Hong Kong Stock Market Near Bottom
November 23, 2000

In the last article (mark9, Oct. 19), I have successfully predicted 1) the second down wave reaching a lower level than the first; 2) breaking of the fan line II upside;3) the third down wave, and the formation of fan line III (drawn between the high point 17,800 of Sept. and the recent high point of 16,000. As to the extend of the second down wave, it is above the upper limit of the predicted range (13,700 +/- 300). In mark 8 (Sept. 30), I presented my vision of weakness in both the  US DJIA and the HK HSI through technical analysis. US GDP growth rate in Q3 of 2000 was 2.7% compared to 5.6% of Q2. The projection of GNP growth is flat from the second quarter of 2000 to March 2001, ending a robust trend since 1998. This clearly illustrates that my technical analysis can perceive economic changes much earlier than through fundamental analysis. If one can perceive economic movement earlier, one usually will do better either to harvest the rise, or to avoid the drop.

Now, let us first look at the US market. The DJIA penetrated the long channel downside, producing a bear signal, but experienced a sharp rise after penetrating the 10,000 point, and reach 11,000 point and then move downward again. This rise is a typical kiss good-bye feature after a major upward channel is broken, but before a major down move sets in. I expect that the DJIA will continue its downward movement for at least half a year. Looking at the NASDAQ chart, the peak occurred in March, much later than the peak of DJIA which appear on January. It is a standard feature for the smaller and more speculative stocks to reach its final peak later than the blue chips. Now the NASDAQ is in its second major down move forming its second major fan line (see chart I). When this fan line is broken upside, another wave of upward rise will resume, but will continue on with the third down move (fan line III, not shown). However, the down move are suppressed further by another two level of fan line type return lines, so it take many small up moves before this large fan line (fan line II) can be broken upside.

Returning to the Hong Kong scene. Now it is time to forecast the next low point for the third down wave. This forecast does not produce a fixed number as most people would do, but instead would propose a down slanting line where the down move would stop when reaching it (see chart II). This line is produced by aligning the last two low points, and extending it forward. I would expect that when the down move hit this line, the down move would stop, and rebound reaching the fan line III.

The melody of the stock market in my mind even predict that the index will not break the fan line III in the first attempts after reaching the fan line III, it will come back down and hit this support line again. The second attack of the fan line III will break it upside, followed by a dramatic rise. From technical analysis point of view, the fan line III, and the support line put together produce a down slanting wedge. A bull sign. If the support is very strong, the index may not reach the support line proposed before the rebound take place. If this happen, the upsurge will be stronger than expected. If this fancy prediction come true, it will also confirm my concept that stock market has its own melody, and is not controlled by the daily news as most stock market trader believe, because this proposed pattern define the time, and the extend of drop regardless of the news.

From the above analysis, the bottom in the HK stock market is not far away, but the bear outlook for the US market will persist for some time. How can HK stock market boom under the US bear shadow is my concern.