Fannie Mae & Freddie Mac

Dow is currently forming sub-wave ii as shown above. The next sub-wave, sub-wave iii should be interesting as I have explained previously. The current up trend will likely to see Dow reaching 10,500 level.

Fannie Mae (FNM) and Freddie Mac (FRE) were very active and dynamic since August 5. FNM moved from 0.57 to 2.04 (+257%) and FRE moved from 0.61 to 2.40 (+293%), the gain is fantastic. However, these two stocks are classified as "zombie" companies by many.

Possible wave count for FNM is as shown above, August 5 was the starting of sub-wave iii of wave 3, very dynamic and with high volume.

The reading for FRE is the same, sub-wave iii of wave 3, dynamic and with high volume.

These two mortgage houses have a combined mortgage guarantee at more than US$5 trillions, were judged as vital by the Government to a healthy housing market. Their stock prices from more than $50 before the financial crisis have dropped to less than $0.50 within 12 months. Yesterday, their prices managed to close above $2.00. Many analysts have issued warnings that these two stocks would ultimately go to zero at the end of the road. Bose George from Keefe, Bruyette & Woods Inc (an investment bank) was one of them. "These stocks are going to be worth zero," he said recently. The recent talk was that the Government will announce in February 2010 that these two companies to be wound down, and either be merged into a federal agency or have their bad mortgage assets split into a new government backed company. It is advised to take profit for these two stocks when they have completed their respective wave 3.

Dow - Thursday August 27 Opening Low

2 hours after the opening bell, Dow is about 57 points lower moving side way around 9486 as shown above. The less than 100 points drop is expected as Dow is currently in sub-wave ii of wave 3 of (III).
Since the March low of 6457, Dow, as shown above, has completed major wave (I) and (II) and wave 1 and 2 of the major wave (III). In the last 7 trading days Dow has formed its sub-wave i and is entering sub-wave ii as shown below. It will take another one or two days to complete its sub-wave ii.


The coming sub-wave iii is crucial because its form may be able to provide an answer to the question of whether the rebound since March is a bear market rebound or the rebound is the starting of a new market cycle.

As shown above, if the current sub-wave ii and the following sub-waves iii, iv and v are not dynamic with low trading volumes and are unable to break the upper trend line as shown, Dow is very likely to go for wave B formation with 10,500 as the likely target.

However, by end of next week, if sub-wave iii can punch through the upper resistance line as shown with high trading volume exceeding 8 billions and with a sub-wave iii magnitude bigger than that of sub-wave i, there is a good chance that March's low is the end of the October 2007 to March 2009 bear market and is the beginning of a new phase for Dow.

Two interesting stocks - Priceworth and Kurnia Asia

Going through the charts of some of the stocks, two charts looked interesting to me. The first one is the long-term chart of Priceworth as shown below.

It formed a second bottom in January 2009 followed by 3 up waves to complete its first major uptrend wave by early August. From its peak, it started to pull back to around 58 cents. It put on 2 cents today to close at 60 cents. If it can move upwards from here and break the 80 cents level, that will complete the right shoulder of the 'inverted head and shoulders' with a minimum target at Rm1.20

Besides the possibility of inverted head and shoulders formation, the high volume traded in early August is another interesting thing. Within a week the major shareholders have sold 13.6 millions shares ( about 10% ) at prices varies from 74 to 84 cents. Who bought over these shares at such a price level?

The second stock is Kurnia Asia as shown below.

The OBV is strong indicating accumulation. Chart pattern is bullish, it is a 1-2, i-ii formation with a breakout a week ago followed by a pullback to touch the resistance line. It started to pull away today with very high volume of 14.4 millions shares.

Dow - It is wave 3 of (III)

Dow put on 155 points (1.67%) on Friday and with that it confirmed that Dow is in wave 3 currently.

The volume at 6.7 billions, was much higher than the 4.9, 5.0 and 5.6 billions on Tuesday, Wednesday and Thursday respectively. It is likely that there were some short covering activities; some buying by those that were at the sideline and consistent buying by the hardcore bull trend believers.

With this latest development, the a-b-c-d-e wave 2 that I have mentioned two days ago is no longer possible. The next thing to monitor is the magnitude and volume of the currently wave 3. A shorter wave 3 (compared to wave 1) with low volume indicates the likelihood of wave B whereas a longer wave 3 with high volume indicates the likelihood of a new bull cycle.

Malaysia National Day Celebration

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All these years in Kuala Lumpur we have our Malaysia National Day Celebration on 31st August. Last year we celebrated the 51st year of independence and this year the 52nd year. I don't feel anything wrong until I met my friends from Sabah. So, what's wrong with the celebration?

"My friend, 31st August 1957 was the day the multi-racial Federation of Malaya gained its independence from the British. At that time Sabah and Sarawak remained as British's territories in North Borneo until 16th September 1963, we, together with Singapore, were granted independence and formed Malaysia. So, you see, rightfully we, Malaysian, should celebrate our 46th year of independence on 16th September this year, which is not even a public holiday for West Malaysia and Sarawak. In Sabah, every year on 16th September we celebrate Malaysia day and Birthday of Sabah State Governor alone. "

I have nothing to say, he is right. This year 31st August is the 52nd year of independence for Federation of Malaya and 16th September is the 46th year of independence for Malaysia.

Dow rose 70.89 points on Thursday

Dow has just closed with a 70 points up for its Thursday's session at 9350, its third advance since Monday's 186 points drop. Monday's low has to be sub-wave c. The magnitude is rather small at 2.8% instead of the anticipated 3.5%. As mentioned in my August 15 article "Dow-Recap", this wave 2 can take the form of either a-b-c or a-b-c-d-e.

For a shallow a-b-c wave 2, last 3 days can be the beginning of wave 3 as shown above. However, if Dow goes for a longer a-b-c-d-e wave 2 formation, it is possible that Dow has just completed its sub-wave d as shown below and is likely to turn down from here to complete its sub-wave e in the next 2 to 3 days before the starting of wave 3.

Dow - Well behaved so far

If Dow is currently in wave 2 of major wave (III), and if the magnitude and duration of the consolidation are about the same as that of the wave 2 and wave 4 of major wave (I), Dow is likely to drop to 9070 for a 3.5% pullback within a period of 7 to 10 days. In the last 3 days the pullback was less than 3% at its maximum. In the next 4 to 6 days of waves a-b-c formation I don't expect big up and down swings in Dow.

KLCI - Possible wave count

Where are we now?

KLCI's peak was lagging behind Dow by 3 months, Its peak was in January 2008 at 1516. KLCI reached its bottom in December 2008 at 835 (-45%). It formed its major waves (I) and (II) by March 2009. Since then KLCI has put on 353 points (+42%) when it reached1188 last Friday, August 14. KLCI (or FBMKLCI now) is currently at sub-wave iv of wave 3 of major (III). After the current sub-wave iv pullback, it is likely to reach 1200 to complete its sub-wave v of wave 3. A high degree wave 4 consolidation will take place before it proceeds to finish its wave 5 of the major (III) at around 1300.

KLCI can have the above chart pattern, if and only if Dow, Hang Seng and STI are currently in their respective sub-wave 2 with sub-wave 3 about to start.

World stocks tumble on US consumer worries

Shanghai -5.79%, Bombay -4.07%, Nikkei -3.10%, Hang Seng -3.62% and STI -3.25% the reason as reported in Yahoo - concerns about consumer spending. To me that is only an excuse, the world markets have been running since July 13 without a meaningful correction. A lot of people have been looking for quite sometimes for this correction and have been frustrated times and again by don't know who that kept on pushing the stocks for a higher close.

I still maintained that the rebound since March is a B wave. The main question now is whether the B wave has finished as shown above or this current pullback is only sub-wave 2 of (III), we still have sub-waves 3, 4 and 5 in front.
Hang Seng is the same as Dow. The sharp drop can be sub-wave ii of wave 3 of B Or the B wave is completed.
Singapore STI is the same as Hang Seng and Dow.
The only way to confirm whether wave B has been completed is to look at the magnitude of the pullback. Refer to the 6-month chart above, during the wave (I) up trend, the magnitudes of sub-wave pullback vary from 3.5% to 5%. The major (II) pullback is about 7.5%. If Dow is currently in sub-wave 2, a 3.5% pullback will bring Dow to 9070 as shown and a 5% pullback will bring it to 8930. To me, as long as the Dow does not go below 8900, it is sub-wave 2, it will be followed by sub-wave 3, 4 and 5.
However if Dow goes below 8900, chances is very high that the August 13's closing value of 9398 is the end of wave B.

There are many other possibilities but I shall monitor the Dow based on wave B theory until such time the chart tells me that It is not wave B, it is something else.

The Good, The Bad and The Ugly

Good : 3 MACC officers went to Kuala Dimensi CEO Datuk Seri Tiong King Sing's office (Bintulu MP, Treasurer General Sarawak Progressive Democretic Party) to investigate PKFZ Rm12.5 billions Scandal. Tiong had been given notice of the investigation, his lawyers were at his office to assist/advise him. The process lasted from 2.00pm to 6.30pm. Very peaceful.

Bad : Wong Chuan How, aide to Selangor Exco Ronnie Liu was initially told that he was to be questioned as a witness relating to the award of 230 projects worth Rm500,000.00 ( each project worth Rm 2,174.00 on average ) but 5 MACC officers went to his service centre with a warrant of arrest and told him he was a suspect and was to be arrested and taken to their office for questioning. The subsequent developments were as reported by newspapers.


Ugly : Everybody knew what has happened.

It is horrible

Must read this Fantastic Facts and Fancies from Patrick Teoh

Dow - Recap

It may be good to recap at this stage Dow's chart from a longer term's perspective. There are lots of good news lately. Financial sectors are turning in impressive 2nd quarter results, Germany and France 2nd quarters were up 0.3% respectively (technically they are out of recession), Lee Kah Shing said yesterday, "The worst is over". Larry Kudlow said, "It is a new bull market" and there are many more bullish gurus in Wall Street. But this is supposed to be a crisis comparable to 1929 Great Depression.

From long-term chart on a semi-logarithm scale as shown above, the drop since October 2007 from 14164 to 6547 (-54%) on March 2009 and the rebound to 9398 (+43%) look rather small. In the long term chart it looks rather ordinary and does not have a look that is equivalent to that of 1929.

My Elliontt wave count for Dow is as shown above, Dow is forming the major wave (IV). By the rule of alternation (Elliott wave principle) since wave (II) is a 'sharp and short' simple wave, wave (IV) is likely to take a complex form of a-b-c-d-e 'shallow and long' formation as shown above.

An alternative count is an a-b-c wave (IV) as shown above with a "Head and Shoulders" formation. Based on the economic news todate, it is hard to come out with a reason why Dow can drop to 3000 from say 10500 (-71% drop). Can rule out this possibility at this juncture. So if Dow is truly in major wave (IV) forming a-b-c-d-e complex pattern, assuming March 2009's low is wave a (17 months), Dow is currently in wave b (refer to the 1st chart above).
From the 6-month chart above, we can see that Dow has completed wave (I), (II) and sub-wave 1 of (III). Dow is currently in sub-wave 2 of (III)
This sub-wave 2 can take the form of either a-b-c or a-b-c-d-e. If it is a-b-c, another 3 days can complete sub-wave 2. a-b-c-d-e will stretch sub-wave 2 by another 10 days.

The only worst possibility that we have to be careful is the case, as mentioned in my previous post, the 9398 height of last Thursday is major wave (III), the rebound wave B has ended. This possibility is considered unlikely but in stock market, anything can happen. Yesterday's transected volume of 5.4 billions needed 5.4 billions sell orders to satisfy the buy orders.

Pathologist Dr. Khairul Azman Ibrahim's "suicide theory"

Pathologist Dr. Azman who conducted the post mortem on Teoh's body said that Teoh could have committed suicide based on the followings:
1) Injuries sustained showed no struggle.
2) Tests showed no alcohol and drugs
3) DNA of all witnesses did not match the DNA of "unknown male" found on Teoh's blazer and belt
4) Examination at the scene.

Dr's Theory and explanations were very very sound and good.

Unknown male DNA - "DNA contamination may have occurred when we placed him on the autopsy table.
Drag marks on the right shoe - " landing on his right foot from the fall"
No struggle - "MACC's pen in his shirt pocket would have flung off if there was a struggle"
The lose left shoe found beside the body - "Left shoe could have come off during impact"
Distance between left shoe and body - " I didn't measure, I did not have a measuring tap."
Did not test the left shoe for fingerprints - "The laboratory did not have the facilities." "thought the police would have done it."
Why he did not direct the police to conduct the test - "I forgot."
Dr's theory - "He climbed out of the window before falling to his death."
Why no foot prints or hand prints on the window frame - "The prints may be there. I looked but I didn't see any."
If Teoh had jumped, his body would be found near the wall - "I agree"
But the body was quite a distance from the wall - " I did'nt measure, I did not have a measuring tape."

Dow - looking for breakout

Dow closed with 120 points up yesterday but remained below the resistance line. Tuesday bottom can either be end of wave a or end of wave 2 depending on whether Dow can have a breakout above the resistance line today with high volume or it moves down again to complete the a-b-c wave 2. The 120 points up was impressive but the volume of about 6 billions was on the low side.

Dow in wave 2 of major wave (III)

Dow gave up 96 points on Tuesday and moved into wave 2 which is expected to last a few more days unless Dow can put on more than 120 points at the close today. Anything more than 120 points, say 140 or 150 points will practically mean the wave 2 is very short and has come and gone and wave 3 has started. This coming wave 3 is expected to be more dynamic and with a higher volume of at least 8 to 10 billions.

Wave 2's drop is expected to be about 5% to 6%, that will bring Dow to a low of 8900 before the starting of wave 3. However, if Dow started to move lower and goes beyond 6%, the possibility that wave B has ended as shown below will have to be taken seriously. Looking at the current world economy, this option looks unlikely at this moment.



Looking at the 5-year chart above, it is hard to think of a reason for Dow to go below March's low of 6457.

For wave B to complete within the next two months and the Dow to move lower as shown above, there has to be a new form of crisis taking place. Hard to imagine at this moment.

From the Wall Street, there are more and more people believe that March's low marks the end of the 2007/2008 bear market and it is the beginning of a new bull cycle.

Stocks with (I)-(II), 1-2 Elliott's wave count.

Why HPI's price behavior, as mentioned in my previous article, can not be interpreted using Elliott wave principle? The main reason is HPI has been thinly traded all these while until lately. There was no mass participation in the past.

The most important element for Elliott wave is mass participation. Elliott wave principle basically describes how groups of people behave, how the mass psychology swings repeatedly between optimism and pessimism and in the process a specific and measurable pattern is developed. The main assumption is that the mass behavior to fear and greed, optimism and pessimism, booms and busts is always the same in the olden days of Tulip Mania and South Sea Bubble and is still the same in the present days of programmed tradings.

Back to today's topic on stocks that have formed major wave (I)-(II) and a lower degree wave 1-2. Followings are stocks with such Elliott wave count. Stocks are arranged in alphabetical order. The significance of this type of wave form is that the up coming wave 3 of major wave (III), the 3 of (III) is usually very dynamic with high volume. Can be very juicy.

Axiata's wave 3 has started with Rm3.60 as immediate target.

Duta Land's wave 3 has started. Major (III) with the magnitude of major wave (I) can reach Rm1.00. With 1.618 of (I) can reach Rm1.30.

Inch Kenneth's wave 3 has started with high volume. 60 sen is the minimum target.

KNM, no sign of wave 3. How low can wave 2 goes?

Mulpha, same as KNM, waiting for wave 3 to takeoff

RCECAP is currently in wave 3

SAAG, still waiting for its wave 3

UEM, no sign of wave 3 but a 'Doji' has formed.

In charting there is such thing called pattern failure, remember the failed 'Head and shoulders' pattern before the current run-up, before the wave 3's breakout with high volume, if wave 2 drags side way or lower for too long, the form can change into something else especially if it goes lower than (II).