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N.B. Above Chart is abstracted from
NextView Program
Last week we said that, "Last Friday closing had certainly
make Investors very nervous. The development on the retail bank IndyMac that
was shut down by regulators, the news as to whether Treasury and Federal
Reserve will come to rescue the near collapse Fannie Mae and Freddie Mac.,
the tension on development between Iran and Israel, the surging on Crude Oil
prices, the testimony of Fed Chairman on Tuesday, and the earning reports
from some major banks will definitely create the volatility to the market.
Will the market collapse by then? Or will the market have a final flushing
down and make its bottom? It is certainly a billion dollar question and that
no one can give a definite answer. However, I believe the market is likely
to have a big sell off climax and that a near term bottom may be formed. As
to whether it will eventually turn out to be the bottom for the next Bull
run is yet to be confirmed. For I think, after fighting so hard to rescue
Bear Stearns, the financial sectors and the economy, the Fed and Treasury
have no choice but to continue fighting on, which mean they are likely to
come out with a plan to rescue the fails Fannie and Freddie, which will then
create a similar rally in March when Fed stepped in to rescue Bear Stearns.
Plus the fact that market is very oversold, any good news will likely spark
a big rally. The key support for Dow Jones Industrial is at 10800- 10700
range and for the Bulls to have a chance for a run, this level should not be
broken. As such, I would expect a test in this level in the early part of
the week before a bottom is formed and kick start a rally that will last for
multi weeks." True enough, USA Treasury and Fed had come out a plan to save
Fannie and Freddie. And as per our expectation Dow went down to a low of
10827 last Tuesday and started a strong rebound from there. We were exactly
to the dot! We also said that, "As for STI, I do not foresee a serious sell down in the market,
if Dow Jones Industrial is going for a sharp drop on Monday to 10800- 10700
level, then STI is likely to just test the support at 2850 level. However,
if the Dow takes a few days to reach 10800- 10700 level, then STI may
eventually test the March'08 low at 2745." Again, we were right to the dot!
As there was no slow selling down on Dow Jones Industrial, STI only managed
to drop till 2820 and started its rebound. So, with the strong rebound on
USA market over past three days, is the bottom formed? What will STI react
to USA rebound, will it start rally from here?
Last week was the first week
positive closing after a 7 consecutive negative weekly closing in Dow Jones
Industrial. This may or may not be a bottom before another bull run, but its
magnitude had certainly convinced us that at least a technical rebound is on
the card. At this junction, we believe Dow is either completed its short
term bottom and is now heading towards the next target at 12000 OR is
completing a very short term rebound which may then follow another big sell
off to below 10800 before calling a bottom. If first scenario is correct,
than any pull back correction on Dow Jones in the near term should not drop
below 11200. On the other hand if Dow pull back and drop below 11200, then a
new low may be seen before a near term bottom is formed. Expect global
market and Dow Jones to continue their positive run on Monday, but come
Tuesday some forms of correction may kick in. The severity of the correction
will then help us to identify the correct short term wave count as per the
above explanation. Perhaps the string of important corporate results will
help us in our near term wave counts. As for STI, I expect some rally early
next week to challenge the 2900 level, only a strong break above this level
will lead the index to test the 3050 level. Of course, it will have to
mirror closely with the Dow and by then we could expect Dow to test the
11670 level. If you had read my commentary last week, I had told you to turn
long for short term investment. If you had done so, I believe you could see
some profit by next week, which you may want to take some profit (at least
50%) when index is near 2900. As for medium term investors, you could either
continue to stay sideline and wait for the USA market to signal its
bottom or start to accumulate China related stocks ahead of the Olympic. If you are my customers, I shall inform you as soon as I think the
bottom is confirmed.
The following are the support and
resistance to watch for Dow Jones, Hang Seng and Nikkei next week.
Dow Jones Hang Seng
Nikkei
Resistance 11650
22100 13165
Support 11400
21000 12670
As for STI the resistances and supports
are as follow:
Resistance: 2850, 2947, 3030, 3080, 3100
Support:
2820, 2780, 2745, 2700
Events To watch For The
Coming Week:
- The movement in Dow Jones
Industry and NASDAQ..
- The movement in
currencies, oil and
commodities price plus tension from Iran and Israel.
- The
economic data, Monday Leading indicators, Wednesday the Beige book,
Thursday Existing home sales, Friday New home sales and Consumer
sentiment.
-
The continue of major report earnings. Monday Bank of America, American
Express, Apple and Texas Instrument, Tuesday Yahoo, Wachovia Corp,
Caterpillar, Dupont. Wednesday AT&T, Boeing, McDonald's, Pfizer, Amazon.
Thursday 3M, Eli Lilly.
The following are two
possible wave counts on STI as at to-date:
- Preferred Count (60% probability)-- bullish count
My preferred count calling for a
top at 2502 (on 7/1/2000) as wave ((1)), it then follow by a two year
sell off on wave ((2)) to 1197 (on 28/9/2001). The index had then entered
into an impulsive wave ((3)) that ended at 3906. We are now in the
development of wave ((4)), of which we expect it to be a big triangle
formation that take about one to two years to complete. The recent sell
down is the first leg of wave ((4)), which will take a form of a-b-c and
reaches the potential target of 2770, as the wave (a) of ((4)). The
index will then continue to develop the (a)-(b)-(c)-(d)-(e) triangle
formation.
- Alternate Count (40% probability)--
bearish count
My alternate count calling
for a top at 2502 (on 7/1/2000) as wave ((1)), it then follow by a two
year sell off on wave ((2)) to 1197 (on 28/9/2001). The index had then entered
into an impulsive wave ((3)) that ended at 2666 in May 2006. The index had
then entered into wave ((5)) that ended on 3906 in October'07. We are
now in the downtrend bear market, which will last for a few years!
Although this count remains as the least chance as compare to my
preferred count. If the index breaks below 2776 convincingly on very
high volume, the odd on bear market will significantly increase.
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