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 ?"

A little bit on Baltic Dry Index

My friend just called "Why are you so sure that this current rebound in commodity is different. Just look at the chart, there were rebounds in August, September, October and November, the current December rebound is still moved within the down trend channel, no breakout, why can't it moves south in January 2009 ?" To answer him I have to talk a little bit on Baltic Dry Index (BDI). What is this BDI ? BDI issued daily by the London based Baltic Exchange is a daily averages of prices to ship raw materials. It represents the cost paid by an end user to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. It measures the demand to move raw materials and the supply of ships available to move the materials. BDI offers a realtime glimpse at global raw material demand. Unlike stock and commodity markets, BDI is totally devoid of speculative players as trading is strictly limited only to the member companies of Baltic Exchange that have actual cargo to move and that have the actual ships to move the cargo.

Look at the two charts I copied from Bloomberg. The top CRB commodity chart and the bottom BDI chart. The peak for BDI at 11,600 was in June and the peak for CRB at +30 was in July, CRB is lagging behind BDI by one month. By July the transportation rate as measured by BDI has dropped from 11,600 to 9,000 (22% drop) when commodity was at the peak and was projected to go higher. BDI can be treated as a lead indicator for economy. By early November, that was two months ago, BDI was at 790 (from 11,600), it has dropped 93%!!! But since then it has dropped only 2% from 790 to 774 before Christmas. From the chart, it was a sideway movement since November (2 months) whereas CRB (the green line) from November at -25 has continued to drop until early December to -42. Similar to the peak, CRB bottom (if it is a bottom) was lagging behind that of BDI by a month. In the last two months BDI was holding very well indicating that supply and demand of ships is almost balanced. At this point please remember one thing, the supply of cargo ship is generally very tight and inelastic. It takes 2 to 3 years to build a ship. A marginal increase in demand can push up the index very quickly, that is why it is a very good lead indicator. It is likely that BDI will move up one month ahead of CRB. Tomorrow if I have time and not lerthargic, I will try to put up a review for 2008. Happy New Year, wishing all of you a 888 2009.