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).

DJIA should lead the world in a steady recovery

August 8, 2002

DJIA's major down move we now experienced have two alternative implications. Normally, the stock market is 6-9 months ahead of the economy, so a major DJIA down turn may mean that the economy is going towards the bear phase (usually with three down waves). Alternatively, when something triggers a big down move, and this down move produce a snowball effect resulting a sharp and significant down move till the market exhausts itself, then a speedy recovery follows. The October crash of 1987 belong to this type (see Fig. 1). The October crash was created by computer program trading. When most financial houses were using roughly the same program, one minor down move will trigger most financial house to sell resulting a big land slide, and produce other forms of snowball effects that drive the market to go down much further ( from DJIA of 2730 of August,1987 to drop to DJIA of 1600  on October,1987). But because this is a false alarm, the market recovers rather steadily in the following two years (from the bottom at DJIA of 1600, and recovered to DJIA of 2600 on July,1989 in 21 months.).(see Fig. 1)

Furthermore on the forces of snow ball effects is given here. Normally when the stock market move downward, it induces (1) short selling which produce further down move not warranted by the news that produce the down move. The down move also produces (2) margin calls, that shakes further and further long positions, and produces the standard snowball effect. Downward movements of individual stocks trigger  (3) technical default of major banks, and thus force individual companies to sell assets  to repay the bank loan in the order of trillion dollars. Only shares in hand is quick enough for liquidation.  Thus huge selling pressure is creted  in a short time. As individual shares fall for some time, the (4) bond ranking of these companies will fall, and this also triggers more selling, and more technical default if these bonds are used for borrowing. The combined effort of these four elements reinforce each other to produce a big snowball effect in US. The experience of October crash of 1987 point out that this world has only one stock market or one big market system for all the stock markets of all major countries are connected. If US market goes down, all other markets have to follow as was experienced in the October crash as well as today.

DJIA has been in a consolidation/correction phase for four years since 1999 till now. This long consolidation/correction is second only to the big recession of 1929-1933. Therefore, the author believes that the US market should be at the end of a bear market, and not the beginning of another bear market. From the fundamental figures such as 1) lowest  interest rate in the past 40 years; 2)good construction and trading figures; 3) very low inventory ; 4) unemployment rate (a lagging indicator) is slowing down; 5) weak dollar will promote trade. All point to the implication that US economy is recovering. As a result, the author believes that the current down turn of US market which pulls down all other stock markets of the world is due to the series of US accounting scandals that create a loss of confidence on US market that in turn creating a big snowball effect.

Now the down move seem to have ended, and DJIA should lead the world market in a steady recovery. Therefore it is time to buy.

Fig. 1