HKHSI and NASDAQ Downturn (5/5/2000)

Major Correction in the Horizon (4/15/2000)

Prof. Kai Keung Mark is a retired professor, Dept. of Biology, The Chinese University of Hong Kong and Dept. Head and Principal Lecturer, Dept. of Science, Hong Kong Institute of Education. He has three biotechnology patents. He uses his understanding of high technology to forecast market movements . He has published 13 articles in Financial Trend, and leading Hong Kong stock analysis journal plus many other Mark's letters since 1987. His prediction reliability rate reached 80%. He accurately predicted the October crash (10/18/87), the bottom level of 1990(3/5/90), the peak level of 1994 (5/11/92), the peak level of 1997 (2/12/96), the peak level of 2,000 (8/22/99), the peak in March 2000 (2/20/2000), the bottom in September, 2001, the US bottom in 2003 (5/28/2003), the HK bottom in 2003 (6/13/2003), the US peak in 2007 (11/14/2007), and the HK peak in 2007 (1/9/2008).

HSI to reach 14,000 in mid year?

The author's unusual forecast that the bull has returned in his recent article (11/1/2001) was confirmed to be correct, and HSI has gained about 30%. His longer term forecast of HSI reaching twenty thousand points by 2003 now looks more likely than before, but it did look unbelievable at the time. The author is quite happy with his rather sensational forecast, and want to predict the near future as well as giving out reasons for his unusual forecast.

From the author's point of view, there were many bullish features appearing to him when he wrote the article (11/1/2001). HSI is forming a head and shoulder bottom formation. The chart or technical signals include:

1. the HSI chart has broken the third fan line upside (see fig.1), and this is the key signal to convince the author to forecast against so many contrary or bad signals. The author believe strongly that stock market operate in three waves per cycle, and this theory also help him to predict the top of the last HSI market top (4/5/2000), and the Chinese market top (4/28/2001; 7/5/2001).


2. The prediction of twenty thousand points for the next high point is calculated from the line drawn from the last two cycle bottoms of 6,500 of August, 1998, and 8,900 of Sept. 2001, and a parallel line drawn from the last peak of 18,300 of March, 2000. The next bull run is estimated to last for slightly over two years resulting in a maximum number above twenty thousand points (see fig. 2).

3. The low market volume around August to October,2001 is another bull sign. All market bottoms are associated with low trading volume.
4. The down waves in Hong Kong has lasted longer then one year, and that is enough. In the past stock market cycles, bear cycles usually occupied 1/3 of the cycle, and usually last about a year.
5. HKBC, the blue chip leader, showed bull signs very early. HKBC price goes up even under bad news daily. As a result, all technical signals are consistent with each other, declaring a clear message to the author.

1. The extensive interest rate cut in US, and HK was forced to follow. The ten interest rate cut (know before the article was written) produced a 40 year low interest rate for US. Any one with some economic understanding knows that low interest rate will promote business recovery.
2. The Afghanistan war and the tax rebate both will pour billion of dollars into the US market, and thus will boost the business environment for the short term.
3. China expects to maintain about 7% growth in the coming few years, and the best in the world. As Hong Kong is serving as the key financial center for China, Hong Kong should bounce back stronger than other Asian countries like Singapore.
4. China will joint WTO, and Hong Kong has always been the investment spring board for China, so this will again boost up local business activities.
5. Because of world economic slow down, oil price has come down. This will reduce cost and boost up profit, the key inducer for stock price rise.
6. Because of the Afghanistan war, US-China relationship warms up, and Taiwan strait tension cools off, creating a more stable economic environment.
7. The property market in Hong Kong has been in the doldrums for almost 5 years, partly due to the 85,000 unit/yr. policy of the SAR government which triggered the collapse, and reduced new unit number or new land poured into the market, so economic and market forces will gradually swing the pendulum the other way. Besides, low interest rate has always been a strong property market inducer.

Now let us look at the near future. Now HSI has been moving along a narrow channel (see fig. 1) upward, and has risen 2,600 points in a row without correction. As more people realized that the bull has returned, and want to get back in, but correction is small because too many investors are waiting for it. The author predicts that the HSI will have a steady rise as always been for the first bull phase. This first bull phase rise will only end with a sharp rise around 13,500-14,000 point, then a significant correction will sets in. Therefore, the author is predicting that HSI is forming a reverse head(H) and shoulder(S) bottom formation with the neckline (NL) around 14,000 points. The bottom of April, 2001 as the left shoulder, the 8,900 points of Sept. 2001 as the head, and is now forming the right shoulder.

Many investors refuse to believe that stock price movements follow any predictable pattern, but the success of the author in his past forecasts proved that stock market does move with certain predictable pattern.