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N.B. Above Chart is abstracted from
NextView Program
Last week we said that, "Well last Thursday big sell down in
USA market had certainly done some big damage to the market. The market has
finally realized that real economy may still in recession despite a rosy
rally in financial market. This will likely lead to a convergence between
the financial and real economy in the next few months. What I am saying is
financial market will likely undergoing some correction while waiting for
the real economy to pick up. As such we believe DJIA will continue to
correct downward. A break below 8200 will confirm the down slide towards the
initial target of 7600. This may happen very fast, especially if there are
some profit warning prior to the corporate results announcement in two weeks
time. As such, we believe DJIA may stay at current level for one day or so,
before another big sell off emerge. For next week
economic data, we have on Monday ISM services, Wednesday Consumer Credit,
Thursday Jobless Claims, Friday Trade Balance and Consumer Sentiment. Among
all the data, perhaps Jobless Claims and Consumer Sentiment are the more
important one. In any case, current situation is now favoring sell on any
possible bad news, which is likely to happen especially when the corporate
results announcement is just right at the corner. For DJIA if it breaks
below 8200, it will drop quickly to 7800 before reaching 7600 level." Well,
DJIA did drop down as per our expectation, except it did not go into big
plunge after breaking the important support at 8200 level. We also said
that, "As for STI, the gap created at 2320 may be filled. However, if it
breaks below 2280 then it may continue to drop till 2200 support. A break
below 2200 will likely lead the index to the next main support at 1960." STI
did drop in the early part of the week, but make a reverse up after hitting
below 2280. It had even close the gap at 2314 last Friday. So, what could
happen next week giving that DJIA is still below 8200 and STI had just
covered the gap at 2314? Will the markets get sell down from here OR will
the rebound continue?
Well the markets appear to be on a
"stair step" falling down since one month ago. The characteristic of the
downward movement behave more like going down a staircase, ie. we have a big
drop, follow by a quick spike up then a sideway trading for a few days
before the next drop appears. We expect such movement to continue over the
next few weeks. As a whole the market should continue to trend downward but
unless you can time the entry very well, you may get stop out on either side
of the trade, so a careful entry level couple with smaller size will be the
key for successful trading during this period of time. While we do not
completely rule out a possible of another rebound from here before DJIA
breaks its psychological 8000 level, there is a good chance market may be
poised for a big drop next week. A drop below 8,000 for DJIA may cause a big
sell off next week. However, if the rebound does continue, DJIA will
probably cap at 8350 before the next sell off emerge. As such, if DJIA
breaks below 8,000 next week, we can assume market has started another wave
down. On the other hand, if it continues to hold above 8,100 early next
week, there still have a possibility of stronger rebound before the next big
sell off. For next week
economic data, we have on Tuesday the Retail Sales and Wednesday CPI. These
are the data that are likely to move the market. We also have some important
corporate results to be announced next week. Namely JP Morgan (Wednesday),
Intel (Thursday) and other banks like Goldman Sachs, Gank of America and
Citigroup, which again are the usual market mover in the past. We also have more
and more corporate results coming in over the next
few weeks, which will make the market even more volatile. Some profit
warning events may also trigger the next big sell off. As such a close
monitoring is required over the next two weeks. As for STI, the gap created
at 2314 had finally covered last week, and it did close lower after closing
the gap. This has suggested that STI may continue to drop in the early part
of next week. However, STI needs to drop below 2295 before any big sellers
emerge. As such, this could be the critical chart point to watch. A break
below 2200 will likely see STI going down to test the 2050-1960 major
support level. As such, we remain short since four weeks ago when STI broke below
2350 and kept our stop loss just above STI high at 2424. If STI breaks below
2200 we will add more short positions. As for mid term
customers, I would assume you have squared all your positions by now. You
may also try to add more short positions when STI breaks below 2200.
The following are the support and
resistance to watch for Dow Jones, Hang Seng and Nikkei next week.
Dow Jones Hang Seng
Nikkei
Resistance 8275
17850 9420
Support 8093
17500 9265
As for STI the resistances and supports
are as follow:
Resistance: 2320, 2350, 2371, 2424, 2465, 2500
Support:
2270, 2200, 2150, 2100, 2050, 1960
Events To watch For The
Coming Week:
- The movement in Dow Jones
Industry and NASDAQ..
- The
movement in currencies, bond, oil and commodities price.
-
The corporate result announcement from JP Morgan (Wednesday), Intel
(Thursday) and other banks like Goldman Sachs, Gank of America and
Citigroup.
-
The economic data include Tuesday the Retail Sales and Wednesday CPI.
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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