearishwavecountwillstill
remainintact.

Chart4S&PASX200Acloserlook

While the market continues to remain between the ranges of approximately 4,500 and 4,900, it
remainsdifficulttolabelwithahighdegreeofcertaintywherethenextmajormoveislikelytobe.
 We will not know if the downward move to lower prices, based on the current wave count,
becomesrealityuntilweseeabreakbelow4,500.Ifthisoccurswewillassessthestrengthofthe
breakbeforemakinganyjudgementaboutfuturepricemoves.
Asignificantbreakabove4,900wouldlikelymeetresistanceat5,200.

Chart5S&PASX200FinancialsExAREITS

AtanygiventimetheFinancialsandMaterialssectorsmakeupsomewherebetween65%70%of
theS&PASX200smarketcapitalisation.Assuch,wetakealookatwhatthesesectorsappearto
betellingus.
Itispossibletocount5wavesdownfromNovember2007toMarch2009withintheFinancialsEx
AREITs index above. It is also possible to count an ABC counter trend rally from March 2009 to
October2009.
However, the subdivisions from October 2009 to February 2010 are difficult to interpret at this
stage.
Moretimeisrequiredtoletthismarketetchoutitswavestructure.However,whilethispatternis
yet to reveal its self, there is a significant level of support around 5,200 and resistance around
6,000.Abreakabove6,000wouldindicateacontinuationoftheimpressiverallysinceMarch2009,
while a break below would indicate the next wave down in the secular bear market has likely
commenced.

Chart6S&PASX200Materials

The Materials sector, as outlined above, now appears to be moving closer to the recovery highs
reachedinJanuary2010afterbouncinginFebruary2010andrecoveringmuchofthesellofffrom
January2010toFebruary2010.OnceagainthesubdivisionsofthisrecoveryfromMarch2009are
difficulttointerpretandresemblethoseofamorecomplicatedformofacorrectivewave.
Whilelabellingtheshorttermwavestructureisdifficult,onethingthatthisdoesdo,however,is
provideconfidencethattherallyfromMarch2009tothehighsinJanuary2010wascorrective,as
ElliottWavetheorysuggeststhatmotivewaves(waveswhichimpelthemarket)occurin5waves,
3wavesupand2correctivewavesinbetween.
AstherallyfromMarch2009todateappearscomplicated,itprovidesevidencethatratherthan
beingaMotiveWave,itisactuallyCorrective.
Inshort,becausetherallyfromMarch2009toJanuary2010isnotaneasilydefinable5wavemove
up, it should be interpreted as a more complicated corrective move. As such, when this rally
completes,materiallylowerpricesshouldberealised.
Currentlythereisaclearlyidentifiablelevelofresistancearound13,00013,400.

Chart7USTotalDebttoGDP

US Debt to G DP Rat ios

450
Ho usehold
400 Total Private
Government
350
Total

300
Percent of GDP

250

200

150

100

50

0
1920 1930 19 40 19 50 1960 1970 19 80 19 90 2000 2010

Courtesy of University of Western Sydneys Associate Professor Steven Keens website Debt
Watch (www.debtdeflation.com/blogs/), the above graph highlights the USs current debt levels
whencomparedtoitsGrossDomesticProduct.
It shows the US currently has a level of Total Debt (Public and Private) to GDP of approximately
400%,approximatelytwicethelevelwhichwasrecordedpriortothecommencementoftheGreat
Depressionin1929,whichatthetimewasrecordedatsomewherearound200%.
Of note, Total Debt to GDP actually increased during the 1930s. This was the result of GDP
declining by approximately 1/3 during 1929 and 1933, while debt levels remained relatively flat.
Thatis,thedenominatoractuallyfelloffacliff.
Needlesstosay,risksofaseveredownturnatsomepointinthenearfuturestillremainrelatively
uncomfortablyhighandtheriseinTotalDebttoGDPisparabolic.
Chart8AustraliasPrivateDebttoGDPRatio

Australia's Private Debt to GDP Ratio

175

But Australias
different right?
150
1890s Depression

125
1930s Depression
Percent of GDP

100

75

50

25

0
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

OnceagaincourtesyofUniversityofWesternSydneysAssociateProfessorStevenKeenswebsite
Debt Watch (www.debtdeflation.com/blogs/), the above graph highlights Australias level of
PrivateDebttoGDP.
LikethatoftheUSchartabove,itshowsalevelofprivatedebtwhich,whencomparedtohistory,
doesnotappeartobesustainable.
In Australias case, private debt to GDP now appears well in excess of the peaks in private debt
recordedjustbeforeAustraliastwomostrecentdepressions.
Whileat170%ofGDP,ourrelativelevelofprivate debtwhencomparedtotheUnitedStates at
approximately 300% appears more conservative. However, when comparing that same level of
debttopreviouspeaksandtheoutcomeswhichensuedinthepast,onewouldhavetobealittle
cautiousregardingthesustainabilityofourcurrentlevelofprivatedebt?
Forthetimebeing,theAustralianmarketcontinuestoremainrangedboundoscillatingbetweensupport
andresistance.TheS&P 500 is now moving into anareaof significantresistance at approximately 1,200
and1,300whiletheS&PASX200continuestorespectitssignificantlevelofresistanceatapproximately
4,900.Intheshorttermitcurrentlyappearshigherpricesmaystillbepossiblebutthesustainabilityofthe
rallyremainsverymuchinquestion.Whileweawaitthenextcatalysttomovethemarketssignificantlyin
eitherdirection,thelongertermElliottWavestructurescontinuetosuggestthatcautioniswarranted,with
therebeingmorethanenoughfundamentalevidencetosupportthisview.AssuchIcontinuetoseerisks
buildingtothedownsideandthereforecontinuetorecommendinvestorsturntheirattentiontohowto
managetheserisks.

WehopeyouhaveenjoyedthiseditionofCharteredandfoundthecontentofinterest.Ifyouwouldlike
metoanalyseaparticularmarketorchart fromatechnicalpointofview,pleaseemailyourrequeststo
jhewish@fortrend.com.auandwewillendeavourtolookatanyrequestsinupcomingeditions.


Inthemeantime,ifyouwouldliketoarrangeatimetodiscussyourportfolioandsomeofthestrategies
whichcanbeusedtohelpyounavigatetheprevailingmarketconditions,pleasedonothesitatetocontact
me.

Untiltillnexttime,haveagreatfortnight!!!

JOELHEWISHB.Bus(Bank&Fin),GDipAppFin,GCertFinPlan,SAFin
Investment/FinancialAdviser
FORTRENDSECURITIESWEALTHMANAGEMENT
AustralianFinancialServicesLicenceNo.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
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