Short-term Bearish

The last two days drop by Dow from 8375 to 8000 confirmed that the Dow is currently in Wave 5

The last eight candle sticks formed the sub-wave (i) and (ii) of wave 5.

This line chart shows clearly the sub-wave (i)-(ii) of wave 5 consists of 3 waves. The magnitude of last two days drop confirmed the completion of (i)-(ii)

Dow is currently in sub-wave (iii) of 5 going south to break the November 2008 low of 7552. After forming (iii), there will be a rebound sub-wave (iv) follow by sub-wave (v) of 5. Hopefully the whole formation can end by middle of March 2009.

Thing may not be that bad as Baltic Dry Index (BDI) has reversed after the formation of a reversed "Head and Shoulders" reversal pattern. It closed at 1070 yesterday, a 60% improvement over its early December low of 663. This indicates that that actual physical movement of raw material has increased, economic activity has pick up, demand/consumption has improved.

CRB commodity index can remain flat due to forward selling and stock pile draw down. Very soon CRB should follow BDI in the upward movement.

The last two charts indicate that stock accumulation has started. Those with plenty of cash cannot wait until the bottom to buy, they usually buy all the way down during the last phase of decline. The OBV (On Balance Volume) has been moving inline with Dow until both have hit bottom on 20 November 08. since then OBV has moved higher despite Dow's sideway and lower movement.

Summary
1. Dow in sub-wave 5 of Major Wave A. Whole formation can be completed by mid-March 09.
2. Commodity should move higher inline with BDI.
3. Stock accumulation by big boys has started

Gong Xi Fa Cai

Gong Xi Fa Cai to everybody.

The Bull and the Bear are still fighting out there to decide which way to go.


After the 4% Black candle drop, Dow reversed to a 3.5% white candle up, followed by one Spinning Top with long lower shadow on Thursday and a Doji with long lower shadow on Friday. Volumes for the last six sessions were on the high side indicating rampant selling that were well absorbed. But buyers were not chasing the stocks, they merely taking their own sweet time to accumulate their targeted stocks. If one has plenty of money, why not? This is once in a life time opportunity.

AIG drops from US$72 to US$1.30 (98%)
Citi Group from US$55 to US$3 (94%)
Microsoft from US$37 to US$17 (54%)
Yahoo from US$32 to US$9 (71%)
Morgan Stanley from US$89 to US$10 (88%)
And many more and all these are big fellows in the main stream of economy.
And they remind me of some of the KLSE Finance stocks back in 1998 when thing was at its worst:
Commerce Asset Rm 0.85
Public Bank Rm 0.81
Maybank Rm 3.00
Hong Leong Bank Rm 1.04
And Some can never recover
MBFH Rm 0.12
MBF Cap Rm 0.29
TA Rm 0.49
Idris Rm 0.22

The main question before investing is " will they follow Lehman Brothers ? ", " how high can they go in the next bull run?". Must really do some research and dig for information to find the jewel.

Roast Pork

While the bull and bear are fighting out there, let's talk about the best Roast Pork in town. Just look at the photos, to me and to those who have a chance to put one piece into their mouth, this is the best roast pork that one ever had. Personally I prefer this to the famous Rm70.00 a kg Pudu roast pork (somewhere near Shaw Plaza, Pudu). The skin is crispy and crunchy, the meat underneath that can melt in your mouth has that unimaginable flavour and aroma that one can not help but to ask for more. Where to get it? Ha ha only I can get it, it is from my wife, my roast pork expert. Call her if you want the recipe.

Simple Summary

" I am confused, what are you trying to say"

OK, here is the summary:
1. With a 4% drop, looking at the form, probability of Major Wave B is getting smaller (slim chance)
2. Probability that Dow is forming sub-wave 5 of A is getting higher.
3. There are two possible formations for sub-wave 5
4. Formation A, not so damaging, a diagonal 5 that can end at about 7500 for double or triple bottom formation.
5. Formation B, very damaging, very sharp drop to 7500 for sub-sub-wave (i) of sub-wave 5 follow by sub-sub-wave (ii) rebound then a sharp sub-wave (iii). Sub-sub-wave (v) can go below 6000 to complete Major Wave A. Then comes a 20% Major Wave B rebound follows by Major Wave C down to Below 3000. This is equivalent to 1929 Great Depression. Possibility is there but unlikely at this moment.

A 4% Black Candle Down

Top chart is Dow 3 months and bottom chart is Dow 2 years from Yahoo

With 2 spinning top at high volume and yet Dow has a 4% all black candle down, it is very bearish. The accumulators must have sensed by now that time is on his side, there is no need to hurry. The probability that Dow is currently in Major 12 months Wave B that I have been maintaining is very small. However as long as Dow does not go lower than the November 2008 low of 7552, the slim chance is still there.

With the latest 4% drop in Dow, it appears that the other option that Dow is in sub-wave 5 of A is having a higher possibility. If this sub-wave 5 take the same magnitude and duration of sub-wave 1, that droped 17% from 14164 (9 October 2007) to 11740 (10 March 2008) within 5 months, sub-wave 5 can drop from 9034 (2 January 2009) to 7500 by early June 2009, a long jurney indeed most likely in the form of overlaping diagonal wave. This can lead to a double bottoms or tripple bottoms reversal patterns. This is a long and shallow route. Some time it can take the route of short and sharp. Under the short and sharp alternative Dow can complete the sub-wave in about 2 months but with a greater magnitude exceeding 20%. Since Dow is already at 7949 last night, if it can reach the previous low of 7552(a tempory support) within this week, this location is only sub-sub-wave (i) of sub-wave 5 unless we have a failure sub-wave 5. The rebound from 7552 can be sub-sub-wave (ii) follow by a "run for your life" (iii), which can punch through 7552 (intraday low 7464) with a long, very long black candle.

If Dow really goes for A Wave with 5 sub-waves follow by a 20% Wave B rebound, The Wave C (another 5 sub-waves down) will take Dow to 3000 and below, this is an economy crisis equivalent to the 1929 Great Depression. My opinion at this juncture is still possible but unlikely but don't forget Murphy's Law.

Another spinning top

Look at Dow 3 months chart from Yahoo, Dow gave a second spinning top with a white body on Friday. Hope I can get a long white candle for Dow on Monday. With two spinning tops, chances is very high that the next candle is a long white candle. It is very very unlikely to get a black candle down south. However, if this unlikely event does happen, I would prefer to hold on to my cash and see whether it will drop below the November 08 low of 7552.

Doji and Spinning Top

I really like Yahoo for their efficient data management.

I went through "Beyond Candlesticks - Steve Nison" again last night then I realised I have mixed up Doji with Spinning Top. Doji is a vertical line (shadow) with a horizotal line ( opened and closed at the same level). A Spinning Top ( the word "Top" can be misleading, it can appear at both market top and market bottom) is a small body with long shadow at both ends (above and below). When the upper shadow of spinning top is longer ( at least more than double the length) than the bottom shadow, it is bearish. But when the lower shadow is long, it is bullish.

Dow formed a spinning top with a long lower shadow and with high volume. It came after a long black candle a day before, this is a bullish formation. Volume is an integral part of technical reading. A key indicator relating to volume is accumulation and distribution. Last night New York trading can be considered as a high volume trading at stagnant prices. The selling is rampant after the previous day sell down and the earlier Asian bourses sell down. At one stage Dow briefly broke the 8000 point and touched a low of 7995. However the high volume rampant selling by the bear has been accumulated by the bulls. Last night volume is technically classified as accumulation volume. Chances is high that Dow is still in Major B and last night low can be the end of c to signal the end of corrective wave (ii). I hope tonight, Dow can confirm the begining of uptrend (iii).

I have another indicator call OBV ( On Balance Volume), it monitors market accumulation and distribution of shares. The OBV so far since the October 08 low is very bullish. In fact if tonight Dow can close possitive, I will have a OBV breakout, a new OBV height since October 08. More significant is that, this OBV is higher than the one set on 2 January 2009 when Dow reach 9034 even though Dow is currently below 9034. OBV breakout always preceed price break out. I hope Dow can confirm tonight.

Last night Dow punched through the low of 8419 (23/12/08) and smashed my hypothesis of a major ABCDE 5 years sideway consolidation partially. Judging from Major Asian Bourses to the Dow (Hang Seng -4.36%, Singapore -3.1%, Nikkei -3.98%, Taiwan -3.89%, Soul -4.54%), there must be a lot of technicians looking at the figure of 8419 support.

So, what's now? Look at the charts from Yahoo, I have added in some alphabets and numbers. After the peak (P) in October 07, the first major wave down (Wave A) can take the form of either 3 or 5 waves. It appears now that the probability of 5 waves formation is higher. Look at the second chart (Dow 30 days), the height 9034 one week ago is not my subwave 1 of (iii), the height is (iii) and it has completed the wave 4 rebound. If we are indeed in Wave A with 5 waves formation, we must be in Wave 5 of A now. As wave 5 of A has 5 subwaves (i), (ii), (iii), (iv) and (v), we are now in (i) of 5, if tonight we can have a rebound to form (ii) of 5, this Wave 5 may not be so damaging, it may stop at the Wave 3 low of 7552 to form a double bottom (Wave A). However if wave (ii) of 5 never come until Dow reaches near 7552, it is going to be very damaging, Dow may be heading for 5,000.

But, thing can not be so straight forward right? If so, everybody will be selling with no buyer. There are transactions mean there are buyers. Look at the third and fourth charts, Major Wave A ended at 7552 on November 2008 still can not be ruled out, it is still possible that Dow is in Major Wave B. Refer to Chart 4, from the low of 7552, we can count wave (i) as a diagonal 5 triangle, which is very rare. Diagonal Triangle usually occurs in wave 5 or wave B. With this count, the one week ago 9034 peak becomes a small b as shown, Dow can be in wave c as shown, then the expanding a-b-c wave (ii) correction is about to finish. Hopefully the Dow's direction can be confirmed within the next 2 to 3 days.

Why Worried

At this stage of the market development when almost all the major bourses have dropped close to 50% to 60%, we should not worry too much if we are going for long term investment except to watch out for the slim possibility of the recurrence of 1929 great depression. The main question now is whether the market is taking a pause before the next plunge or it has already developed a base for its side way consolidation phase. I still think that Dow is in a major A-B-C-D-E consolidation phase according to Elliott Wave that can last about 5 years. We are at the begining of Wave B at this juncture.

Look at the 30 days candle stick chart for Dow that I borrowed from Yahoo, even though it has gone below 8500, it is still above its last low of 8419 0n 23 Dec 2008. Last night Dow formed a Doji candle stick, which is part of a reversal pattern, hopefully Dow will reverse tonight to complete the reversal pattern. We have to be careful about this Doji candle, Doji can be found at most of the turning points but the present of a Doji not necessary means that the market will turn. It merely indicates a possible turning point when buying and selling are almost balanced.

I am worried

When word spreads, when more and more of my friends started to visit my site, I begin to worry. For those that have been in this field before and had gone through the stock market plunge during 1987 melt down or the 1997-98 economic crisis, I am not so worried. I am worried for the new comer and the new stock speculator.
The very fact that the stock market can exist indicates that there is no way one can predict the market trend with 100% accuracy. If it is possible, the market can not exist because everybody would be buying or selling at the same time. If one has been following the investment recommendation issued by some investment house that has full-time qualified professional stock analyst equipped with latest software and hardware and are well informed, he will know that there is no way to get the market right all the time.
Similarly, what I have written is only a hypothesis, my remisier can tell you how wrong my hypothesis can be and how wrong my investment can be at some of the crucial moments in the past. I just hope, with luck, I can get the direction correct for 70% of my hypothesis and I can sense my mistake the moment my hypothesis is wrong and I can act immediately to minimize my losses. It is not easy to make some money through stock investment. Some of my friends that never buy shares but they put their money into buying houses and shops in KL and PJ, they performed much better financially, they are very rich now with steady rental income every months.
Please read my post with reservation, try to get a second opinion, get professional advices before you invest. I can be wrong. However I has to admit that the current economic crisis that is said by many professionals as the most serious crisis since the 1929 Great Depression has offered a very rare and very great investment opportunity. But timing, stock selection and your holding power are important. For long-term investment, this is truly a golden opportunity.

A Crucial Week Ahead

Top chart is 2 years Dow Industrial and bottom is 30 days chart both from yahoo finance.

"Where are we now?" Many have asked. I still like to monitor along my ABCDE possibility mentioned in my articles in November 2008. Wave A is from 14,279 (11 Oct 07) to 7552 (21 Nov 08. Intraday low 7392), a duration of 13 months, as shown in the top chart. Refer to bottom chart, from 7552 it moved to 8829 as wave (i), it then moved down to form (a), followed by 3 waves up to form (b), 3 wave down to form (c) and another 3 waves up to form (d) and finally an overshot 3 waves (e). What we have is Wave (i) followed by what Elliott called an "Ascending Triangles" corrective Wave (ii). So Dow has finish Wave (i) and (ii) by 24 Dec 2008. After Christmas, Dow continued by forming 5 small wave up until 9015 on 6 Jan 2009. On 7 Jan (Last night Malaysia), it fell 246 points to 8769.

A bearish technician may term 9015 (on 6/1/09) as (iii) and say "That's it, 3 waves rebound from the November 08 low of 7552 is completed, it is going to go all the way down to below 7552. If you are lucky, it may stop at 7552 to form a double bottom reversal pattern".

I hope he is wrong. I still like to maintain that Dow is in a major Wave B that can last for 10 to 12 months untill end of 2009. If so, from the low of 7552, we have finished uptrend (i) and corrective wave (ii). Dow is in the process of forming Wave (iii) that should go beyond 9300. The 9015 is subwave 1 of (iii), Dow is forming subwave 2 of (iii) at the moment. It may take 2 to 3 days and hopefully it does not go below 8500. Subwave 3 of (iii), hopefully, can start by early next week and go beyond 9300.Ultimately, this uptrend Wave B may reach a minimum height of 12,000 for the Dow within the next 10 to 12 months. However, if the current down drags more than 3 days and goes below 8500. I will really have to relook at my whole hypothesis.

A little bit on Second Board

In the last few days I was really lazy and told myself " 2008 review is not that important. More important is the 2009 projection" that was how I excused myself.
While updating my long-term monthly chart for 2nd Board, I noticed that the 2nd Board FBM2BRD index has set a historical low on 15th December 2008 at 3913 which is equivalent to 58.69 of the old 2nd Board Index. The peak of 2nd Board was set on 19th March 1997 at 680.25. Within 18 months it plunged to a low of 75.30 on 1st September 1998, a drop of 89%. Mid December 2008 low of 58.69 is 22% lower than the 75.30 in 1998. The main question is "is there anymore play for the 2nd Board counter ?"