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Wednesday, April 22, 2009

It's time to sell now !

• Uptrend ending soon? The recent behaviour of equity markets fits our preferred
wave count for the DJIA and regional markets. The DJIA’s rebound since early Mar
should be ending soon with the completion of the diagonal triangle (wedge). This
should be the completion of the wave “a” rally since early Mar.

• Correction ahead? If we are right, this should be followed by the corrective wave
“b” which could take anywhere between two and six weeks to complete and will be
followed by the final bullish wave “c” up leg.

• Support at 50-day SMA and 50-61.8% FR. We expect the DJIA to retreat to
7,110-7,318, based on the 50-61.8% Fibonacci retracement of the Mar rally. The
other key support level is the 50-day SMA at 7,537pts. A break below the 61.8%
FR would be a major concern for the outlook of the US market.

• Asia also completing wave “a”? Based on our preferred wave count, Asian
equity markets are also probably completing their wave a” rebound this week. The
MSCI Asia ex-Japan Index (MAxJ) has rallied by more than 35% since its early
Mar bottom of 240 and is long overdue for a correction. The daily RSI is
overbought at 72 and the index is also facing major resistance at the upper
trendline channel and the 200-day SMA at 327pts.

• Alternative wave count is possible. Also possible is our alternative wave count,
which sees Asian markets completing the wave 4 rebound which began in Oct 08
and would followed by a final wave 5 down leg, below Oct-08 lows. But this is a
low-probability scenario at this point as we believe the US market is going through
the major wave “B” rebound which is likely to last until Jul-Oct 09. Asian markets
are expected to join in this wave “B” rebound.

• How will we know? Whether the preferred or alternative wave count is in play
depends very much on how deep the coming correction is. A correction below the
61.8% FR of the Mar rebound would be an early sign that our alternative wave
count could be taking place.

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