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Early Next Week Will Determine the Market's Medium-Term Pattern

2008/2/22 15:18:40

Today continued the line-segment-type decline created by the Pudong Development Bank fiasco at 4695 points. A quasi-bottom divergence finally appeared after 2:00 PM. This quasi-decline produced three quasi-hubs. After the quasi-divergence, the rebound met the theoretical minimum requirement of returning to the last quasi-hub, meaning at least a 1-minute hub was manufactured. The worst case: this hub is the first hub of a new 1-minute decline. The best case: a third-type buy point appears at this 1-minute hub, followed by at least a return to the second quasi-hub range of the quasi-decline. Therefore, the evolution of this hub early next week determines the market's short-term pattern.

In reality, the market's movement early next week will also determine the medium-term pattern. When the market's MACD turned to red bars a few days ago, it was already said that one must watch for the situation where, after several days of red bars, green bars appear again—this would correspond to the market breaking to a new low and forming a head-and-shoulders bottom pattern. Whether this scenario will play out will be resolved next week. Since today still showed red bars, there remains the possibility that green bars don't appear and the red bars extend again, and all of this will be resolved next week.

The following content has been mentioned many times before. Here, using a complete classification of all situations the MACD bars can face, let me restate it:

Scenario One: Green bars reappear and are longer than the previous time with greater area. This corresponds to the 30-minute-level decline from 6124 points being unable to form a divergence. In that case, the market's ultimate downside can reasonably reach 2500 points, which is within the 1800-point oscillation range centered on 4300 points that we've discussed.

Commentary: This scenario is technically reasonable, but based on the broader fundamentals, there is currently no visible support for such a move. Of course, even if this move actually occurs, it's no big deal—with technical analysis, you'd have exited early during any real breakdown. If such a decline really happens, it equals a massively enormous opportunity beckoning ahead—and that would be the time to sell the pots and pans to buy stocks.

Note: fundamentally, this possibility does actually exist—namely, another 1987-style crash in America. This ID has expressed the desire to see this happen many times. Unfortunately, that's not for this ID to decide, so let's just silently chant more curses and try to conjure 1987 into being.

Scenario Two: Green bars reappear but are shorter and have less area than before, corresponding to the 30-minute decline from 6124 points forming a divergence—meaning its ultimate conclusion. Then a 30-minute-level upward movement unfolds.

Commentary: This is the most reasonable scenario based on current fundamentals. This ID has repeatedly emphasized that the real market action probably won't come until after the conferences in March, mainly targeting this type of move. From a monthly chart perspective, a bottom fractal hasn't appeared yet, meaning the task for February and March on the monthly chart is to produce a monthly bottom fractal. Once successful, this provides the most basic technical foundation, supporting the unfolding of a rally.

Scenario Three: Green bars don't reappear, red bars extend again, and the market goes straight up.

Commentary: Since the 4195 points last time corresponded to a consolidation divergence of a 30-minute hub, from a purely technical angle, this can also constitute a bottom—because in the a+A+b+B+c structure, c doesn't necessarily have to exist. The trend can reverse upward directly from B, which corresponds to the consolidation divergence point situation. However, this scenario generally requires fundamental support. This time, the upward movement was mainly driven by new fund issuances, but a series of subsequent money-raising farces have somewhat shaken the fundamental support for new fund issuance. So this scenario, as a good wish, can certainly be strived for, but such a direct ascent has only one consequence: the upside will be compressed. From a purely technical standpoint, once a 30-minute direct surge fails to create an effective breakout, it might even form the first hub of a daily-level decline—and that would actually be the much bigger problem.

Of course, both Scenarios Two and Three still have selection possibilities, and how the market ultimately chooses is its own business. We only need to wait for the market to choose, then operate based on the choice.

Operationally, as has been said repeatedly many times: during oscillations, you throw when upward momentum fades and buy when downward momentum stalls—that is the true rhythm of trading. If you don't have this rhythm, then just sit on the bench and watch.

Regarding the broader market's bigger trend, last year's outlook mentioned that the market has a very real chance of not making a new high this year. From a purely technical standpoint, regardless of which scenario ultimately plays out, the 30-minute upward movement will most likely form a major second-type sell point, with 6124 being the first-type sell point. After that, at minimum, a pullback to form a major daily hub is required. So the difficulty of this year's market was already stated very clearly at the end of last year. Let me repeat: when this year ends, most stocks' annual K-lines will be bearish candles. This must be remembered at all times.

So everyone can decide their operations based on their own situation: First, if you feel you can't handle the sub-daily-level volatility, sitting on the bench the entire year is also an excellent choice. Second, if you think you can handle 30-minute trends, then properly await the brewing and unfolding of this 30-minute upward opportunity. But you absolutely must remember: making small mistakes now is fine, but once this upward move ultimately begins, you absolutely must exit at the top divergence. If you don't exit at the second-type sell point, look at what happened yesterday with 580989—that second-type sell point at 0.76 around 2 PM, followed by closing at 0.64—and you'll know the consequences. Of course, after a significant correction from a second-type sell point, there will be another rally opportunity, but if you don't dodge this correction, the degree of pain is not something most people can bear.

On individual stocks, as has been said repeatedly, unless futures are launched this year, large-cap stocks won't have much action. And futures are what this ID abhors—one of this ID's three major tasks this year is to not see futures launched. This year belongs to thematic stocks; this has been said far too many times. Agriculture, venture capital/PE, chemicals, pharmaceuticals, consumer goods, Olympics, low-priced speculative stocks, and even defense stocks will all see repeated performances. Moreover, the recent announcement about restructuring matters means that restructuring themes will gradually heat up. The good thing about restructuring themes is that they can be traded with great fervor even in a bear market—that's a direction worth watching.

One must note: this year's market, even for individual stocks, cannot possibly go straight up like before. There will definitely be repeated oscillation, back-and-forth turbulence. Unless the 30-minute upward process ultimately unfolds, that kind of consecutive limit-up, never-look-back rally will be very hard to come by. Operationally, you must take profits when you have them and aggressively trade back and forth—that's how you wash out the profits.

In a sense, trading stocks this year is physical labor—you have to run back and forth, and you need to be especially diligent. Keep that in mind.

On weekends, let's have less stock talk.

Signing off, see you next time.