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|Mark's Column Professor Kai Keung Mark|
The Forecast confirmedMarch 11, 2007
The author's Jan. 4,2007 article forecast that the Chinese stock market is in a bubble, and " If Shanghai A's bubble did burst,it would create a chain reaction in the world stock markets because most markets are very high and unstable. The author anticipated that Hong Kong market definitely will follow with a crash because HSI has been rising for 6 months in a narrow channel without a correction, so looks like a bubble too."
The raw facts are that when Shanghai A bubble started to burst, triggering HSI to drop extensively (see Fig. 1), it also triggered a chain reaction resulting DJIA, NASDAQ, UKX, DAX, CAC, and NKY to drop significantly, so the author's forecast is quite accurate.
In recent months, the major world markets such as HSI, DJIA, NASDAQ, UKX, DAX, CAC, NKY all produce excellent chart patterns indicating that they are all at very high and unstable state waiting for a shock to make a correction.
HSI (see fig. 1) formed a very narrow and long up channel between June- Dec., 2006 with 9 challeges (contact point) to the upper channel line, and also 9 challenge to the lower channel line, therefore this long narrow up channel is well tested both up side and down side, so this channel is significant. Between Jan.-Feb., 2007,HSI developed into an up wedge which signals an intention to turn downward. This up wedge was broken downside on mid Feb. but rebound when it drop to the old channel lower line to make the 10th contact point. As expected, this channel lower line still demonstrated support, so price move back up until it hit the up wedge lower line which is now a resistant line. The author describe this contact point as the kiss good bye (KG),then HSI drop down like a rock with a steep upper return line. in the next article, the author will express his anticipation on the likely path HSI will move.
DJIA (see fig. 2) rise within a very long and narrow
channel between July to Nov., 2006,and this channel lower line
was challenged 8 times both from above and below. Then the pace
slow down a bit, and the price break this long channel downside,
and changed into a long narrow up wedge. The lower line was
challenged 7 times, and the upper line 6 times. Thus it is a good
illustration on the power of support and resistant lines. Finally
this up wedge was broken downside as expected on Feb. 27, 2007
with a bang, a single day drop of 416 pts, another illustration
on the usefulness of wedge pathern.
NASDAQ ( see fig. 3) also form a narrow channel between July
to Nov. 2006 with 5 challenge to the lower line from above and
one from below. The price then move sideways forming another
channel tilting slightly upwards with four tops, and the lower
line can be considered as the neck line. The Feb. 27 drop
penetrated this neck line.
UKX ( see fig. 4 ) formed an up wedge between June-Sept. 2006,
followed by another up wedge between Sept. 2006-Feb. 2007. The
Feb. 27 drop penetrated this second up wedge down side with
DAX ( see fig. 5 )formed the first up wedge between June-early
Sept. 2006, then followed by a long narrow up channel, and again
followed by the second narrow and long up wedge. When it reached
the apex and drop down side on Feb.27 as if an invinsible hand is
at work! In this up wedge, the upper line was challenged 9
times,while the lower line was challenged 6 times.
CAC (see fig. 6) showed that from June-Nov. 2006, the
price produced a long up wedge with 5 challenge contact points to
the lower line. This up wedge was broken down side, but developed
into another up wedge with 10 challenge to the upper line, and 6
challenge to the lower line. This up wedge also ended by the
Chinese Shock of Feb.27, 2007.
NKY ( see fig.7) formed a long up channel since
June,2006. The upper channel line was challenged 5 times while
the lower channel line was challenge 3 time, but the final drop
starting on Feb. 27 did penetrate this long and well tested
channel down side.
From the above chart patherns, although they use somewhat different language, but carry roughly the same message. The chart patherns suggest that they were in a rising market, but by the end of 2006, the upward momentum are quite weak and unstable, thus a shock easily trigger a correction or down fall which was long over due. The up wedge that appeared many times frequently appear at the end of bull markets, so their frequent appearance implies that the final top is around the corner.
Base on past experience, it takes time for major bull to turn bear. So the author anticipated that the bear may not come immediately, and another rise will soon come (but may not make new high). Caution is the word for short term speculators, and reduction of stock asset is advised for the investors.
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.