InvestWELL Financial Inc. - Markets This Week

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October 6, 2007 Hello, We hope you are doing well. The market has gone steadily up during the last month. At the moment, it faces the previous resistance level while its upward thrust is weakening. From the technical point of view, the market will find it quite challenging to continue going up. Our next InvestWELL Report will be released on November 2, 2007 . (following the Labor Report which is generally recognized as a "market mover"). Derek Polcyn, President In This Issue: Investment Idea Quiz Our Results Market Highlights Behavioral Finance Indicators Answer to the Quiz

Investment Idea Question: What are hedge funds? Are they good investment vehicles? Answer: A hedge fund is a private investment fund that charges a performance fee and is typically open to only a limited range of qualified investors (those able to prove sufficient income and assets). Due to this restriction, the hedge funds are usually exempt from any direct regulation by the national regulatory bodies. A hedge fund's activities are limited only by the contracts governing the particular fund. Therefore, they can follow complex investment strategies, being long or short assets and entering into futures, swaps and other derivative contracts. The average hedge fund, similar to an actively managed mutual fund, underperforms the market. There are some hedge funds that consistently outperform the market. However, these funds are often closed and unavailable for purchases.


Quiz Why are hedge funds subject only to a lax regulation? A) Their fees are very high B) The average investor is able to purchase them C) Financial markets have always been able to regulate themselves D) Only those who can afford to lose money are able to buy them Answer to the Quiz at the bottom of the newsletter


Our Results (Cumulative %) Investment Strategy – MEMBER SECTION InvestWELL Picks continues to outperform the general market (as defined by S&P 500 index. ) Recently, however, the market has been attempting to catch up with our portfolio. Chart 1.


Market Highlights During the last month, the US equity market kept on going up and up (Chart 2 & 3). Currently, the market is ready to test the previous resistance level. We are not certain the market will be able to move to new highs. Charts 2 & 3. S&P 500: 3 Years and Last Month Charts courtesy of StockCharts.com During the last month, the Canadian market has followed the general direction of the US market. In addition, the Canadian economy has managed to hold very well against the backdrop of the US sup-prime problems (Charts 2 & 3). Charts 4 & 5. TSX Canada: 3 Years and Last Month Charts courtesy of StockCharts.com Last month, the US economy gained 110K jobs and the prior month's decrease of 4,000 was revised to a gain of 89,000 (this is a very unusually large revision). The strong showing in the Labor Report eased concerns that mortgage losses will cause a recession and it sent equities up. Last month, the Canadian economy added 51K new jobs while the unemployment rate dropped to 5.9%, the lowest in the last 33 years. The Canadian economy was widely expected to feel the pain of the sup-prime lending from the US. So far, these predictions have proven unfounded. There was only one downside in the jobs numbers, which was that the private sector created a mere 7,400 jobs in September, compared to 59,000 in the public sector. Self-employment dropped by 15,200, as Canadians in this category took advantage of the good economy to find jobs with more predictable streams of income. The Canadian dollar defied gravity, rising above $1.02 (U.S.) on the strength of the Canadian economy and the overall weakness of the US dollar. This may be a good time for Canadians to visit US. The widespread notion that the entire US mortgage market is in crisis is not exactly correct. While there is plenty of money to lend, underwriting standards are more strict than before, and the long-term interest rates remain in the low 6 percent range.


Opportunities and Risks – MEMBER SECTION Behavioral Finance Indicators (see explanation) Here is a direct quote from the Behavioral Section in last month's Member newsletter: "Overall, there is a high probability that the market will continue to move up (although we may still see a lot of volatility). It appears that the bottom has been set and the seasonality of the traditionally strong September will likely start to set in." Our forecast was very accurate. MEMBER SECTION Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio Charts courtesy of StockCharts.com and DecisionPoint.com

Answer to the Quiz D is correct. Regulators are assuming that the wealthy investors who are purchasing hedge funds can afford to lose some money and know what they (or their brokers) are doing. However, InvestWELL believes it is quite possible that the lax regulation of hedge funds may be a catalyst for the next financial crisis.

Thank you for reading InvestWELL Report. This is a non-member version of InvestWELL Report. Please sign up for our membership to receive the member version of the InvestWELL Report. Invest WELL Financial.com


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