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|Mark's Column Professor Kai Keung Mark|
A Review of World Stock Markets
Feb 8, 2005
In the May article (May 15,2004), the author points out that the DJIA's correction is not due to interest rate rise, but due to rising oil price, and these statements has been proven correct. The author's forecast about DJIA correction and the correction channel is correct. Using this correction channel, the author can even pin point that DJIA can drop below 9800 point in October, 2004. In the June article (June 24, 2004), the author forecast that DJIA will return to bull trend, and " make new high (above 10,700 pt.) in a few months time." This forecast also comes true as DJIA did rise above 10,800 pts. in Dec,.2004. Now it is apparent that DJIA did form a head and shoulder bottom during 2002 and early 2003 (see Fig. 1), then produce a long bull phase I reaching 10,700 pts, and followed by a long correction of ten months (Feb,-Nov., 2004) with four low points within a good channel as given in the last two articles. DJIA then broke this correction channel up side, indicating that another bull run will proceed in the coming months, the bull phase II. There is high possibility that DJIA may reach 12,000 points this year (2005).
The Chinese stock markets (ei. Shanghai A index) produced stock movements that are contrary to the standard or normal expectation between economy and stock trend. The basic expectation is that during economic expansion period, earnings improves, and stock prices as well as the index should rise. This is the basic or text book rule of stock movement. However, in the past three years (2002-2004), Chinese economy is booming with national economic growth reaching 9% for 2004. Chinese Government used a lot of administrative means as well as interest rate rise to cool off the economy. One expect that the Chinese stock markets will rise more than the US and HK did, but such conventional expectation is proven wrong. Between 2002 and 2003, Shanghai A index (see fig. 2) made three bottoms around 1400 pts. from its 2001 high of 2300 pts. which was forecast to fall ahead of time by the author (4/28/2001; 7/5/2001; 8/14/2001; 11/19/2001).
In 2004, Shanghai A index fall again below the vital 1400 pt, and the author believe that it is forming a head and shoulder bottom formation with the neck line around 1530 pt (see fig. 3).
The major problem with the future outlook of Shanghai A index is from the symmetry implication. Long term stock charts has a habit of forming symmetrical features, so when there are two shoulder on the left, there are pretty high chance that there will be having two shoulders on the right. This symmetrical implication suggest that Shanghai A index will take a long time to complete bottom formation with peaks and bottoms oscillating between 1600-1400.
It is difficult to explain why Chinese stock markets continue to hit historical low during an economic boom period. The author speculate with the following reasons. (1) Chinese financial market is a close system. Money cannot leave China, so the rapidly increasing wealth from its successful export trade had to chase after the limited supply of Chinese shares driving the share price to very high level not sustained by their P/E values. (2) The dual A share (inside China) and B shares (overseas) of the same company with A shares many times higher than B shares at times. This is extremely unreasonable from investment stand point. (3) The rules controlling finance and money movement are changing very fast in China. As rules change, money gradually leaks out of China. As such leaks of money found safer investment outside of China, more money leaks out.
Because of the three situation given above, the author believes that they give partial explanation why Chinese stock markets continue to go gown during a economic boom.
Hong Kong is now just completing its correction move of its bull phase II rise (see fig. 4).
In the last article (June 24,2004), the author forecasted that HSI will start its bull phase II from HSI of 11,000 pts.. in late May ,2004, and forecasted that HSI may reach 15,000 before the end of the year. The forecast that it will begin its bull phase II as well as reaching its final peak before the end of the year (2004) are both correct, but the actual height attained (14,350) is slightly below its proposed target of 15,000 pts.. There are three elements that the author did not expect when he made such forecast. (1) the correction of DJIA is longer and deeper than expected; (2) Oil price did reach extremely high level during this period; (3) Chinese stock markets made historical low during the formation of the HSI final peak in Dec. 2004. With these three negative force, HSI can still rise above 14,000 pts.is already a very bullish sign.
The Dec. (2004) peak of HSI showed all the features of an intermediate top such as (1) high trading volume; (2) contain three minor waves within this bull phase II move; (3) a top formation in the form of rising wedge; (4) the bull phase II last for 9 months, slightly shorter than the bull phase I of 11 months; (5) many small stocks especially the penny stocks that the author loves rise dramatically for several-fold; (6) the following correction also meet the minimal requirement of 1/3 of the rise. So the author concludes that the bull phase II is about to complete, and the more dramatic bull phase III is coming, and HSI should reach 16,000-17,000 before the end of 2005.
The information above is supplied by the author specially for InTechTra's Hong Kong Stocks Report. The opinions in this special column is solely that of the author and may or may not represent the views of Hong Kong Stocks Report. InTechTra is indemnified for any damage or loss that might be associated with the use of the information.Copyright © 2002-2009 InTechTra, Inc. All rights reserved.