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.

The magic behavior of Fan Lines

The author is successful in plotting fan lines and its interpretations, but it is surprising to note that majority of the technical analysis text books do not give a detail description of such a useful tool. Thus the author had to provide an introduction before describing the fan line behavior in this recent international panic selling.

Fan lines usually refer to the 3-4 down sloping lines drawn from one single point on the shoulder next to the top. So the fan line I usually is very steep, while fan line II is less steep, and fan line III (or even IV)is usually quite flat even though it is still a down slope.

From the 30-year experience of stock trading, the author come up with several rules from such fan lines:

Rule No. 1. When the closing of index or stock price penetrated the fan line I up side, and produces another high point that define fan line II, then the fan line I become a support line, but such support line is different from the support line in technical analysis. Normally a support line is a price range that do not change with time, but here, the fan line I is a steep slope line which the support change drastically with time. The author noted frequent examples that index or stock price have broken the fan line I up side, then fall back down in a drastic drop with closing price stop right on the contact with the fan line I from above. Alternatively, the index or stock price did penetrated the fan line I from above, but rebound with the closing above fan line I. There are several exciting examples using major index given below. This rule No. 1 can also apply to fan line II.

Rule No. 2. Fan line I, II, III (IV) also serve as resistant line or return line.Some of the rebounds from below will stop at or below the fan lines. examples of this rule can be found in the charts (1-6) given. Both rule No. 1 and No. 2 find similarities with the up or down wedges in which case the upper line also become resistant or return line, while the lower line as support line. More importantly, the support or resistant level change with time as described here.

Rule No. 3. Penetrating the fan line up side usually lead to significant rise above the old fan line. This imply that significant momentum is needed to penetrate fan lines up side. Examples of this rule can be found in the charts (1-6) provided.

Rule No. 4.Breaking the fan line III can be the important bear turn bull early signal. In case of confirmed bear market, the last fan line III usually is very flat, and last very long and developed into a slow down channel. Then when this fan line is broken up side, It is a significant indication that the bull market has arrived. The author has been successful in applying this rule to identify major market turn.( April 22, 2003; May 28,2003; June 13, 2003)

Now let us turn to the major index that produce fan lines, and see how close do they follow these rules.

1. DJIA produce standard fan line I and II. (see fig. 1) The fan lines are drawn using the closing next to the very top point (pt.1)because fan line I is very steep, thus cannot start from the very top point. This fan line I was broken up side quite early, but after it was broken fan line I up side, it fall back and hit the fan line I from above, and the closing stop right on the fan line I (pt. 2). After a few days of rise, it reach its top and form fan line II. The index then drop back, and almost touch fan line I in intra-day low from above. (pt. 3) After reaching point 3 of fan line I, it bounce up and hit fan line II from below, and the closing touch fan line II in point 3 and 4.

2.NASDAQ interacts with fan line I and II some what different.(see fig. 2) The fan lines are drawn from the very peak. After the index have penetrated the fan line I from below, and form the fan line II, the index made two extensive drops, the first one have an intra-day low that hit the fan line I (pt.3),the second time closes on the fan line I again. (pt.4) In the following day, index did penetrated fan line I extensively, but close above it (pt.5), thus did not violate rule No. 1. When the index penetrated fan line II from below, and then fall back down, it also stops on the fan line II (pt.3').

3.NKY.Fan lines are drawn from a shoulder, 5 days away from a peak.(see fig.3)When fan line I was penetrated from below, and established the fan line II. The down swing started. The first wave come with the intra-day low did touch the fan line I, then the panic selling come, and close right on the fan line I (pt. 3). It is hard to believe that the panic fall know where the steep fan line I is located.

4. UKX. The fan lines are drawn from a shoulder 6 days away from the peak.((see fig.4) After fan line I was penetrated from below, and established the fan line II, it made two extensive drops, and both close right on fan line I (pt.3,4,5). The following rise did close on fan line II from below (pt. 3'), bounce back down before the rise to penetrate fan line II.

5. CAC. The fan lines are drawn from a shoulder 3 days from the peak.(see fig.5) Fan line I was penetrated from below very late. After fan line II was established, there are two waves of market drop, and both drops closed right on fan line I (pt. 4,5,6). When the fan line II was penetrated from below, and then fall back, the intra-day low also touches the fan line II.

6. HSI. The fan lines are drawn from the shoulder 5 days from the peak. ((see fig.6) After the fan line II was established, the panic selling come like an avalanche,but believe it or not, it stop right on the steep fan line I. The author's magic rule was further tested the next day. An intra-day drop of 1,200pts, but the rebound is as forceful as the fall, and close again right on the fan line I,although lower as allowed by the steep slope. Therefore, the author's magic rule was tested, but unscratched.