The Curtain of the Great Bull Market Has Not Yet Truly Risen
2007/5/10 15:56:10
Stock market movements appear complex but are actually governed by patterns. This rally, which has been ongoing for two years, is technically quite simple. To explain it clearly, we must first reveal a historical pattern of the Shanghai Composite Index. For simplicity, I'll use monthly candlesticks as examples. In May 1992, the Shanghai Composite created its first historical high at 1429 points. Subsequent historical highs are all closely related to this level and its timing.
In February 1993, the historic top of the Shanghai Composite at 1558 points precisely touched the resistance line starting from 1429 points, rising at a rate of 180 points per year, or 15 points per month. That month, the line was at 1429 + 15 × 9 = 1564 points.
In June 2001, the historic top of the Shanghai Composite at 2245 points precisely touched the resistance line starting from 1429 points, rising at a rate of 90 points per year, or 7.5 points per month. That month, the line was at 1429 + 109 × 7.5 = 2246.5 points.
Both of the above historic tops are the most important peak levels in the Shanghai Composite's history, and both are highly correlated with resistance lines ascending from 1429 at specific rates. This clearly cannot be dismissed as mere coincidence. Some might ask: can the rates be set arbitrarily? The answer is no.
Everyone knows a full circle is 360 degrees, which forms the analytical foundation. Using 360 points per day as the benchmark rise, the related resistance line rates are constituted by proportions such as 1/4, 1/2, 3/4. Clearly, in the above two examples, the resistance line rates were composed of 1/2 and 1/4, respectively.
From this, it's easy to understand that the consolidation below 3000 from January 2007 onward was merely a strong pullback after breaking through the 1/4 line. In March, that line was at 1429 + 178 × 7.5 = 2764 points. After the January–March correction, the effective breakout of that line was confirmed in early March. The so-called "2/27 crash" merely constituted the final retracement confirmation of that line. The massive rally that followed was technically a foregone conclusion—simply the natural assault on the 1/2 line after confirmation of the 1/4 line breakout. Only ignorant bears, completely unaware of this, staged the farce of trying to short at 2700 points.
In May, the 1/2 line is at 1429 + 180 × 15 = 4129 points. This level has strong technical significance. From a timing perspective, 1429 points also marks an equally important historical rhythm. The 1558 top was 9 months after 1429; the 2245 top was 9 years after 1429. And today, May, is the 180th month from 1429—half of 360, an extremely important time window. Something happening after this point is simply inevitable.
From a purely technical standpoint, whether the 1/2 line can be effectively broken is the true litmus test of this great bull market. If this line cannot be effectively broken, the pattern of being constrained by the 1/2 resistance line for over a decade will continue. Conversely, up to this point, the past two years of stock market rally have been extremely moderate—a restorative rise guided by the market's intrinsic historical rate. There's nothing to be alarmed about. In a sense, only upon truly and effectively breaking through the 1/2 line will a transformative great bull market truly have its curtain raised; otherwise, it is merely a repetition of the previous rhythm, speed, and pattern.
Therefore, whether this line can be effectively broken constitutes the true test for the bulls, while the bears will inevitably use it as a bulwark for their counterattack. The battle around this line will constitute the first truly weighty bull-bear showdown in two years—a great confrontation that determines whether the market adopts a new or old model. Three possible evolutions of the corresponding trend exist:
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Stopping before the line, or forming a bull trap above the line that then creates a major top;
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Breaking through the line and conducting a strong consolidation around it—similar to the consolidation that occurred in January–March after breaking through the 1/4 line—then seeking an opportunity to break higher;
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Forcefully breaking through and pulling well away from the line, then confirming the breakout with a strong pullback, followed by an attack on the 3/4 line. The current position of that line is at 1429 + 270 × 15 = 5479 points.
Regardless of which choice the market makes, the process of breaking through, retesting, and confirming this line will require at least 3 months. Therefore, at least through July, this line will dominate the broader market's trend. As for which choice the market ultimately makes, there is no need to predict. All market movements are the result of the convergence of forces from all market participants—no God determines them in advance. And the market's choice manifests in real-time within the trend. With sufficient understanding of daily and sub-daily trend patterns, it's not difficult to detect these choices in advance.
Regardless of which choice the market ultimately makes, it merely constitutes a small chapter in the mega bull market. This 1/2 line is the watershed between old and new models. Once this resistance line—which has controlled the market for over a decade at a rate of 180 points per year—is effectively broken, it can be effectively transformed into the most solid support for subsequent market development. The breakout is inevitable; the more solid the foundation, the better for market development.
Appendix:
This ID is out of town, but managing the market doesn't have to be done from Beijing. Yesterday I promised all of you a post-close analysis, so of course I'll follow through.
Of the three intraday hub scenarios discussed yesterday, the weakest one was confirmed right at the opening, so hub expansion forming here was entirely natural. You know what's worse than bears and traitors? Ignorant bulls—those fools who proclaim "it'll break through such-and-such" or "it'll charge to such-and-such." This ID explicitly stated a few days ago that holding above 4000 points won't be easy. There must be a hub followed by a third-type buy point to confirm it. Before that appears, it's hub formation and oscillation. In this ID's theory, there's no such thing as being bullish or bearish—there is only buying at buy points and selling at sell points. This must be understood. So why is this ID a long-term bull? Because there is no sell point on the long-term chart—that is the sole technical reason. The day even the quarterly chart shows a sell point, this ID will be the most ferocious bear.
The subsequent trend is simple: continue hub oscillation and wait for the market to choose its own direction. This kind of oscillation is the perfect arena for honing technique—practice more, that's the real skill.
Today, stock 416 was the first to return 300%—going from just over 2 yuan earlier this year to now. How many stocks have done better? Please tell this ID. Guoan forever strives for first place, giving this ID something to aspire to as well.
Away on business, busy. Will do the post-close analysis again after Monday's close. There's an announcement out there—please have a look.
Signing off, see you next time.
Replies
缠中说禅 2007/5/11 15:19:34
This ID is out of town, but managing the market doesn't have to be done from Beijing. Yesterday I promised all of you a post-close analysis, so of course I'll follow through.
Of the three intraday hub scenarios discussed yesterday, the weakest one was confirmed right at the opening, so hub expansion forming here was entirely natural. You know what's worse than bears and traitors? Ignorant bulls—those fools who proclaim "it'll break through such-and-such" or "it'll charge to such-and-such." This ID explicitly stated a few days ago that holding above 4000 points won't be easy. There must be a hub followed by a third-type buy point to confirm it. Before that appears, it's hub formation and oscillation. In this ID's theory, there's no such thing as being bullish or bearish—there is only buying at buy points and selling at sell points. This must be understood. So why is this ID a long-term bull? Because there is no sell point on the long-term chart—that is the sole technical reason. The day even the quarterly chart shows a sell point, this ID will be the most ferocious bear.
The subsequent trend is simple: continue hub oscillation and wait for the market to choose its own direction. This kind of oscillation is the perfect arena for honing technique—practice more, that's the real skill.
Today, stock 416 was the first to return 300%—going from just over 2 yuan earlier this year to now. How many stocks have done better? Please tell this ID. Guoan forever strives for first place, giving this ID something to aspire to as well.
Away on business, busy. Will do the post-close analysis again after Monday's close. There's an announcement out there—please have a look.
Signing off, see you next time.
缠中说禅 2007/5/10 15:58:56
This ID is currently en route to the airport, about to catch a flight to Shenzhen. There's a dinner event to attend in Shenzhen tonight. Will be staying in Shenzhen for several days. Tomorrow's post-close analysis will be appended to this post, but there won't be a morning post tomorrow.
Today's analysis is in the meditation post—please go look there.
Signing off, see you next time.