A Step That Both Bulls and Bears Must Take Forward.

2007/7/18 15:47:50

A few days ago, this ID wrote "A Step That Both Bulls and Bears Must Take Back.," and today I must write "A Step That Both Bulls and Bears Must Take Forward." This advance and retreat perfectly illustrate the difficulty of the road this ID has been describing. And today's market action was the best demonstration of the current bull-bear battle.

Thanks to the bulls' repeated efforts, yesterday produced a MACD golden cross on the daily chart, making today's breakout inevitable. Now, let this ID switch perspectives — if this ID were the bears, the simplest way to block the bulls' advance would be to first give way a step, using the psychological barriers of 4,000 points and the 60-day moving average. Through oscillation, destroy the daily MACD golden cross signal, ultimately turning the golden cross into a death cross. If this ID were the bears, this is exactly what I would do. Otherwise, stubbornly pressing down below the 3,919-point neckline during a technically bullish golden cross would only make the bulls happy. The worst thing for the bears is to lose pressing chips at low levels when technicals have turned bullish.

From this ID's bullish stance, failing to use the technical golden cross signal to attempt a neckline breakout would mean all the previous oscillation was for nothing. Therefore, the breakout was essential — whether it proves valid is another matter; break through first and deal with it later. Once through, the bulls need to test back to the 3,919-point neckline for confirmation, while the bears need to strike and create a false breakout. Therefore, the afternoon pullback was something both bulls and bears were happy to see. Attentive investors must have noticed that the afternoon pullback's lowest point was exactly at the 3,919 that this ID has repeatedly emphasized for N weeks.

Now, for the short-term trend, the news environment has decisive significance. Technically, the neckline breakout requires three days of pullback confirmation, and the last two days of this week plus the first day of next week happen to be the period of maximum turbulence on the news front. Technicals and news collide perfectly here.

Although this ID stands on the bull side for strategic deployment and tactical arrangements, this ID has naturally analyzed every bearish trick inside and out. From a broader perspective, this ID can also analyze the best strategy available to the bears: they too are building a triangle, but their triangle differs from the one being built by the bulls this ID represents. For this ID, we are in the fourth segment of the triangle, while for the bears, they are in the third segment of their triangle. This battle between the third and fourth segments will constitute the biggest technical divergence going forward. The bulls' triangle is meant to eventually break upward, while the bears' is meant to break downward.

Today was a perfect chart drawn by the combined forces of both bulls and bears. Starting tomorrow, this consensus will be shattered, and the critical factor will be the coordination from the news front. Regarding individual stocks, today's component stock rotation saw new developments, but sentiment hasn't been fully ignited yet. In many stocks, participants are taking a wait-and-see approach, and some are even using this as an opportunity to flee — all perfectly normal. When the heavens are battling with no clear result, those below can only do just that. Once the battle in the heavens produces a winner, those on the ground will naturally find their direction. The capital of major players and market makers also operates across different levels.

For retail investors, this ID has already made it very clear: until there is a solid hold above the 1/2 line currently at 4,159 points, treat everything as a range-bound market. According to your own operating level, sell on top divergence and buy on bottom divergence — this way you won't get slapped on both sides.

Got things to do, signing off, goodbye.