WITH the first half of 2009 coming to a close we would like to reflect on what was and what the outlook is for the rest of 2009.

I suppose one of the first comments you will get is: "Well, thankfully we are at least flat for the year!" This is clear when we inspect the chart of the JSE Overall index. The year started on 22300 and currently this is approximately the level we are trading at.

The low of the year was in early March when the overall index (J203) fell to 18000, a decline of 22% from the beginning of the year. The market recovered off these lows to current levels. Now we are faced with the second half of 2009.

In the weekly JSE Overall (J203) chart we indicate an upward trending channel with three lines. We can see how the market broke above the upper trend line in July 2005 to eventually reach the record high in June 2008 at around 34 000. From here the market turned down in a move we view as still incomplete.

The bounce off the 2009 lows recovered nearly 38.2% of the decline. This is the minimum recovery we would expect in a counter trend bounce. At around 25500 we will have the J203 running into the 50% retracement and another small upward sloping trendline. If we are to see further upside into the second half, this is likely the highest we can expect the index to bounce.

From here we are looking for yet another sharp downturn that will in all probability pull the index to well below the 2009 low and probably reach support levels last seen in 2000. These support levels are between 11 000 and 7 000. So, even in the best case we are looking for the market, in rand terms, to fall 50% into support.

But this should not come as a too big surprise! This index has already fallen to below the 2000 level as illustrated in the following chart. Here we take the JSE Overall Index and divide it by the rand ounce gold price. Gold is the only global currency and to get the true inflation adjusted global price is to divide it by the gold price in the local currency.

We see that by using this valuation the JSE Overall Index has already fallen to well below the 2000 levels with the recent low we had in March 2009! This is not all, the index fall to the lowest level since 1990! Using true money the JSE Overall Index has wiped out 20 years of gains in only 11 months! In rand terms this move is still to be completed. Hold on, it is about to become a PERFECT STORM!

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