RUN! (2010-02-19 HSI+DJI analysis)

The Fed suddenly raised its discount rate by a quarter point yesterday after my blog stating that HSI would reach 21300 two days ago. But does it imply that my analysis is not accurate enough? My belief in technical analysis was actually inspired by a Bloomberg Manager. Actually a friend of mine had an interview by a Bloomberg Manager last year and the manager told him that "technical analysis could not predict when some incidents such as financial crisis breakout would happen, but it could then tell us that how far would the markets drop/rise". I strongly agree with this view on technical analysis.

Though we could not predict when the Fed would raise discount rate, through technical analysis, we can find out how much the markets would drop due to it. Of course, despite of the good signal for the economy, we would expect investors to move money away from the equities and commodities markets, therefore the stock markets would plunge. Let's see how low would it go.

Firstly, let's consider HSI.



As we could see, just like what I posted two days ago, there was a downtrend channel. The difference with the previous one is that the index went down back into the channel. This is a sign that it would go even further to the lower line, which is at around 19,100. You must be thinking that I am far too pessimistic. 4%-drop for an Index does not appear such often. But after you have done analysis on DJI, you may find that 4% is actually quite little when compared.



After the DJI tumbled through the red up-trend line, the line became a strong resistant for DJI. You can see that the index could hardly break through it. This time, again, DJI has climbed to the line. Together with the increase in discount rate, it would be obvious that not even a touch would happen before falling. The first support is at the middle line of the channel, which is at around 9,740. It is a 6%-fall! Anyway, it's time to sell most of your stocks to lock profits and... RUN!