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), and the bottom in September, 2001.

Market rebound is coming

In the last article (July 27, 2007), the author has been successful to detect the market turn at very early stage ( July 27, 2007) for HSI,DJIA and NASDAQ. This achievement also points out that the market does express its intention in technical patterns, i.e. wedge formation. Thus, it clearly demonstrates the value of technical analysis or the invalidity of random theory. Base on the Japanese NYK features, the author also pointed out the first bear sign in the world market scene which was further solidified by the very recent developments.

Now most markets including DJIA, NASDAQ, NYK, HSI, UKX, and CAC all made three extensive down waves, and such processes also produced two fan lines (fan. I and II, unique to the author). The important signal that the author noted is that after the second wave, all markets made a strong rebound that penetrated the steep down fan line I (see fig. 1,2 and 3),a forceful rebound that produce a less steep fan line II, then the expected final panic selling come that produce extensive market drop on August 10,2007 that reached the fan line I. The author's magic rule is that price cannot re-enter fan line I once it penetrated it up side. Therefore, the author come to the expectation that a market rebound is imminent. This rebound may form the right shoulder, a double head or even rise further, but the level cannot be defined now, or different markets reach different level.

To answer the key question posted in the last article (July 27, 2007), whether this extensive drop is a correction or a market final top. The answer hinges on whether the market can form a new high above the last top in six months time. If it cannot, then it is a signal that the market top has already arrived. Now let us look at the long charts since the beginning of this bull run by March, 2003. (see fig. 4, 5, and 6) One noticed the major market tops on Feb 2004, April 2006, and July 2007 which may be the third. The author's worry is that stock market moves by three wave pattern. After three major tops, it usually turn downward. NYK, UKX and CAC did drop below this long bull up channel, thus provide the first hint that a major turn may appear in the near future.

When we are worried about the arrival of the bear market, one should look at the possible bear factors. The author noted that there are four major bear factors each can pull the stock market into the bear phase.

1. Now all major stock markets in the world are at very high level if one compares it with the level of 2003, thus these markets are a lot more vulnerable to market shock.
2. The Chinese market bubble is still growing, and can explode at any moment. It did trigger an international stock market drop by a 8% drop on Feb 27, 2007, (March 11, 2007) Now this Chinese bubble is even bigger, and stored up more energy because the bigger the balloon, the louder the bang.
3. The US housing market can also create an avalanche because a lot of Americans have bought housing units when interest rate is very low, and enjoy a two year low and fixed interest rate. When the two year grace period is over, and had to face a floating but much higher interest rate, so default rate would be much higher than normal. If the housing market is declining, the forced selling of houses by banks would create a spiral that might end in an avalanche. Hong Kong had experienced such spiral just a few years ago. Thus it can happen. It is such worry that triggered the recent fall.
4. If Japanese Yen rise further, it will trigger further reduction in borrowing of Yen, resulting further selling of stocks in the world market to pay back the borrowing, which now in astronomical number. Japan is in its recovery phase after a very long recession. Japan's interest rate is expected to rise resulting an upward trend of its exchange rate. Therefore a massive switch from stocks back to Yen will also create an international stock market crisis.