Speculation on the US Stocket Market

April 22, 2003

 

Since November 2002, I have not written any article on the stock market, because there is no clear signal from the charts to indicate its direction.  By April 2003, there is some hints from both DJIA and NASDAQ but the signals are not mature. The following is some speculation.

 

The DJIA will form a head and shoulder bottom formation in the near future, and up to now, the left shoulder, the head and the right shoulder as well as the neck line are all there (Fig 1) but it is not confirmed because the neckline has not been penetrated upside. Because of (1) the 40 years record low interest rate; (2) the recession has lasted for some time; (3) oil price will come down significantly after the Iraq war, and low oil price always boost economic recovery.  These economic fundamentals will push up the US economy and the DJIA will rise to penetrate the neckline.  As the confirmed head and shoulder formation of DJIA is the leading signal of world stock market, other indexes will follow suite as the investment confidence increases worldwide.

 

From the DJIA chart of the past two years (Fig. 1) one can find many up or down wedges, and demonstrate their reliability.  Based on the last down wedge between Dec 2002 and March 2003, the upward movement is already observed before the down wedge was broken upside.

The NASDAQ also provides hints in another form. One can draw a neckline illustrating the confirmation of a small double bottom (Fig. 2).   The neckline has been penetrated upside and then tested from the upside, showing that this neckline is valid with good support. Besides, the fan line III from the Jan 2002 top was broken upside(Fig. 2) which also implies that bear market will soon come to an end.

Hong Kong is seriously affected by the atypical pneumonia.  This will cause the HSI to lag behind the US recovery trend.