New Funds Can't Fight Reckless Secondary Offerings

2008/2/25 15:23:55

As the saying goes, nothing works more than three times. Even for the regulators, using the same trick three times in a row will stop getting respect from the market. Moreover, the market might even think: launching new funds consecutively without stopping reckless secondary offerings — are they trying to make the new funds help complete the reckless offerings? Once the market gets this idea, even if new funds have the best intentions, they'll only be seen as having terrible hearts. Therefore, today's market responding to the regulators' care with a new low is perfectly fitting.

Today's price action gave those policy-worshippers a good lesson. Policy has never been omnipotent — any policy is merely one component force of the market. What ultimately determines the market is the resultant force. And all resultant forces are written in the price action. So today's market, as expected, eliminated the third scenario analyzed last week. Going forward, it's about how the second scenario evolves — this is also what we've repeatedly emphasized as the most likely outcome.

Note: selling always happens during upward moves, meaning always during green candles. When the green candles first appeared last time, this ID already said clearly — if the upward thrust lacks power, you must exit first. So at 4695 points, even if you couldn't identify the 5-minute consolidation divergence, which also contained a 1-minute consolidation divergence interval nesting, the Pudong Development Bank news alone should have been enough to make you leave. As for those asking whether it's too late to exit when red candles appear — they'll never understand what rhythm means. If you don't understand rhythm, then continue being toyed with by the market.

Today's short-term price action is a textbook example. Right at the open, it broke below last week's 1-minute hub. That hub could only trace back to the last of three quasi-hub-type declines — super weak. So breaking below wasn't surprising at all. Then this morning's biggest rebound formed a third-type sell point, followed by continued decline. The afternoon rebound completed the construction of the second 1-minute hub. Therefore, the move down from 4695 is definitely at least a 1-minute level decline.

The short-term opportunity will come from the rebound that forms a 5-minute hub after this 1-minute decline shows divergence. Of course, how strong this rebound will be depends on subsequent fundamental conditions. The worst case is that this rebound ends within the range of today's 1-minute hub, then forms the first hub of a 5-minute decline. If this happens, the subsequent decline will be even more violent.

Of course, various factors are now intertwined. On the policy side, after today's embarrassing day, whether there will be new actions is a very important factor determining the final shape. Actually, the biggest positive right now isn't stamp duty — it's regulating the reckless secondary offerings. That's the instant morale-stabilizing move. Even if stamp duty cuts come, would the saved stamp duty just go straight to offerings for Ping An and their ilk?

Now, close attention must be paid to individual stocks. Making money depends on individual stocks, not the index. Watch those stocks that are using this opportunity to shake out weak hands and aggressively accumulate — the technically safest are those that are some distance from their previous highs, have recently held firm, and maintain consistent trading volume. New-high stocks risk bull traps, but these stocks sitting at lower levels with obvious accumulation signs — even if they dip further, it's just a shakeout, a perfect buying opportunity. Of course, stocks that truly hold at new highs, as long as they haven't been wildly speculated before, all have speculative value.

But you must note that bottoms aren't formed in one day — there will inevitably be back-and-forth churning. Therefore, in operations you must grasp the rhythm. Reduce your cost basis during the bottom oscillation, and once the move truly launches and stocks just start rising, your cost is already 30% lower. Isn't that the most wonderful thing?

Signing off, see you later.