Performance of Asia Pacific Bourses

In 2008 when Dow fell, all the Asia Pacific Bourses fell in tandem with the Dow. However when Dow was approaching its November 2008 low, some of the Asia Pacific Bourses behaved differently. At this current last phase of Dow down south, more divergences were observed. Among the Asian Pacific Bourses, Australia and Taiwan Bourses followed Dow closely as shown below. All set a low in November. Australia seemed to be the weakest, it has been hanging around its November low lately. Taiwan seemed to be moving away from the Dow in February, it has decided to follow China instead of the US.

Malaysia, Singapore and Korea markets have shown a stronger undertone than the abovementioned three markets. When Dow set a new low in November that was much lower than its October low, these three markets merely touched their respective October lows to form double bottoms as shown below.

The strongest market was China market, followed by Hong Kong and Japan. Infact all these three markets seemed to have decoupled from the US in November. When Dow set a November low that was lower than its October low, these three markets have their November lows higher than their October lows.

For China's Shanghai market, it appears that the Major Wave A has ended in October 2008. The Major rebound Wave B has started while the Dow is trying to finish its last down phase of wave 5 of major wave A. The Korean Market is about to break its January height of 1228, if it can break it within the next few days, Korean market will be the second Asia Pacific Market to move ahead of the US and I believe the rest will follow. It means for the Asia Pacific markets except Australia will decouple from the US market. It also means Dow may struggle in a side-way market for the next 5 years, the Asian market, led by China can reach new heights. If money doesn't flow to US, most likely it will flow to China, Korea, Hong Kong, Singapore................... and may be a little bit to Malaysia.

What is "On-balance Volume" (OBV)

It is a volume based indicator developed by Joseph E. Granville to detect whether a financial instrument (stock, commodity, bond...) is being accumulated or being distributed. The computation is simple, "On a day when the stock closes higher (buyer dominating - accumulation), its total daily volume is added to a cumulative total. when the stock closes lower (seller dominating - distributing), its total daily volume is subtracted from the cumulative total. The accumulated volume is termed as On-Balance Volume.

I adopted the same concept to monitor the stock market in general to detect whether the current market is under distribution or under accumulation. The following charts are my own daily charts for Dow and the corresponding OBV plot from 1st June 2007 to 31st December 2007. It covers Dow's peak of 14,164 set on 9th October 2007.

OBV peak was set on 13th July 2007 at 34,713 when Dow was 13,907. OBV peak was set three months ahead of Dow's peak on 9th October 2007. During these three months stocks were being distributed as indicated by the declining OBV. On 9th October 2007 when Dow set a historical height, OBV was at a much lower level at 32,524. OBV has given out a sell signal as the big boys were distributing out their holdings. By now we know what has happened after that, Dow dropped from 14,164 (9th October 2007) to 7,552 (20th November 2007) within 13 months. OBV declined in a similar way and set a low of 17,721 on the same day as shown by the two charts below. (From 1st July 2008 to 30th January 2009, it covers Dow's low of 7,552 0n 20th November 2008)


Since 20th November 2007, Dow in general was moving within a range of 8,000 to 9,000 whereas OBV was moving in an uptrend consistantly indicating persistant accumulation of stocks by the big boys. Last Friday when Dow closed at 8,000 the corresponding OBV was at 26,385 which is much higher than the 17,721 low. In fact the last Wednesday OBV peak of 27,584 ( when Dow = 8,375) nearly broke the intermediate OBV height of 27,841 on 8th September 2008 ( when Dow= 11,510). OBV is giving a Buy signal. The current bearish sub-wave 5 of Major Wave A down south that may last until middle of March 2009 (as mentioned in my previous post) can be the last chance to pick up stocks at low price during panic selling. The next questions are "which sector ?", " which stock ?", "how low is low?", "what is the down side risk?". Since I am talking about OBV, one of the criteria must be 'stock with strong OBV'.

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.