My Diary 471 --- Looking at History and Thinking Ahead

Market Thoughts --- Looking at History and Thinking Ahead

November 6, 2008

I think the market conditions can be different and human beings are the same. We learn from the history but we make new mistakes. We learn from the lessons and want to be Warrant Buffet but our greed and fear is the same. This is why I think we need to look at the history to see the patterns, but not simply using the history lows as absolute benchmarks like many of the strategists in the street did recently.

In my own view, this subprime-credit-EM Countries –global economy crisis could be the sum of the 1930 (policy error) and 1974 (Oil price and inflation) and 1982 (S&L Property crisis) as if you look at each of the problem individually, the current crisis is only worse than the others in the history.

If we all agree my observation and judgment here, then let us back to the ‘HIS trading pattern in the history….

As showed in the attached GRAB, In 1997 after HSI reached its peak and got sold off 50%, it subsequently rebounded 35% in 6 weeks then got sold off again to make a lower low, rebounded again and the sold off again. HSI actually made 3 new lows before bottoming out.

I am not saying that it will happen this time round but it's a likely scenario. But to bear in mind as this might take a while before we're completely out of the woods.

This time, HSI rebounded 40% in 1 week…too fast, too furious! I think market will have to retest lows once (or a few times) to form a base before confirming that it's a "bottom".

Thus, happy trading and be happy in the bear markets

http://finance.yahoo.com/echarts?s=%5EHSI#chart7:symbol=^hsi;range=19951228,19991101;indicator=sma+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

J: I am very keen to Marx’s view.. 資本主義的經濟周期是５～７年， then next big rally or bull mkt is in 2011~12…mkt would pick up in 2010.

Elliott Wave:

 

We have outlined the potential Elliott Wave template for the S&Ps in recent Techview mails; yesterday’s price action suggests the start of the corrective 4th wave. The futures market made new lows early yesterday, but cash held at the 10 October low; however there still looks to be a completed bear wave structure (waves v and 3 on the chart). The sharp rally from the lows (up over 10% on the day) prompted bullish divergence on the daily and weekly stochastic indicators. Bullish key day reversals were also posted in the Russell 2000, Value Line and Dow Jones Transport Indices. In S&P, wave 4 should not overlap with the bottom of wave 1, giving a maximum upside at 1200, but we see the 61.8% retracement level of wave 3 at 1132 as a more realistic target. We still don’t believe the lows are in and once the 4th wave is complete we would expect another 5 wave down to new lows, probably breaking the 2002 lows at 768.