Some anecdotes of today's observation (Jast a prediction practice, in response to last article)

The market pretends to die. Actually it has the hope to pursue another historic top. There are several traces.

1. The turnover becomes narrow sharply today. The buyers and sellers seem not to do any trading. It is the characteristic that low turnover implies the bottom should be near.

2. By the observation on players, it seems that the players can expect that the sharp collapse on Friday must come. Especially, it is the time that Chinese government announces over-optimistic national accounting data, with critics on the potential over-heating pattern. This impresses me that the players in the market are so vigilant to the shock and sell their stocks in advance. As a contrarian, is it so easy-going?

3. Call-Put ratio was reduced sharply to 3.1 and 3.6 on Thursday and Friday. As a contrarian, this figure is rather low when comparing with the days in January. When there is more people holding the put position, do you think that the big-player would give you the chance to earn such seemingly risk-free profit?

4. The HK dollar is indeed depreciating (Now it is 7.8113). But after four o'clock, it seems that the value of HK dollar appreciates slightly. After the financial tactics shown in early January, I feel that the big-players can easily produce some tricks on the HK-US exchange rate, in order to oppose the knowledge that the small players have acquired recently.

5. Japanese currency depreciates a lot against the US dollar, implying that the capital from the foreign investment fund do not have much incentives to evacuate from the vibrant market like Hong Kong.

As suggested, I believe that there may be finally one more historic top produced before the lunar new year holiday. At that time, most people will believe that the previous adjustment has "done a good job" to stabilize the over-bullish market. Moreover, this top should match the final top created in the first quarter in 1994, 1997 and 2004. Next, owing to the macroeconomic policy enforced by China and other potential threat of imported inflation from China throughout the industrialized countries, the stock market will plunge during the announcements of companies' financial results.

Some prediction of the future equity market trend - Short-term(Just a prediction practice of the equity market trend)

HSI has an imminent adjustment, and probably can reach another final top following the previous two tops and reach the highest point. This is probably more optimistic than what I expected two weeks ago. However, the plunge of the stock price will be attributed to vast number of news related to the macroeconomic policy (either monetary, fiscal or administrative) enforced by Chinese government, accompanying the potential US monetary policy to increase federal fund rate.

The previous two tops are only the antipasto, as the investors are more sensitive than before so that market needs to devise more tricks as an illustration of contrarian's point. Nevertheless, the minor local tops are still the top cluster. I would speculate that the scenario may be pretty similar to the first quarter in 1994, 1997, and 2004 (shown in the figures below).

A-share is indeed the bubble but robust than what we expected. Rogers, once the colleague of Soros, has gone to Shanghai and he observed lots of frenzy stock market players congested in the banks, concluding that China's stock market is notably a bubble now. The macroeconomic adjustment including the increase in borrowing rate (the most severe one) will ruthlessly curb the herd instinct of small players.

There may be also deteriorated expectation of inflation level US. You know, surprisingly, a month ago, the market is still talking about US's cooling economy. Bernanke and his team may have already done a good job to maintain the stable environment to foster the healthy economic growth in the third and fourth quarter, resulting in better-than-expectation. Most probably, at the time of announcement of unchanged federal fund rate, he may also be cautious that inflation* may be re-ignited. At the top edge of the knife, the investors will be particularly sensitive to this.

For the crude oil, the technical indicator shows that it may recover to have an uptrend, yet the current concept is due to the cooler January and February, and the OPEC's crude oil export reduction, which are deemed not to be persistent. Or I can say the holder of oil industry may still have hope to evacuate in the short-term. In view of the boosting demand of ethanol (or its raw material, corn) mentioned by Bush, I may say it is the long-term development. To completely switch the usage of petroleum to ethanol may lead to even higher cost as the ethanol may not provide high energy content comparing with petroleum. Moreover, production cost of alcohol through corn or some other means is higher than the the standard refinement cost of crude oil.

To further confirm the near trend, as now the bull market is forced by the foreign capital flow, we still need to rely on the HK-US exchange rate to test the capital flow. I am still researching if the call-put ratio can be a leading indicator for the market trend. According to the current cheap loan from Japan to invest in other regions, there is also another potential indicator for us to notice. That is, to see if the Japanese currency appreciates too much in the near future. If it is so, the hedge fund would be forced to evacuate because of the higher cost of capital.

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* From international point of view, China may have exported its inflation worldwide by either inflation in China or Renmenbi appreciation. Everyone have the consensus that, China and US have already been the crux of the worldwide economy.