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2008 Market Outlook Revisited

2008/3/20 11:13:56

Apologies, due to a share acquisition matter involving a listed company in the southwest region that requires meetings with the court and banks, I may have to leave for a meeting before the market closes this afternoon, so there will be no market commentary or follow-up posts today. I'm now substituting with a market outlook I wrote yesterday. To grasp the big direction, please study it carefully.

Today's market doesn't really need commentary either. Since 3775 points wasn't reclaimed, it naturally continues the original trend, and PuFa Bank and PetroChina provided an opportunity for an intimidation-style washout. But let me state clearly: we are already in a wide bottom zone. Any washout gives thematic stocks a rotation opportunity.

Look — today's continuation of venture capital plays, the rise of Olympics plays — all very clear. Rather than wasting time in panic or cursing, you'd be better off carefully selecting and positioning. Look at how the Swan stock that so many people cursed has already hit two consecutive daily limits. Spend your time studying charts and picking stocks — the market doesn't survive on words.

Signing off for now. See you tomorrow.

2008 Market Outlook Revisited

Last December, this ID gave an outlook for this year's market. The conclusions from that time still hold, and many are being validated as we speak. Since Q1 isn't over yet, final results can't be determined, but some things have already become settled facts — for example, the assertion about plentiful opportunities to fall into "wells" this year. After these three months, you should all have some experience with that by now.

Since there's nothing that needs correction, this ID will continue along the original outlook's framework, expanding further based on new developments to provide more precise guidance for the remaining three quarters of operations.

In the original outlook, this ID laid out this year's rhythm as: up, down, big up, big down. Currently, the up-down rhythm has already played out — the "up" from 4778 to 5522 points and the subsequent "down" constitute the entire Q1 market rhythm. Some may think the move from 4778 to 5522 doesn't count as "up," but that's being misled by the one-sided uptrend mentality of the past two years. In a major corrective trend, a rebound of this magnitude is quite "up" enough.

5522 points is 600 points down from 6124, which is 1/6 of 3600. This is a noteworthy price rhythm. If this rhythm continues, then 4922 points would be a strong medium-term resistance level. And 4778 points is exactly 1345 points down from 6124, which is 3/8 of 3600. Therefore, for the next low, the most noteworthy level is double that position — the 6/8 level — which corresponds to 3424 points. Barring any extraordinary global crash event, the probability of the bottom of this "down" phase ultimately forming around that level is extremely high.

It can be stated with certainty that after this "down" trend starting from 5522 points concludes, the third rhythm from the original outlook will arrive: the "big up." The concept of this "big up" is that the magnitude of this leg must be greater than the "up" from 4778 to 5522 points.

To more accurately predict this "big up" trend, we must first return to another prediction from the original outlook: that the annual moving average would be tested at least twice this year — the first time a comedy, the second time a tragedy. Clearly, both the comedy and the tragedy have already played out entirely within Q1. Due to the impact of PuFa Bank's sudden secondary offering, the upward comedy after the first break of the annual line lasted less than 10 days, then the second break of the annual line ushered in the subsequent tragedy. March 4th was the day that ultimately confirmed the annual line could not be effectively reclaimed.

But since the annual moving average currently still maintains an upward trajectory, the subsequent "big up" trend will inevitably launch another counterattack on the annual line. A very important technical signal is: once the annual line flattens, if the market still can't get back above it, then once the annual line turns downward, that's when the real major correction begins. So what came before was, in a sense, merely a rehearsal for the major correction, because after all, the annual line hasn't turned downward yet. If the upcoming "big up" trend fails to firmly stand above the annual line and attack upward to drive the annual line to continue rising before it turns — then the subsequent "big down" trend will completely overshadow Q1's "down."

Even if the upcoming "big up" trend can firmly stand above the annual line and attack upward, thereby postponing the timing of the annual line's turn — since the monthly MACD has just formed a death cross, under these technical conditions, the best result of forcing an upward attack would be creating a MACD double-top pattern, and what follows would still be an even larger-magnitude decline. The destructive power after a MACD double-top should be familiar to anyone with basic technical knowledge, and this is on the monthly chart — you can imagine the destructive power and time duration.

From the most intuitive technical perspective, the next truly major bull run cannot possibly begin until the monthly MACD returns to near the zero axis. Everything in between is just small-scale skirmishing.

On the fundamental side, this completely supports the above technical trend analysis. Since current valuations are entirely based on the high growth of the past two years as backdrop, and still remain at very high levels, once the economy flattens, these high valuations have absolutely no support. A sharp decline in profitability is within foreseeable range. Therefore, those so-called blue-chip stocks all face enormous medium-to-long-term earnings pressure, and current prices are all excessively high.

Moreover, global economic experience tells us that after a major commodity speculation wave, there's always a mess left behind. And the problems of the US economy are far from being resolved. These external time bombs could blow apart the illusion of economic prosperity at any moment, and the real adjustment pressure will only truly emerge at that time.

It is highly likely that we are about to face a major global economic adjustment. Given our current economic structure — having squandered too many opportunities to grow big and strong — we are absolutely no longer capable of insulating ourselves from it. Therefore, the difficulties ahead may exceed what most people can currently imagine, because historical experience tells us that the truly terrifying adjustment pressure comes from economic fundamentals, and we are now very likely facing precisely such a crisis.

Regarding individual stocks, the original outlook already made it clear: thematic stocks. Repeated speculation of various themes will be the dominant theme for a long time to come. In major corrective market conditions, historical experience has repeatedly proven that low-priced thematic stocks are an eternally undefeated theme. Given the current volume of capital, even in a major correction, there's always more than enough to speculate on low-priced themes. So as long as speculative capital exists, these are the phoenix — at the first opportunity, they take flight.

In one sentence: for a long time to come, the market will be a graveyard for long-distance runners and a paradise for sprinters.

From a 20-year perspective, this correction is still just a relay adjustment within a super bull market. But the premise of that 20 years is that you can survive this winter — otherwise, the 20-year super bull market means absolutely nothing to you.