2007 China Stock Market Recap

In 2007 the Chinese market almost tripled in value and was noted as the fastest growing economy in the world. Many financial experts discussed the possibility of the China Stock Market existing in a massive stock market bubble similar to that of the dotcom boom. The stock market in China was seen as being “too hot” and as having many characteristics of a bubble about to burst.  In fact, after analyzing stock market indexes, china’s main stock index trades were at more than fifty times the projected earnings of the companies listed on it. This amount was almost triple that of the major U.S. and European stock markets. The Chinese Stock Market also has had many stock market listings and in the third quarter of last year, hosted 75 share offerings. The China Banking Regulatory Commission began to investigate whether individuals were using loans for cars or houses for stock market investing and banking regulators were also researching the possible use of credit cards to fund share purchases.  Financial experts of the China Stock Market explained that the China’s market could not be judged by the same standards as any other stock exchange. It was explained that the China market is a closed system and is not a normal market so there is not bubble to burst. (There are strict investment rules that forbid the Chinese from putting their savings in overseas assets, thus leaving the Chinese Stock Market the only option).

There were some Chinese experts on stock market analysis that believed that the China Stock Market bubble fears were exaggerated. They believed that after the recent rise in stock prices, that there would not be room for further increases. Therefore the current price level of the market would not be facing a serious problem of overvaluation. The China Stock Market still has severely strict rules in that they restrict foreign participation. Foreign individual investors can only buy limited quantities of “A Share” when purchasing foreign stocks, and overseas companies are barred from listing on them.  The Chinese markets still exists mostly to raise money for state companies. This is the reason they were set up in the first place in the 1990’s.

After a five-year slump from 2001, the sharp rise in the stock market last year prompted a fury in the mainland by retail investors. The country had to rebuild investors’ confidence after many scandals in the stock market game.  The Chinese government implemented many reforms to combat price manipulation and other common abuses of the China Stock Market. The Chinese government staked their legitimacy on maintaining an increase in economic growth. As a result of the many reforms, shareholders arrangements have improved and corporate disclosure requirements have strengthened.

Even though a bullish market cycle typically lasts from 17 to 24 months, China’s bullish cycle of 29 months is still predicted to continue in 2008. The Chinese economy is still growing rapidly and the earnings estimates of listed companies are predicted to exceed 20 to 30 percent in the year 2008. The China Stock Market may dip in the medium to short-term, but it is still nevertheless predicted to remain bullish.

Keep a watchful eye out if you are interested in the China Stock Market. It is has been very exciting to watch and has kept many investors on their toes!

Big up days, big down days. What is being revealed when the volatility becomes more pronounced? As we can see in the Dow chart, the past five trading days have resulted in either triple digit moves to the upside or triple digit moves to the downside. This represents mass indecision between the Bulls and the Bears. The Japanese Rice traders witnessed and recorded their observations of indecision. Whether the indecision between the Bulls and the Bears is represented by a big price move back and forth or the formation of a Doji, the result was usually a change of direction of a trend.

Friday, the Dow sold off 250 points. Everybody on the talk shows professed the coming of the next recession. IBM announced good outlook for the coming year this morning. The futures were up strong before the market opened today. Observe the obvious! Friday the outlook was doom and gloom. Monday morning, one announcement made everything look rosy. This was a clear illustration that the market was still in a state of flux. Notice the market action of late November. Huge down days followed by huge up days when stochastics were in the oversold condition. If you read our newsletters again from that time period, you will discover that the bearish sentiment was exactly the same, our economy was heading for worse economic conditions, there was no reason to be buying the market.

DOW

Let the market tell you what the market is doing. That oversimplified statement is much easier to put into practice utilizing candlestick signals. Bullish Haramis in oversold conditions provide essential information about potential reversals. Bearish engulfing signals in the oversold conditions have significant information. Where as most investors do not take advantage of price reversals until well after a new trend has been established, the candlestick investor maintains a huge advantage. They can easily interpret and evaluate what a trend should be doing based upon the signals that are being created NOW. When is the best time to buy a long position? In the very early stages of its uptrend. Obviously for profits sake, but additionally were having stop loss levels that are very close to the entry levels. This is not difficult information to get firmly established in ones mind set. Please take advantage of the knowledge that is conveyed in the numerous candlestick signal training CDs. This information allows you to evaluate the effects of investor sentiment at the appropriate stages of a trend.

Having knowledge of what each signal conveys allows for the evaluation of high profit pattern potential. The point of investing is to have all the probabilities in your favor. Those probabilities improved dramatically when the additional potential can be evaluated into the next possible profitable trade. If a stock appears to have a high potential pattern being established, what is a logical factor for additional confirmation? Simply finding what other similar stocks are doing. The probabilities of being in a correct trade at the correct time are dramatically improved if money is coming into other stocks in that sector.

Currently, SDTH is showing an excellent Jay-hook pattern potential. Indecisive trading supporting the T-Line with stochastics starting to curl up. This is a specialty chemical company. An added element of credibility to a potential Jay-hook pattern is investigating what other chemical companies are doing in these market conditions.

SDTH

MOS and OMG are chemical companies that are showing great strength even during the weakness experienced in the markets over the past few weeks. Logic dictates that if other chemical companies are acting well, the probabilities of SDTH performing as expected well forming a Jay-hook pattern is that much better. This is nothing more than adding all the common sense elements needed for placing funds in the right positions at the right time.

MOS

OMG

Option traders - Thursday night chat session 8 p.m. EDT January 17, 2008 - The Candlestick Forum is proud to announce the affiliation with Bill Johnson, one of the leading option trading experts in the nation. The association between Bill Johnson and Steve Bigalow over the past few years has been complementary in the sense that both try to go well overboard to make sure people understand and correctly use the information they are teaching. Bill Johnson teaches investors how to evaluate and use option strategies in a clear and concise format. He will be speaking on the Candlestick Forum chat session providing insights for using options successfully. Come join us.

Chat session tonight for members only 8 p.m. ET

Good investing,

The Candlestick Forum Team