One more down to go

Heard anything? Any bull coming this way?


So far so good, very well behave (to view bigger chart, double click on the chart). With another 4% up for Nasdaq yesterday, the "sharp and short" sub-wave iv of wave 5 that I have mentioned previously is almost there.


Similarly for the Dow, 239 points on Thursday has given sub wave iv adequate magnitude. Refer to the two 6-months chart below, sub-wave ii of Wave 5 took 14 days to complete. Sub-wave iv so far has only 3 days, even though the duration is expected to be short, but should not be so short. Thus the sub-wave iv is expected to drag on at least for another two days. By middle of next week wave v should start that can bring Dow to 6000. Hopefully that is the end of the Major Wave A to be followed by a major rebound.

It is good to keep in mind that stock market is not that straight forward. What I have painted so far is only one of the many possibilities which I think is highly probable. I will discuss about other possibilities when situation arises.

If I am lucky and I get it right, the next issue is stock selection. Looking at the local political scene, KLSE may not perform as good as other bourses. Judging from the last two months statistic, it is obvious that Hong Kong and Singapore bourses are more inline with the US market in terms of pattern and magnitude. KLSE may have the same pattern but magnitude is always different, the return on average may not be as impressive as that from Hong Kong and Singapore.

The next question is which sector. Keep in mind that this is a bear market rebound, one should not think of long term investment as the rebound is a sucker wave and Dow will be heading for 5000 or 4000 after that, one should look at stock with big rebound. Since the current crisis is property and finance related, look for financial and property stocks that wewe badly beaten down. Another sector that has been badly affected is commodity, it has to be stocks that are related to these three sectors.

One good example is Bank of America (BAC) that has dropped more that 90%. From US$54 it has dropped to US$3 to US$5. The following short term chart has illustrated its volatility and returns since January ( Double click on the chart to see figures). Within a few days the up and down can be 40% to 50% and the volumes were very very high. I am not talking about participating in this phase (after events is always easy to see and to talk) the pattern indicates strong buying support but not stock chasing. The question is in an up market when selling has greatly reduced, how this stock is going to behave after it has dropped 90% is interesting. Yes, its fundamental has changed, share dilution is great, possibility of nationalisation is still there but still can enjoy the great rebound.

The long term wave count is interesting as shown below :

It is possible that BAC is one phase ahead of Dow. The worst can be over for BAC when it reached US$3.14. It is possible that that last four days rebound from US$3.14 to US$5.85 is part of the new wave. During the Wave 5 drop for the Dow, if BAC can retest US$3.14 without breaking it, it is a great entry point at that level, if lucky it can produce 2 doubles. Citi Group has not bottomed yet, be careful when it breaks US$1. AIG is a great gamble. It has dropped 99%from US$72 to 41 cents. Its lowest is 31 cents. I don't mind to set aside some money to catch AIG at below 30 cents US.