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Monday, 28 November 2022

The Protest in TsingHua University Beijing

28 November 2022

"Hundreds of students protested against Covid-19 lockdowns at Beijing's Tsinghua University".  This was the headline in the Straits Times and many other global newspapers.  It happened just last week.  
Just like any other protest in China except this time,  it is much different and more sophisticated.


Doubleclick picture to go to Webpage


What's so Different?

The students were seen carrying white papers with some "inscriptions" that nobody can understand.   On the papers,  this formula was written:





What Does That Mean?

Some Twitters explained that the students were asking for 
freedom.  This is because the formula is a Friedmann formula and Friedmann sound very much like "freedom".

Doubleclick picture to go to Webpage

Are There Other Meanings?

To find out,  we would have to watch this youtube video that explains all about the Friedmann formula, how the formula was formed and what the formula was for,  etc.


Unfortunately,  the video was not for common reading and understanding until one comes to the very end of the video when this picture was flashed on the screen:



The picture shows a curve that was derived from the Friedmann formula.  The curve described how our Universe was developing over the last 13.8 billion years.  In the very early years before 47.000 years,  it was dominated by radiation,  then it was by matter from 47,000 years to 9.8 billion years, and today, after 13.8 billion years,  the Universe is dominated by Dark-Energy.

In Conclusion

It is therefore very clear that the real meaning of Tsinghua students is  that they are now living in a Dark-Energy Dominated World and they are asking for "freedom"




Monday, 10 October 2022

China Index Movement

Latest Brief:  28 October 2022: Technically, Shanghai has formed the Head and Shoulder pattern as shown and fixed the deadly Diamond shape pattern as described before.  The target price is estimated to be between 2,200 to 2,400.  As for Hang Seng,  the target price still remain at 11,000-12,000.

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Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.  

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28 Oct 2022: Head & Shoulder Pattern

Shanghai stocks lost more than 2%  and Hong Kong stocks shed more than 3.6% today.  The China markets appear not going too well with the setup of the new administration in China. 




Technically, Shanghai has formed the Head and Shoulder pattern as shown and fixed the deadly Diamond shape pattern as described before.  The target price is estimated to be between 2,200 to 2,400.  As for Hang Seng,  the target price still remain at 
11,000-12,000.  For some reasons,  both bourses are still lacking the large trading volumes that one can confirm the trading patterns.


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24 Oct 2022: Growth up Market down

China reported better-than-expected economic growth today.  Its GDP growth reported in October is 3.9% while the expected was 3.3%.   


Rightly speaking,  the Chinese markets should have jumped today but it fell instead.  Why?

The reason is that the other vital statistic has been falling more than expected.  The market players appear to be taking China's economic report as is where is.



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10 Oct 2022: Breaking the Diamond

Today is the National Day in China.  It is the 1st trading day after a long 7-day public holiday.  Usually, Chinese stocks will always do well during this time as they celebrate the new Chinese National Day.   Moreover, this year is special because they are also having the 20th National Congress ( 二十大) which is held every 5 years.   This year, Congress will not only re-elect the President but also chart the forward direction for China.

Surprisingly,  SSE,  HSI, and other Chinese stock exchanges are not doing well this time.  Most exchanges have dropped over or about 2%.    This phenomenon does not bode well with the celebration moot happening now in China.

From the Technical Analysis of the SSE chart,  we might be able to see why.    


The chart is showing us that SSE has just about to break the Diamond shape pattern except the breakdown did not have the volume confirmation at the moment.   There were also 2 preceding small diamonds, D2 & D3, pushing down for SSE to breakout from D1.  The breakout appears to be imminent.


Going forward,  we are expecting the SSE trading volume to build up if the traders are expecting the results of the 20th National Congress will not go well this year.  This is because China is presently having a  3D problem: Debts, Diseases, and Droughts.

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16 Sept 2022:  HSI Breaking Down

The HSI is showing signs of breaking down as illustrated in this weekly chart


First,  HSI broke the Head & Shoulder line (as shown in the red thin line) around Feb 2022.  This brought the index today to break the descending triangle (as shown in the red thicker lines).  If the supports @ 18,500 & 17.500 could not hold the descent,  it might head lower towards the target which is around 11,000-12,000.


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16 Sept 2022: SSEC Cup and Handle

A cup and handle pattern was also formed in SSEC as shown.

It is presently waiting for the handle forming to be completed.   For confirmation,  look out for SSEC to fall sharply with heavy trading volume when this handle is being formed just like the rest of the cup and handle patterns.


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1 Sept 2022:  HSI Cup and Handle

The cup and handle patterns are now found everywhere.  They can be found in the US,  Europe as well as in China Markets .  HSI has the real ones as shown in the following chart

From the textbook descriptions,  it would appear that HSI has some more to drop before hitting the minimum target.


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29 August 2022: About HSI

The HSI is the worst index among the 4 indexes tracked in this chart

Doubleclick picture to go to original webpage

HSI began to lose its shine since HK Riots started around the end of 2018. It has some relief when the HK new Security Laws were introduced in 2020 but this temporary relief was
quickly dampened when the Hong Kong Exodus took place around early 2021.  Since then, HSI has not seen a good week as shown in this HSI weekly chart.


Chart-wise,  we see a descending triangle in the weekly chart and HSI is approaching the apex and is about to make a breakout.   According to most Technical Analysts,  it will be time to buy Hong Kong stock if HSI breaks out and rise from this descending triangle;  otherwise,  it should be time to see HSI falls continuously until it hits the next support.   

Since the US market just had a bad time last Friday with major indexes falling about 3%, it is more likely to see HSI breaking down and falling continuously unless there is a piece of good market news, unexpectedly boosting the market sentiment.


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25 August 2022 (Update)

The tradings in China's market were muted in the morning session but rose to "squeeze" a gain of about 1% in the Shanghai Composite (SSEC) in the afternoon session. This happened after Hong Kong started trading in the afternoon after having closed in the morning due to a typhoon.


The Hong Kong stock jumped with a gain of over 3%



Morgan Stanley attributed the cause to a "short covering" by Hong Kong Traders as the amount of bearish bets against Hong Kong stocks has risen to dangerous levels.  The Hong Kong Traders could have rushed to close out their "short" positions. 


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25 August 2022

China's market fell about 2 to 4% across the board yesterday.


The market is believed to have been spoked by Huawei Chairman, Mr Ren, talking about a bleak future for Huawei.

Doubleclick the picture to read the actual news



Today, SINA (新浪财经)reported that the Chinese policymakers have in its pipeline a ¥300 billion (USD60 billion) rescue package for setting up 19 policies to stabilize the economy. This report said the Government had been trying to raise money by issuing Government bonds. The proceeds will be used mainly to finance the new infrastructure projects and not more than 50% of it will be used for capitalizing debt projects.

Doubleclick the picture to read the actual news


The Reaction in the US Market last night

The Xinhua news reported that  U.S.-listed Chinese companies traded mostly higher on Wednesday with nine of the top 10 stocks in the S&P U.S. Listed China 50 index ending the day on an upbeat note.

However,  a quick check on investing.com @ 21:00 EST found that the Futures of the Chinese and Hong Kong indexes were trading flat as seen below:-

Real-Time Stock Indices Futures (Investing.com)



Closing views

The USD 60 billion rescue package is NOT a very big sum as compared to the US's many economic rescue packages of the past.   Moreover,  the economic problem in China is quite a gigantic one.  It does not only require a large sum of money but also the support of the people and the industries.  Understandably,  the zero Covid policy and the anti-West policies have driven away much-needed foreign investments and the talents that are required to reboot the economy.

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions. 

Saturday, 8 October 2022

US Index Movements

Latest Brief:  02 Dec 2022:  The chart shows that there 6 times in the past 20 years when the DOW McClellan Summation Index fell below 1,200 and out of 6 times,  there were only 2 times when DOW did not fully recover from the fall.  We also checked the same for SPX and NDX,   the indexes for SP500 and Nasdaq.

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Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.



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02 Dec 2022: The Recovery Chances

For some,  the chances of buying cheaper stock were spooked by Powell's remark on Wednesday.  Powell signaled that Fed would slow down the pace of rate hikes from next month.   The US market went up by more than 2%, the highest in the month of November. 

Everyone is now looking forward to 14 December when Fed will announce its last rate hike of the year.     The market is presently expecting a rate hike of about 0.5 bps. They are also expecting the Fed Fund rate to peak at 4.75% -5% on March 23. This is lower than 5.0%-5.25% last month.  Fed is expected to lower the rate only by the 1st November 2023 FOMC meeting.

Searching through our charts,  we found that this chart which is telling us that the chance of DOW recovery from the recent fall is around 66%


This chart shows that there 6 times in the past 20 years when the DOW McClellan Summation Index fell below 1,200.  Out of 6 times,  there were only 2 times (dotted in red) in the year 2000 period when DOW did not fully recover from the fall.  

We also checked the same for SPX and NDX,   the indexes for SP500 and Nasdaq.  The chance of recovery is 60% for SPX and 50% for NDX,   For information,  the McClellan Summation Index is often used by traders to identify bullish or bearish bias, as well as the strength or momentum of the trend.

On the DOW chart,  we found DOW has not yet come out from the wood. It is still trapped below the Trendline TL1.  We, therefore, expect DOW to resume its descent to cover up Gap3 and test the 200MA.





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30 Nov 2022: Setting Trailing Stops

The hawkish speeches and comments from various Fed officers and the “white paper” protest in China happening on Monday were part of the cause for the DOW to drop 500 points or 1.5% on the Monday trade. 

Traders are now looking forward to Mr. Jerome Powell’s Wednesday speech in Washington.  He would speak about the U.S. economic outlook and the labor market. The traders believe Powell’s speech would set the trading tone for the rest of the year.  Also, China has been seen to have taken swift actions to cool the “white paper” protest    As a result,  DOW went flat with a 0.3% gain on the Tuesday trade. 

Although DOW's "bleeding" has stopped,  we believe it is not out of the wood yet.  We see that inflation is still stubbornly high.  Many Fed officers were calling for rate hikes to be raised to about 5% except some of them are seeing the rate hike easing off only in late 2023.   

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Further,  we see rooms in S&P and NASDAQ to absorb further falls as shown in these 2 charts.


On the DOW chart,  we saw DOW broke the trendline TL1.  Although there was no sign of a bearish candlestick pattern,  we see the long red candlestick on Monday. This is telling us that DOW is about to make its descent.    

There are Gap2 and Gap3 to be covered.  If there is steady news about Fed would stay on course to relax its rate hike,  we are likely to expect DOW to cover up Gap3,  test the 200 MA and then reverse its direction when the FOMC delivers its verdict on 14 December; otherwise,  DOW might continue its way down to test the 50 MA and cover up Gap2.

Presently,  we have set our first trailing stop at around 32,500. If we were to use Fibonacci Retracement to set the trailing stop,  we would have set it around 0.382 or 32,250 as shown in the DOW chart.




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26 Nov 2022:  Right time to enter market now?

DOW has just broken the resistance R7 and is on the way to test R8.  Now,  the most pressing question is whether it is time to enter the market.  

The market has risen all because the recent Fed minute hinted that Fed might slow down the rate hike.   As a result,  many indicators like VIX and SPXADP that we used to monitor the market are showing early signs of recovery. So is it the right time to enter the market now?




To the day-traders, they would say every day is a good trading day.  But for the long-term investors,  it might be worth the while to ask further if the market has really recovered;  if not,  when will that be?

We are aware that there is no one indicator that can give us that answer.  However,  there is an indicator that is worth-the-while for us to  take a look.  This indicator is called "Equity Premium indicator".   

This is an indicator that compares the differences in the yields between:   

a)  The Wilshire 5000 which tracks the equity market,  and ;

b)  ICE BofA BBB US Corporate Index which tracks the performance of US dollar  corporate bonds in the US domestic market.

It is plotted as shown in the following chart.    

Presently,  the chart is telling us the bond yield is much better than the equity yield.  This has caused the market players to shift their money from the stock market to buy bonds.  That will cause the stock market prices to fall.  On the other hand,  the stock market price will rise if the equity yield is better than the bond yield.


Rightly speaking,  one can always take the opportunity to enter the market once the "equity premium" started to rise.  But to be very safe,  one should wait and enter the market only when the curve of the "equity premium" crosses the zero axis.  

Chart-wise,  we see a good chance for DOW to test resistance R8.  This is provided DOW will not break below the trendline TL1;  otherwise,  we would expect DOW to fall and test R7.  It might also want to cover Gap3.






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24 Nov 2022: Pay Attention to VIX 

VIX is often referred to as a contrarian indicator.  It means when VIX is high,  there are fears and it is often a good time to enter the market.  On the contrary,  one should consider leaving the market when VIX hits a new low as illustrated in the following chart.


VIX dropped about 4.5% on Wednesday, 23rd November.  This is an extreme movement compared to the movement in the various US exchanges as shown below.



The market is quite complacent at the moment.   It is not known if the market would take a turn until VIX starts to reverse and go up again.  Nonetheless,  it is time to pay attention to the movement of VIX from now on in order to judge the market sentiment. 

The DOW chart is showing it has reached a decision point,  Breaking above R7 would mean this rally has more legs;  on the contrary, breaking TL1 would mean DOW might want to cover up Gap3.




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23 Nov 2022: ThanksGiving Week

It is the "Thanksgiving Week" in the US.  For the last 50 years, US stocks tend to do better during Thanksgiving week.  According to this Marketwatch report,  the S&P 500 has risen 49 out of 72 times during Thanksgiving week. And it rose 60 times in the Wednesday-through-Friday stretch.

On the chart,  we see DOW managed to bounce off from the trendline TL1 and hugged just below the resistance line R7.   


There may be a chance for DOW to break above R7 and proceed to make a higher high.  But the economic situation at the moment might not be in favor of that higher high movement because the US inflation has yet to show an improving sign that might excite the market players.





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20 Nov 2022: Mr. Market is Always Right

They say,  “Mr.  Market is always right” and Mr. Market is referring to the investors. If there is a way to find out what Mr. Market is thinking; then, it will help us to invest wisely in the market.    This article was described early in Sept 2018.  Then the market was about to fall.

That article was telling us that there are 2 ETFs,  XLY and XLP that we can use to judge the market sentiment.  XLY tracks Consumer Discretionary items whereas XLP tracks Consumer Staples.    When the market is good,  more investors will buy XLY because it tracks companies that are dealings with luxurious and non-essential items such as movies,  entertainment, specialty items, etc;  otherwise,  the investors will buy XLP.

Today,  we can still use the very same indicator to find out what Mr. Market is thinking but in a better and better way by using this chart.  The chart is drawn by dividing XLY prices by XLP prices.


From the chart,  we can readily see that investors will buy more XLP when the market is not looking any healthier and will buy more XLY if it is otherwise.   At present,  the chart is telling us the present market is not looking any better than before.

This was what the chart looks like during the 2008/2009 Great Recession.  It is worth the while to pay attention to the parts circled red as they can tell how Mr. Market will want to move today. 





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18 Nov 2022: The Fear of Missing Out (FOMO)

The US market started out losing about 1% or more on Thursday, 17 November 2022 but it ended the session with small losses.  


The market has earlier shown signs of distress with a "hanging man" candlestick pattern but it was nullified by better market sentiment. Since then,  the market has been going sideways as shown by this DOW chart.  

This could have been prompted by the traders' Fear of Missing Out or commonly known as FOMO.  This is especially when the market is lingering with the good news that China is easing its Covid control measures.  They are also coming out with financial packages to rescue the ailing property market.


Going ahead,  we are of the view that DOW might want to make attempts again to cover up Gap3.  It might even cover Gap2 if the market allowed the traders to do so.  It would appear that breaking above R7 could be a difficult task especially when the Fed Officers were giving so many warnings about a hawkish Fed.

 
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16 Nov 2022: A Fake Hanging man?

A hanging man pattern appeared in the DOW chart on Friday, 11 Nov 2022.  But for the next 2 trading days,  the pattern was not confirmed with a larger down-falling red candlestick as expected and as shown in the attached chart.   This was all because of the better PPI results, indicating inflation was being tamed and moving market sentiment up.    The sentiment was further boosted by the good "atmosphere" seen at the G20 meeting held in Indonesia.  As a result, USD lost its shine,  sending US yields down and this pushed the market prices up. 

For the last 2 days,  the US market prices turned flat with DOW losing only 0.48%,  Nasdaq gaining 0.36%, and S&P500 going sideways with a 0% gain.


We are now of the view that the bearish hanging man effect might have been nullified or delayed because of the better market sentiment.  This is just like what we have seen in NVIDIA's 2018 chart as shown below.  Then,  NVIDIA's price was on its way up.  It continued to climb, ignoring the effect of the hanging man until 2 weeks later. 



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12 Nov 2022: A Hanging man Candlestick 

The US markets have had a good week.  DOW rose about 4% or 1,300 points from 32,400 the Friday before to about 33,750 last Friday.  Much of the gain came from a single day on Thursday,  10 November.  On that Thursday,  DOW rose about 1,200 sparked by slowing inflation and the falling US dollar.

DOW's performance was not as good as the other indexes last Friday as shown here in this table.  It climbed only 0.10%


At the same time,  we saw DOW forming a hanging man candlestick pattern which is a bearish reversal pattern 
as shown in the chart below.  In addition,  we saw a divergence in the RSI.  The chart is now telling us that the rally might have come to an end and a larger correction could be expected.  We are awaiting a larger down-falling red candlestick to confirm this is happening.  

However,  we are hoping the better-performing Nasdaq could prevent this "hanging man" candlestick pattern from happening.



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11 Nov 2022: A Ray of Hope

"Dow pops 1,200 points, S&P 500 jumps 5% in biggest rally in two years."   This was the headline in most news media.   The US indexes jumped because of the better-than-expected US CPI reports.

It is just like a ray of hope.  It does not mean that we are out of the wood yet.  Investors are hoping that the US CPI has peaked and the market will rise from today.  But it is just too early to tell that a Lehman Brothers kind of event would not happen and if the Ukraine war plus other nasty events that can plague the global economy will end soon.
 
Chart-wise,  we see that DOW just managed to cover Gap1 and is now facing the task of breaking the resistance R7.  There is also Gap2,  Gap3 & the runaway Rgap4 to be covered up if DOW wanted to scale higher high without further hindrance.
 
(Note: Gap3 added)

As to whether it is safe to enter the market now,  it will be good to refer to this earlier article for reference.   Just a note,  there are just no 100% guaranteed ways to be safe and accurate in the prediction even if one is very skillful in charting. 

An enlarged view of the $SPXADP indicator is enclosed here for information.




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10 Nov 2022: The Next Move Forward

After 3 straight days of rally, the stock market has now taken a deep breath. But the market is really not out of the woods yet.  Inflation is still raging and Fed was unable to give any sign of pivoting.  Also,  there is no way to know if another Lehman Brothers event would happen.  It is definitely not the time to relax.

DOW lose about 2%.  So did S&P 500 & Nasdaq as shown in this table.   The VIX rose slightly which signaled the market was not in fear.  It would appear that the market was disappointed about the US Mid-term election result and now awaiting the result of today's inflation figure to chart its next move. 

 
It has been forecasted that the CPI inflation figure will drop to 7.9% y/y.


This DOW chart shown below is telling us that it has 3 candlestick gaps (gap1, 2 & RGap4) to cover.  Its movement is restricted between the 200MA and R6.  The inflation figures today would be important to decide if it should break R6 to cover Gap1 or proceed to cover Gap2 and test the 50 MA. 


Some analysts were optimistic to expect better inflation figures when they presented this chart below showing the US's M2 money supply has taken a drastic turn and this might have tamed the US's inflation.  Bearing unforeseen circumstances,  the position right now is still in favor of the move to break R6 and cover Gap1.





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04 Nov 2022: Can Fed create soft landing?

This Fed chart must have been seen by many who predicted that a recession will always follow after Fed raises its rates.

Click to enlarge the picture

The chart shows that Fed raised rates in 1998 in order to curb inflation caused by Japan Bubble.  As a result, the US economy suffered a recession around July 1990, and the recession ended in Feb 1991.   The other US recession and their details are tabulated in this table for easy reference.




We can readily see that the US recession always started after each and every Fed rate hike and always after Fed started to reduce the rates;  this is also when the 10-year minus 3-month yield curve started to rise.  Hence,  most market players are always quick to point a finger at Fed for causing the recessions.

Maybe we should ask the question about what would happen if the Fed did not take action to curb inflation and allow inflation to take its own course.  Some analysts were of the view that unemployment could spiral with the lowest earners sustaining the biggest impact.  This could cause social unrest as a result. 

Maybe Fed could "engineer" a soft landing using available tools such as QT to please everyone.  This has never been done or happened before but who knows,  Fed could create history this time.  
 

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03 Nov 2022: Fed Playing "Taichi" 

DOW closed 500 points lower on Wednesday after Powell hinted that rates might go higher.  Earlier on,  the market was of the view that the Fed may slow down the pace of tightening after reading the Fed's statement.

  • However,  there was no fear in the market as shown by the S&P 500 VIX.  VIX rose only a mere 0.19% and the DOW's trading volume was not exceptionally high.  This suggested that the market players were taking this market price drop more like a market correction.
  • Going forward,  we are expecting DOW to retest the 200 MA and if successful,  make attempts to cover up Gap1.  Before doing so,  it might even test the 50 MA if the correction is worst and deeper than expected. 
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    30 Oct 2022: Major Decision Ahead


    Dow closes 800 points higher on Friday.  This time,  it broke the 200 MA resistance and parked just above R5.  It is ready to scale higher highs if Fed and the economy allow it to do so.   It is expected the coming Fed's decision on rate hikes will make or break this rally.


    The oil & natural gas prices, and the Baltic Dry index have more or less dropped to an acceptable level.  So far, the oil price has come down by 25% from its recent peak;  natural gas by 35%, and the Baltic Dry index by 54%.  These are the "culprits" of global inflation.

    On the other hand,  the interest cost of the US debt has risen so much higher and so very fast lately.  It must have caused concerns to some of the US administrative offices.  


    The market is presently expecting Fed to be less hawkish in the coming announcement on 2 November.  If it is so,  we will expect DOW to break the last resistance R6 and make attempts to cover up gap1 as indicated in the DOW chart.


     

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    28 Oct 2022: Testing Resistances

    DOW finally managed to overcome the R2 and R3 resistances and covered up Gap 2 as shown in the attached chart.  In the attempt,  it failed to break R4.


    Going forward,  we expect DOW to continue its attempt to test R4 after which it will want to test the 200 MA.  If successful, it will test R6 and proceed to cover up Gap1 as indicated.  This view is supported by:

    a) US 10-year yield dropped by more than 10% since 24 October and the 10-year-2-year spread started to improve after hitting the all-time low of -53% on September 19;  

    b)  The oil, natural gas prices, and Baltic Dry index that are responsible for the inflation have been easing for the past weeks.    The present Fed monetary decision thus far has affected not only the economy but also the pockets of the citizens.   Presently, labor productivity (output per hour) in the US is at an all-time low as indicated in the following chart.  As a result, the market was expecting Fed to be less hawkish in the coming FOMC meeting when making the monetary decision.  Fed's coming monetary decision on 2 November will make or break the present rally.


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    25 Oct 2022: VIX Going in Tandem

    Traders must have noticed an unusual happening in the US stock market. On a rare occasion,  they witnessed VIX,  the Volatility Index, rose in tandem with the stock market as shown in the following table.


    Clearly,  there is a "disagreement" in the pricing between the stock and call/put option trading.   But is it something we should be very worried about?

    We are all aware that VIX is worked out using the pricing from the call/put options.  Usually,  VIX will move inversely to the stock market.  That is,  when the stock market is up,  the VIX will go down. 

    For information,  this "disagreement" in pricing also happened in 2018/19.  Then there was also a rate hike which peaked around the end of December 2018 for the market to bottom out.


    It would appear that this sort of "disagreement" will happen whenever the market players are not definitely clear about the market direction.  This is especially so when the rate hike announcement is just 8 days away on 2 November.  So far,  the market has known to price in the 75 bps rate hike. But what's rate hike to expect in 2023 and beyond is still a guessing work.  Just like in 2018,  the market will be expected to bottom soon if Fed were to announce a rate hike easing in 2023.


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    22 Oct 2022:  Safe to Enter the Market?

    DOW climbed 750 points and parked itself at 50 MA as shown in the attached chart. 


    The oil & natural gas prices,  Baltic Dry Index, and Gold prices are all easing except for the yield prices. Many traders might have thought the worst is almost over.  But is it so?


    One way to judge when is the best time and safe to enter the market for longer-term investment is to use the Advanced Decline chart.  In this example,  we use the S&P 500 Advanced Decline % chart as shown below.  If one plots the chart in cumulative mode,  one should be able to judge when is the best time to enter the market. This is when the Advanced Decline % line breaks up the channel as shown.   In this example,  we also see how the June-August rally failed to take off after breaking up the channel.




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    19 Oct 2022:  Timing to Enter Market

    The U.S. stock indexes rallied for a second day because of the better-than-expected earnings.  The easing news about UK Government trying to resolve the turmoil in the UK also lifted the investors’ confidence.  DOW went up by another 1.12% as shown.



    On the chart, we see DOW breaking the trendline T2 nicely for the first time since August without creating any candlestick gap.  It looks like the market players were determined to bring the DOW further up to scale higher highs.   However,   the very low fall of 2.77% in the S&P 500 VIX  does not bode well with the rising signal the market players were giving.


    Going forward,  we expect DOW to continue testing the various resistances as marked red in the above chart including covering up Gap2 on the way.   We will be watching  S&P 500 VIX carefully before verifying if the market is safe for longer investments.


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    14 Oct 2022:  Last Engulfing Bullish Reversal

    The US market was spooked during the early trading session when a slightly stronger CPI figure was released around 20:30 hrs on 13 October.  The expected CPI figure was 8.1 whereas the actual figure was 8.2.  At one stage,  DOW's losses were more than 2%.  It gradually rose to end the session almost 3% up from the last trading session on 12 October.  This enabled DOW to:

    a)  Break the resistance;
    c)  Covered up Gap4  as shown in the following chart:


    Going forward,  we expect DOW to make attempts to break the trendline T2.   It might want to retest Support1.  Serious traders thinking of entering the market again should wait until the DOW's uptrend is confirmed by the breaking up of the trendline T2. 


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    12 Oct 2022: About the US Inflation

    The runaway US inflation in recent months caused Fed to hike Fed Fund rate 5 times in the past 7 months since March 2020.   Many claimed that the rate hike this year is rising faster than any other rate hike in recent history.  So far,  DOW lost about 20% and the S&P500 lost more than 25%. 




    Lets examine the Fed's 5-Year, 5-Year Forward Inflation Expectation Rate (T5YIFR),  a chart that was claimed to be used often by Fed to judge the inflation rate in the past.

    click picture to enlarge

    From the chart,  we could see that Fed has many times introduced rate hikes whenever the T5YIFR crossed the 2% line (marked in red);  also, Fed reduced the rate when it crossed under.   

    For some reason,  Fed stopped doing this during the period between Jan 2021 and Mar 2022.  This might have caused the present inflation rate to "run away" as  illustrated in the following chart:


    Going forward,  we are expecting the US inflation rate rise to slow down  because the oil price has been easing in the last few months




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    8 Oct 2022: Good News Are Bad News


    DOW lost over 600 points or 2.11% after breaking the support1 and covering up the candlestick Gap4 as shown attached.


    This sudden decision to reverse its course was due to a good US Job report released by the US 
    Labor Department on Friday.  The Nonfarm payrolls increased by 263,000 for the month and the unemployment rate was 3.5%. The good news has now become bad news.  The market players are now speculating that Fed will be hawkish when making the next rate hike decisions in November. 

    Going forward, we are expecting DOW to make attempts trying to break up again with or without covering up the runaway gap,  RGap4.    We will be looking out for the CPI report on 13 October.  We are beginning to see that rate hikes are working to cut down inflation as long as the oil price remains steady at around the USD 90 level.


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    6 Oct 2022: Mid-Day Jump
    DOW jumped about 300 points after 3:00 pm on 5 Oct to end the session at around 30,270.  It closed the day's session with the loss reduced to only 14% as shown.


    According to a Bloomberg report, a fairly large Option Trade had caused this sudden jump and it came just when there was a report about US gasoline prices in California heading down toward the 2021 level as indicated



    Chart-wise,   we found DOW left many candlestick stick gaps uncovered. There were also many resistances and a trendline to conquer before DOW could cover Gap1 and scale higher highs.

    Going forward,  we would expect DOW to challenge Trendline T2.  failing which it will want to retest the support at 29,900 & cover Gap4.





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    30 Sept 2022:  US Inflation Dropping?

    There are signs that US inflation is dropping.  This is because crude oil price has dropped by USD40/= or 33% per barrel from USD112/= per barrel in June 2022 to about USD80/= per barrel in Sept 2022.


    As a result, Fred's
     5-year Forward Expectation rate has also dropped as shown in the following chart:


    The drop in fuel oil prices also brings down the shipping rate as we see the container shipping rate falling from China to the US.


    What's left that could drive up the inflation is the natural gas prices.  We are seeing that the US natural gas market is easing and now,  the price has also begun to fall.



    With the inauguration of the 
    Norway-Poland gas pipeline to cut dependency on Russia,  we are likely to see the European natural gas shortage be eased after this winter. 

    Going forward,  we could also expect the US's inflation to ease slightly in the near future.


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    29 Sept 2022:  Will History Repeat? 

    The US market rose almost 2% on 28 Sept 2022 after losing about 7% over the last 2 weeks.  The demanding question most would ask is where the US market would go next?

    Many traders are betting with this chart in mind


    The chart superimposes the 2008 and the present SP500 chart which supposes to say that the present take-off mimics the 2008 chart and a deep fall is expected to come very soon.

    We all know that the deep fall in 2008 was caused by the collapse of Lehman Brothers.  Then there was a subprime problem plus the banks were over-leveraged. Today,  there were no such problems.

    Nonetheless,  it is still worth the while to take extra precautions if one has decided to take the risk to enter the market.  One should always expect the unexpected at the moment.


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    27 Sept 2022:  Testing the Lows

    It is another day where we see the US markets testing their lows.  This time,  S&P500 & the DOW Small Cap just managed to touch and S&P also briefly crossed the June low.   

    All the US markets were having average trading volume as shown in the following chart.  This could mean that the market players were not too serious about breaking the major support at this time.


    Going forward,  we should expect the US markets to test and retest this June low but we should also expect the market to re-bounce from this level as the markets are in terribly over-sold states at the moment.

    This Twitter was very optimistic that a re-bounce in the US market is in the making.  His chart shows that there were 3 occasions in the past when the market has re-bounced from its lows when the present level of 152 in the McClellan Oscillation Index has been hit.

    Doubleclick chart to go to webpage


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    26 Sept 2022: Fed Induced Sell-off over?

    The market players strongly believed that the recent Fed-induced market sell-off was not over yet.   Some were expecting the market to mimic the September 2008 fall where Dow dropped another 67%% after having dropped about 29% from its peak of 14,200.

    However, all these predictions could come true only if there is a following-up event like Lehman Brothers that happened in 2008 to happen in the near future;   otherwise,  we would expect the market to fight for "survival", and keep coming back up before going down again.

    The following is a S&P 500 chart showing how the Lehman Brothers event affected the stock movement in 2008.


    During the sell-off in 2008, the market always re-bounced whenever the % of stocks above 50 DMA hit the 20% mark.  It only failed to re-bounce when the Lehman Brothers event erupted in September 2008.

    The Lehman Brothers event happened because there was a subprime crisis going on with most US banks having very high bank leverage ratios.    Then Lehman Brothers was having a leverage ratio of 30 to 1. Merrill Lynch was at 26.9 to 1.  

    A bank leverage ratio is one that measures the ratio of banks' assets to owners' equity.  A good & healthy bank should have a leverage ratio of around 10-15. Today,  the US major banks are all within or above this healthy level.

    Now let's examine the same chart for the period in 2022.  We are again having the % of stocks above 50 DMA hitting the 20% mark


    Therefore,  unless we have a similar or larger event than Lehman Brothers happening today,  it is only reasonable to expect that the market will fight 
    for "survival" & keep coming back up before going down again.  It will not drop drastically like in 2008 in a matter of a few weeks.

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    24 Sept 2022: One Down 3 to Go

    DOW broke the support line last night as shown in the following chart while the other 3 major indexes in the US market are still hanging around, undecided.  The trading volumes were low for all the US trading markets.  That signifies the DOW's breaking of the support line might not a significant issue and the US might still have a chance of recovery unless all the other 3 major indexes are also showing the sign of stress.

     


    But on the other hand,  the market players at the options table were not so optimistic.  Bloomberg reported that "there were more than 33 million bearish contracts changing hands,  the busiest session since 1992."

    Chart-wise,  DOW has unfinished 3 unfinished candlestick gaps to cover as shown in the following chart.  It has also a runaway gap,  Rgap4. which was created on 9 Nov 2020,  the day when Pfizer/Biotech announced that their vaccine was more than 90% effective. 


    In view of the above, the market could have the following options

    1)  Go back and finish up the unfinished business of covering up the 3 candlestick gaps;
    2)  Proceed to cover up the Rcap4,  then go for option 1;
    3)  Cover up Rcap4 and proceed to go further down.

    As the market is presently heavily oversold with the % stock above 50-day (DOWA50R) hitting the limit as shown in the following chart plus the breakdown of the DOW's support line is not a significant one volumetrically, it is only reasonable to assume that DOW will make attempt to test & challenge the support1 with or without covering Rcap4.


    21 Sept 2022:  S&P Leftover Gap Covered

    With the help of the Fed's 75 BSP rate hike,  S&P 500 managed to cover up the leftover candlestick gap1 as shown.   



    As there are leftover Gap2 & Gap3 to be covered,  the options for S&P 500 will therefore be as follows:

    1)  Going back to cover Gap2 & Gap3 before deciding what to do next;

    2)  Continue the descent to test Support1 before hitting the target1 3,580; (see note1)

    As Fed has just raised the Fed Fund rate,  it is very likely the traders will go for this option2 because no one can ascertain how the new rate will affect businesses and the economy.   Moreover,  S&P has also broken the trendline TL which is the low part of a symmetrical triangle pattern tracing back all the way to 2020 as shown in the following chart


    Note1: target1 is the target price projected from a Head and Shoulder pattern occurring earlier.

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    20 Sept 2022: Unfinished Business

    The US market did not finish and complete the covering up of the candlestick in S&P 500 as shown in this chart



    It is expected that the US market will want this candlestick gap covered.  The market might want to test the support @ 3,764 before deciding what to do next. 


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    19 Sept 2022: Preparing for FOMC

    FOMC members met yesterday and their result announcement will be on Wednesday,  21 Sept 2022 at around 2:00 pm EST.  

    The US market will usually react strongly,  sometimes,  violently to the FOMC announcement.   It is always good to know what to expect beforehand.

    There were market rumors that Fed always refers also to the following chart when making their decision.  

    Doubleclick chart to go to Fred Webpage


    The above chart shows the "5-Year, 5-Year Forward Inflation Expectation Rate".  

    The chart shows that the 5-year rate went up from a low of 1.92% on 20 Jan 2022 and peaked at around 2.67 on 21 Apr 2022.  The rate went down to 2.22% but went up again when Fed made its 75psb rate hike on 16 Jun 2022.  The 5-year rate stayed stubbornly high after that until 30 August 2022.  It is now @ 2.24%.

    For the last 4 Fed rate hikes as marked in red line,  we can see

    a)  The 5-year rate was either climbing higher or very high on the very day when Fed made its announcement;

    b)  The present-day 5-year rate of 2.24% is not only one of the lowest but also on its way down from the peak.

    With the above in view,  one would expect that the Fed might be a little less hawkish when making the rate decision this time round;  moreover, the crude oil price was down by 10% since the last Fed rate hike on 27 July 2022.

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    16 Sept 2022:  Leftover Gap closed

    This leftover gap named "Gap 2" was covered and closed.  In doing so, it has created more candlestick gap 6 as shown.  Gap 5 was created because the inflation rate report showed prices rose more than expected last month.  Gap 6 was formed when there was a warning from FedEx saying that "the macroeconomic trends have "significantly worsened."  As these 2 candlestick gaps are created due to market fears,  they are not run-away gaps, therefore,  they would be covered up sooner than later when the fear is subdued.


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    13 Sept 2022: Surprising Inflation

    The U.S. market was surprised to see a stubbornly high inflation reading in August. They were hoping for a lower inflation figure due to lower oil prices etc. 

    The market players are now expecting another historic & super-sized interest rate hike to come when Federal Reserve policymakers meet next week.   As a result,  DOW lost a total of 1,278 points,  the 10th lowest since January 2011 in terms of % losses.



    Chart-wise,  we saw DOW created yet another candlestick gap,  Gap No 5, after ending the session just below the last low of 32.148 on Sept 6, 2022.  

    Unless there are surprising market movements,  we should expect the market players would take the opportunity to cover up Gap2 just before the coming FOMC meeting on Sept 21, 2022.



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    11 Sept 2022:  Market Always Rises After Inflation Peaked 

    For some reason,  the US market has a habit of rallying after every inflation peak of more than 5% for the past 50 years.  This is illustrated in the following chart.

    Doubleclick for enlarged picture


    It is very likely that this phenomenon will repeat again and again until we are no more in the secular bull market.  The reason could be because Fed would always remove the monetary tightening once the inflation is abated.  Whether the market will rally after that will depend much on other factors that had also threatened the economy.  



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    9 Sept 2022:  To buy or not to buy? 

    DOW was losing about 8.8% or about 3,000 points from a high of 34,152 on 16 August to a low of 31,148 on 6 September.  It then rose about 3.2% to the present level of 32,151 on 9 September 2022.

    There was no particular news about why there should a rally at this time when Fed said it was determined to fight US inflation by further tightening the monetary policy.  Some Analysts thought it was just a short covering because the market has hit the sensitive lower limits of 50-day and 200- day moving average markers as shown arrowed red in the attached chart. 


    As to whether it is the right time to enter the market will depend much on the risk appetite of investors at the moment.  This is because:

    a)  The Fed has an unfinished monetary tightening to carry out to tame inflation;
    b)  There is still a leftover candlestick gap (Gap 2) yet to be covered as shown in the earlier charts
    c)  Except for the lower oil prices,  there isn't much good economic news that could excite the market.

    For those Long Term Investors sitting on the fence,  it might be worth the while to wait until the market has given a clear buying signal. 


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    Sept 2022:  Expect the Unexpected

    This term,  "Expect the Unexpected" has been used all the time.  Many did not expect the "Lehman Brothers Event" to happen in August/September 2008.  People are not also expecting the "Coronavirus event" to happen in February 2020.  There were signs before these event happened but many of us ignored them completely.

    As an investor,  we must always be ready for the worst-case scenario.  Sometimes,  Charts can help us identify this kind of event.  One of them is as shown.  

    The chart, drawn in log scale, used channel lines to show clearly the 2 unexpected events,  namely the Lehman Brothers and the Coronavirus events.  


    If history could be of any guide,  we should expect another event to happen if the SPX were to break the "middle" channel line.  This event or events might happen especially because we are now in an "irrationally exuberant" global economy with asset values unduly escalated in many places of the World.

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    31 August 2022: The "Saga" Continues

    The last Friday's "Jackson Hole" Terror continues to plunge the US stock market in the last few days.   DOW has lost about 4%,  breaking the "support 4"  as shown in this chart.   Should it break "support 5",  DOW should be able to cover "Gap 2" before making any further decision.

    September month is usually a bad trading month in the US.  Investopedia said, "Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%, while the S&P 500 has averaged a 0.5% decline during the month of September".    The next FOMC is about 20 days to go on 21 September,  we might be able to see a lot of market actions before that very date.





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    26 August 2022: "Jackson Hole" Terror

    DOW lost 1,008 or more than 3% at the end of Friday,  26 August.  It is the highest loss since February 05,2018 when DOW lost a total of more than 1,175 or about 4.6%.   Then,  there were fears about the rising interest rate and also fear about the economic downturn caused by the Fed's QT which just started in the fall of 2017.  This sounds exactly like what happened nowadays.   

    The present market fall was caused by Fed's Chair,  Mr.  Powell who delivered a very hawkish speech at the Jackson Hole conference.

    Chart-wise,  DOW broke 2 supports,  support 2&3,  at one go.  Judging from the market sentiment,  DOW is now looking more determined to proceed and cover up Gap2 as shown.


    Just a little note:  DOW might take some time to cover the gap.  The last time happened in 2017/18,  it took more than 1 year to cover the leftover gap.  


    Afternote: That gap on 11 September 2017 appears to be a "runaway" gap because that was the day in US history when Congress approved the food stamp.   The Gap2 as shown in the above chart was more caused by market speculation after a stretch of down-days plus easing fear about the rate hikes.  Therefore,  it is likely not a runaway gap and might be covered sooner than before.

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    25 August 2022: "Jackson Hole" Hope

    The US market players were excited when they knew the U.S. Federal Reserve Chair Jerome Powell would deliver his Jackson Hole speech on the economic outlook tomorrow, Friday,  26 August 2022.  

    DOW jumped about 1% or over 300 points to "park the price" right at 33,200,  which is the support1-turned-resistance as shown.  SP500 & Nasdaq also jumped. 


    The market is now "all ready" to cover up Gap 3;  however, 
    analysts at RBC Capital Markets said there was a sign for the U.S. stocks to head for another "blowup".   CNBC was skeptical by adding that  the Fed watchers were not expecting much from the Fed chairman.



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    23 August 2022: Starting to descent

    DOW started its descent with a "bang" of more than 600 points yesterday after breaking the red trendline. It has also broken the Support1 which was not marked earlier.  In addition,  it has created a new candlestick Gap3 as shown.  

    With the creation of Gap3,  the following options become available:

    1.  Cover up Gap 3 immediately;

    2.  Cover up Gap 1 before covering Gap 3;

    3.  Proceed to cover up Gap1, and test the other supports to cover Gap2 before coming back up to cover Gap 3;.

    From the observations of the other trending charts,  it would appear that the traders were creating Gap3 for the purpose of returning back after having covered Gap2. Also, if they wanted to cover Gap3,  they would have already done so during the trading session.  

    The observations also support option 3 to be a likely trading option at the moment unless another incident like the "2008 Lehman Brothers" event were to happen again.





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    20 August 2022:  About to descent

    The US stock has reached the overbought region and is ready to make a descent.  The descent will start as soon as DOW breaks the red trend line as shown.   Thereafter, it will try to cover gap 1 and test the support @32,387 as shown.  



    Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions. 

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