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).

Another Rebound Is Coming

The author is successful in forecasting the last rebound of the bear I down swing (April 5, 2008). This forecast on the extent of rise of HSI is very accurate. The forecast is reaching 26,000 pts from 21,000 pts, and the actual rebound did reach 26,200 pts. More importantly, the author also forecast that after the rebound, HSI will make another extensive drop as the market enter the bear II phase.

Now the author forecast that the bear II fall will end after repeating the same pattern of bear I with three waves of extensive drop, and so another rebound is coming. The author noticed the turn through technical patterns from the seven major markets as follows.

1. Group I. NKY produced a very symetrical head and shoulders formation with flat neck line (NL). With such pattern, the head and shoulders formation, if confirmed, may suggest that the NKY rebound may reach 11,600 pts, a very extensive rebound (see fig. 1). HSI also produce a head and shoulders formation, but the neckline is not flat, so the anticipated rebound is less clear, and fall between 17,000-18,000 pts. (see Figure 2)
   
   Fig. 1
   
   
   Fig.2
   
2. Group II. UKX produced a very clean cut double bottom formation with three consecutive bottoms on the left, and one similar bottom on the right. For double bottom formation, the neckline usually is drawn on the rebound top between two bottoms. With such formation, the anticipated extent of rebound is 5,400, again very extensive (see fig. 3 ). DAX also produced a bouble bottom formation which suggest a rebound reaching 6,400 (see fig. 4 ).
   
   Fig. 3
   
   
   Fig. 4
   
3. Group III. DJIA produced a down wedge formation that indicate a rebound will appear, but no gauge can be used for the extent of rise (see fig. 5). Similarly, NASDAQ and CAC also produce down wedge formation with similar implications.
   
   Fig. 5
   

Another approach to anticipate the extent of rise of the coming rebound, one can use the extent of rebound from the bear I, and calculate a similar rebound for bear II. For example, the bear I drop of HSI is 32,000-21,000=11,000. The rebound of bear I is 26,200-21,000=5,200 or 47% of the extent of drop in bear I, so a 47% rebound in bear II should reach 11,015+7,137=18,152, again higher than most people's anticipation.

Similarly, the DJIA, NASDAQ, NKY, UKX, DAX, CAC give 56%, 54%,47%, 72%, 54.5%, 43% rebound from the extent of drop in bear I, so t the rebound in bear II is calculated to be 10630, 1982, 10658, 5672, 5807, 3853 respectively.

In summary:

1. The head and shoulders formation or double bottom formation has not been confirmed yet. In technical analysis, the neck line must be penetrated up side before it can be confirmed, and the rebound indicator be validated. So the author is making a speculative forecast to alert the investors with an earlier signal.
2. Both the extent of rebound from technical analysis as well as that derived from the extent of rebound in bear I all suggest a rather high rebound, way above most stock market commentator's anticipation.
3. The author feels that such calculation is quite objective, thus should be more reliable than the gueses of the market commentators.
4. After the rebound, the bear III will come in 2009 with market lows exceeding the record low of the bear II given. The author wants to repeat his warning said in the April article (April 5, 2008). This should be treated as opportunity for an escape window rather than opportunity to increase holding, because phase III (bear III ) may set in with even lower index level after this rebound, allthough the down swing may proceed at a slower pace. Obviously, there is still some ground for short term speculation.