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2008 Market Outlook

2007/12/20 15:59:05

Year-end — one can't escape the convention of looking ahead at next year's market. This year, whether it was the 180-month time cycle in May, the 6100-point top, or the first landing point of the correction at the 120-day moving average, all were scripted in advance. However, scripting next year's trend with complete precision is virtually impossible, because there are too many variable component forces in next year's market. Below is only a boundary-defining analysis from a purely technical perspective.

Looking at this year's annual K-line, since there are still a few trading days left, the final closing position of the annual K-line cannot be fully confirmed, but the annual K-line will leave a relatively long upper shadow — that probably won't change much. Similarly, the real body of the annual K-line will also be quite long. Therefore, for next year's trend, this year's K-line upper shadow tip at 6124 points and the midpoint of the K-line real body (currently around 3800 points) will respectively form the upper and lower edges of next year's key large range. The current market position is roughly at the midpoint of this range. Dividing this range into 4 equal parts, the secondary support and resistance levels are approximately at 4355 points and 5555 points respectively.

It can be stated with certainty that even after breaking through 6124 points, the possibility of exceeding 6124 points plus this range's width — roughly 8400 points — next year will be extremely small. Even if it ultimately happens, it will certainly be a massive bull trap leading to enormous disaster. Similarly, dividing the original range width into 4 equal parts, one can calculate the successive resistance levels after breaking through 6124 points. Since the final annual closing hasn't come out yet, precise calculations can be left for this year's close, but the methodology is the same.

From the daily moving average system, the 250-day line will be next year's most critical level. Previous articles already mentioned that the first foot of this correction would land on the 120-day line, so the second foot is very likely at the 250-day line. Next year, there will be at least two tests of the 250-day line. It is highly probable that the first time will be a comedy, and the second time a tragedy.

The probability of next year's annual K-line ultimately being a long bullish candle is not high — the probability of a doji or near-doji small bearish or small bullish candle is extremely high. In either case, next year the bull trap created by the annual K-line's upper shadow demands the most attention, and correspondingly, one must also watch the bear trap created by the annual K-line's lower shadow. If combined with stock index futures, next year will be full of traps — neither bulls nor bears will have it easy, and once you fall into a well, the consequences will certainly be far more severe than this little well at 6124 points.

Monthly K-lines are too numerous to analyze, so here I'll only analyze next year's quarterly K-lines. Since this quarter's K-line is basically set, next year's Q1 K-line will be the most important. If that K-line's low is lower than this quarter's K-line low, yet fails to immediately make a new high above 6124 points, then a top fractal on the quarterly chart will be formed. Then, for the following three quarters, the 5-quarter moving average will become the most important line — once effectively broken below, the consequences are quite serious, and the subsequent correction pressure will be far greater than this one down from 6124 points. Therefore, the 5-quarter moving average is the bulls' lifeline next year, just as the 5-month moving average has been for the bulls these past two years.

Next year, the most ideal trend trajectory is first down, then up, then down again. Of course, broken down further, it could also be first a small up, then down, then a big up followed by a big down. It's very unlikely we'll see another one-sided trend like these past two years. The most important matter in the first half of next year is what form the correction from 6124 points will ultimately take. Based on comprehensive judgment, a large platform pattern and large triangle pattern are most probable, but in either case, the possibility of the first sub-wave forming a zigzag pattern still exists.

Next year, there are at least two tops that must be watched: the first is the top formed by the second upward leg of the major correction from 6124 points — this is a minor top; the second is the major top created after breaking through 6124 points. For bottoms, watch three: the bottoms of the first and third sub-waves down from 6124, and the bottom formed after the first leg of selling following the major top. Of course, if a large triangle correction comes first, there will be an additional minor top and minor bottom to watch. Moreover, in the most fortunate scenario for the bulls, the bottom of the first sub-wave from 6124 could potentially be completed by the end of this year, but this doesn't affect the overall chart trend analysis.

As for individual stocks, next year will be a year of red-hot thematic plays — all kinds of themes will emerge endlessly. The index may not offer much profit (futures are a different calculation), but if you can nail the rhythm of thematic rotation, next year's returns won't be any less than this year's — though the corresponding operational difficulty will surge dramatically. It can be stated that the probability of over two-thirds of stocks posting annual bearish K-lines or K-lines with extremely long upper shadows next year will be very high. Stocks that can maintain a bull run from the beginning of the year to the end will be extremely rare. More stocks will be preparing various wells of varying depths for investors. The most fashionable activity in stocks next year will be falling into wells. The only suspense is: for the most impressive investor, how many wells can one person consecutively fall into?

Of course, there are wells for bulls and wells for bears, but next year the bull wells will be more popular. If this year's trendiest Chinese character is "rise," then next year's will be "well." Next year, four types of people will appear in the investment market: 1. Well diggers; 2. Well fallers; 3. Those who dig wells carelessly and fall in themselves; 4. Those who vigorously pump water from different wells. Which type will you become?

Beyond opportunities generated by existing instruments, next year's biggest possibilities will be the ChiNext board and index futures. One thing is certain: if it's a fully rational decision, ChiNext must come before index futures. Since this ID has always opposed the premature launch of index futures, and next year features such a prominent conference, index futures are absolutely not suitable for launch next year. Otherwise, once large index volatility is triggered, the repercussions will be unbearable. From a prudent standpoint, next year will very likely only have ChiNext, and index futures will continue to be "futures" rather than "present."

Therefore, next year's index has this very real possible variable: once index futures cannot be launched, and if policy severity continues to intensify or external markets experience another super-large shock, then the possibility that next year cannot break through 6124 points, or breaks through slightly only for a bull trap to bring it back down, absolutely cannot be ruled out. Of course, such a pessimistic scenario can only be treated as one possible option for now, but it's one that cannot go unguarded against. In summary, above 6124 points, traps will gradually outnumber opportunities, and the higher it goes, the chances of falling into a well increase dramatically.

From the perspective of the long-term development of capital markets, the policy this ID most anticipates next year is the return of stamp duty to its original level. The stamp duty issue is a matter of the market's most fundamental transaction costs. Whether next year presents an appropriate equilibrium point between market trend and policy to resolve this issue is the most noteworthy question from the standpoint of long-term capital market development.

In summary, next year's market will be vastly different from these past two years. Some of the successful experiences and habits of these two years will very likely become poison next year. Whether one can adjust mentality in time and adopt more practical, flexible operational strategies will determine the ultimate success or failure of next year's operations.