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A Rate Hike Worth Applauding

2007/8/22 8:37:19

Originally, I didn't intend to say anything about yesterday's announced rate hike because there really isn't much to say. The regulators are simply doing what they should do, and investors watch the market's reaction and react accordingly—no prediction or guessing needed. Any commentary is merely bluster, advertising from the standpoint of one's own self-interest. The reason for writing now is purely to stand from a non-market perspective and record a note for a rate hike worth applauding.

This rate hike was clearly very well-timed. Of course, those who oppose rate hikes won't see it that way. Their argument amounts to: the Americans are about to cut rates, so who is China to raise rates? This is the quintessential water-on-the-brain thinking. Maintaining a rate differential between China and the US is merely one possible state of existence; not maintaining a rate differential is equally a possible state of existence. Moreover, this ID is most disgusted by any broken logic that says because America did something, China must follow suit. America also had 9/11—why don't you go along with that too? Rust in the brain?

Of course, this doesn't mean the regulators have abandoned their basic stance of maintaining a Sino-US rate differential. But this rate hike is at minimum a completely self-directed action, giving the regulatory approach its own character—and that's a good thing. Furthermore, if a hike was coming, now is the best possible timing: during the moment when the world's reaction to America's mess is catching a brief breather, the effect is obviously optimal. This time, this ID gives the regulators a perfect 100.

Of course, for those in the market, this rate hike may seem to carry a tinge of macro control, especially since just yesterday the pilot for individuals to buy overseas stocks was announced, and today comes a rate hike. And with 5,000 points looming, the timing obviously has a combination-punch flavor. This is both right and wrong. Why? Although the ideal state is less intervention and more supervision, reality is what it is—intervention is still a natural reflex. One must face reality, and if a high level of intervention artistry can be achieved, then it becomes something to appreciate.

Obviously, this combination punch is very well-calibrated in both magnitude and timing—right on the edge of ambiguity. The art of macro control is about making the market generate divergent expectations rather than unified ones. This kind of control is the most masterful. Of course, one can't guarantee that future interventions will always reach this level, but at least for now they have, so this ID awards the regulators another 100 points.

This round of intervention will produce different interpretations and expectations from the market. As a result, market forces won't become one-sidedly unanimous, allowing the market to undergo a period of adjustment and ultimately choose its own direction.

Currently, technical conditions haven't changed at all. On the daily chart, the divergence segment is still in place, awaiting final confirmation or negation. Short-term, the 30-minute hub oscillation continues. Ultra-short-term, the oscillation of the latest 5-minute hub continues. Based on these technical boundaries and one's own operational level, it's not difficult to choose one's operations based on real-time price action.

For those who haven't mastered the technical studies, just watch the 5-day and 5-week moving averages. Don't be swayed by market news—only watch the market's ultimate reaction. This is a most basic quality.

As for today's price action, it's simply one of three scenarios—strong, medium, or weak:

One: Opens flat or gaps up directly, doesn't fill yesterday's gap, continues to attack upward. If this scenario unfolds, it proves the market has chosen this as its collective force—just continue watching. However, in this state, one must closely monitor for additional combination punches. If more come, pay attention to the resonance between the 2/3 line and fundamentals.

Two: Fills yesterday's gap then oscillates around that area. This is a balanced state, requiring observation of subsequent fundamental changes to determine the breakout direction.

Three: Gaps down directly, forming an island reversal. This is the most hostile pattern—short-term pressure is heavy, and at minimum, the hub of 8-17 needs to be retested.

Actually, these classification boundaries require no prediction—let the market choose for itself, and react based on the market's choice. Also, always pay attention to your own operational level. If you're operating on the monthly level, then watch the 5-month moving average—as long as it hasn't been effectively broken, you can largely sit back and watch any fluctuation as if it were a show.

Additionally, the unfolding situation with America's mess, and its continuation after the expected rebound, is an important force determining future price action. This factor has been repeatedly discussed before. It may be more fundamental than rate hikes or combination punches, because ultimately the regulators' rate hikes and combination punches must take this into consideration and respond holistically.