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).

The HSI's future direction

The author has just presented his views on the current movements of the key world wide stock markets ( March 11, 2007).Now he switches his attention onto the Hong Kong stock market to present a picture of the future of HSI.

HSI hit its bottom at 8,600 pts around April-May, 2003, reaching 20,971 pts in Jan 2007. Besides, HSI has been rising steadily since June, 2006 within a very narrow up channel, and it did not response to bad news or had correction until the recent outburst. So HSI is over-bought, at very high level, and rather unstable. The drop from 20,971 pts to 18,664 pts is 2,307 pts, over 10%, a significant drop.

HSI is expected to be significantly influenced by the developments in US and China. In the recent article (March 11, 2007), DJIA (Fig. 2 of mark43.shtml) and NASDAQ (Fig.3 of mark43.shtml) both imply that they are at a very high level, and have ignored all the bad news such as housing price decline, and GDP decline. From the fundamental economic indicators, US economy should be considered in the late bull phase or in a transitional state between bull and bear phase.

The Chinese stock market i.e. Shanghai A (see Fig.1) is clearly in a stock market bubble (Jan. 4, 2007 ), and the bubble can burst at any time, so it is a ticking time bomb.

Given these back ground, one can say that the future development of HSI is not controled by Hong Kong alone, but more so by its environment. However,the major world stock markets are closely linked, so the HSI development also reflect the world's stock markets developments. From the author's perception, he noticed the following indications:

1. HSI has formed its top in this 2003-2007 business cycle. The 20,971 pts attained in Jan., 2007 is likely to be the top of HSI (see fig. 2 ). The author made this speculation is based on the fact that HSI has form a triple top with the first head touching 20,971 pts. This triple top also has a neck line I ( NL1 ) at 20,100, defined by the two bottoms. The neck line II (NL2) is defined by the bottom of the left shoulder II (SL2) at 19,400. The neck line III (NL3) is defined by the bottom of the left shoulder I (SL1) at 18,700. When the corection come with panic selling high volumn of 80 bil, the neck line I (NL1) was easily penetrated, but the panic fall was temporaryly halted by neck line II (NL2), and finally stop right on neck line III, followed by a rebound. On top of the price movement, the volumn also provide significant signals. The volumn is extreamly high for left shoulder II (SL2) with over 70 bil HK dollars,while the triple top are much less.
   

   HSBC has been the traditional leader of Hong Kong stock market, and its chart pattern usually also give early warning for the market top. From its chart pattern (see fig. 3), one can recognize the head at 152 in early Dec. 2006, way earlier than the 20,971 top of HSI. This is expected because HSBC is the leading sheep, and it traditionally turn before other blue chips. One should also recognize the two left shoulders SL2 and SL3, and the right shouder SR1 and SR2, arranged symatrically with respect to the head. There is the neck line I (NL1) around 138 which is now already been penetrated. Further down is the neck line II (NL2) around 133. It is defined by the bottom of the left shoulder I (SL1). This neck line II was touched during the end of the panic selling, but the rebound is fast to come. Base on these facts listed above as well as the general picture lead the author to believe that HSI has reach its top.
   
   

2. The right shoulder is coming. From the above chart patterns, it looks like a head and shoulder formation except that the right shoulder has not form yet. The author anticipate that HSI will have a rebound and form a right shoulder. From past experience, immportant chart formations usually are symatrical. If one use the middle top ( H2 )of the triple top as the center line, and divide the head and shoulder formation into left and right parts, the author expects that one or two shoulders will appear on the right side of the head during March or April, 2007. This will give ample time and opportunity for investors to sell still with good gain.
3. Another big crash will come. Most investors are still bullish now after the 2307 pts drop of HSI, and think that it is a good buy opportunity. The author is bearish, although he also anticipated that some rise will come to form the right shoulder. But after the right shoulder is completed, the author anticipated that another crash of similar scale will come as the bear finally set in. The top of the right shoulder will be used as the switch to draw the three downward fan lines during the coming bear cycle which probably will last till early 2008.
4. When will the Shanghai A bubble burst. As decribed in previous articles (Jan.4, 2007; March 11, 2007),Shanghai A index is now in a very high and unstable state (see fig.1 ). The author anticipated that it is a bubble, and will burst any time. Currently it is within an up wedge formation, and still take some time to complete, so investors still have a short grace period. When this wedge formation is broken on the down side, a considerable drop will happen, and such drop will affect HSI significantly.

To sum up, the author anticipates that the 20,971 is the head of the HSI 2003-2007 cycle, but obviously this head and shoulder formation can only be confirmed with the formation of the right shoulder one or two months later, and another panic selling drop ensue that drop below the 18,700 neck line II. However, it is too late a warning for most investors, so the author stick his neck out to 'make such a daring speculation.