HK & China - Market Direction 01 (May08 - Oct08)

[winston]

US Equities: Down
SSE Open: Down 1.7%
HK Pre-Market: Down 255

1) I think the HK market will gap down. Thereafter, it may recover as yesterday's rally was very strong.

2) I was very uncomfortable yesterday and sold half my puts. Will probably sell the other half today when it gap down during the first hour.

3) If SSE continue to slide, I may get greedy and hold the puts until 11.30am, the close of SSE for lunch.

4) Will delete this post after two days as it would no longer be relevant.

5) The above is not a Buy or Sell Recommendation. It is to help me crystallize my thinking before the trading day begins.

[winston]

China may turn to bonds to bolster stocks

China may let investors sell bonds that can be swapped for shares to deter equity sales and support the stock market, the world's worst-performing this year.

The China Securities Regulatory Commission is studying exchangeable bonds as part of a package of measures to restrict sales of state-owned shares, said a Beijing-based official of the regulator.

The plan would enable state shareholders to raise funds without selling stock on the market, limiting supply after the benchmark index slumped 55 percent this year.

As much as 8.7 trillion yuan (HK$9.93 trillion) of government holdings become tradable through 2010, according to local data provider Wind, an overhang that's weighing on investors just as inflation and a slowing economy threaten to undermine earnings growth.

BLOOMBERG

[winston]

US Equities: Down
SSE Open: Down 22; -1.1%
HK Pre-Market: Down 175; - 0.8%

1) HK is behaving much stronger than expected

2) Who is buying ? Why are they buying ? Futures expiration ?

[-dol-]

Yesterday, some brokerage answered my call by releasing a report for a post-Olympic rally. May be some of their clients have quite a bit of inventory (accumulated before and during the Olympics) to offload. They need a rally.

Li Ning is down today. Yesterday night, Addidas & Nike declined.

[winston]

May be some of their clients have quite a bit of inventory (accumulated before and during the Olympics) to offload. They need a rally.

Yes, I agree that they may need to generate a rally to off-load. Maybe using futures expiration as a way to disguise things.

Does not make sense for the HSI to be so strong at the opening while the Dow dropped 2% and the SSE in the red.

For short term traders, it is better to stand aside and let the train past thru first.

[winston]

From Dr. Check:-

It seems that we are still in stage two of the bear market with high volatility in index movements and small, occasional rallies.

Inevitably, Hong Kong will enter the third phase of the bear market. Before this happens, keep unloading shares as they rebound. Building up some positions in bear warrants may not be a bad idea, too.

How long will the bear market in Hong Kong last? Let us look at one parameter - the annual fluctuations of the HSI. See how the index moved in certain crucial years: 8,045 points in 1997; 8,138 in 1999; 13,299 points in 2007; and 7,503 so far this year.

In 1997, markets were savaged by the Asian financial crisis and, in 1999, the supply of Hong Kong shares was reduced after the government's intervention at the end of 1998.

In 2007, high expectations of a through train for mainland investors and its subsequent disappearance caused high volatility in stocks.

And this year, the bear market in local equities was caused by the collapse of overvalued mainland A shares as well as the credit crunch and the US housing crisis.

Dr Check thinks perhaps a 10,000-point fluctuation is necessary to make the correction target for the HSI at the 17,000 to 18,000 level.

[millionairemind]

Dr Check thinks perhaps a 10,000-point fluctuation is necessary to make the correction target for the HSI at the 17,000 to 18,000 level.

So we will also be seeing STI 2000 then..

[winston]

HK is still relatively strong. SSE was negative but HK is still going up.

Could be a chance to buy a call for 2 days before futures expiry.

At the same time, I'm selling some Equities into the rally and raising some cash.

Will go back to buying puts after futures expiration.

[-dol-]

I am wondering - with all the widespread pessimism and the dire predictions - surely those who want to sell/could sell/must sell/have to sell - should have sold by now? They have almost 1 year to make up their minds...

Also, there are many bargain hunters (supposedly with truck loads of cash) who should/could/must/have to buy at HSI 20,000 & STI 2,400...

So how does the market go so much lower - HSI 18,000 (auspicious!), STI (how about 1,800 i/o of 2,000)?

What worst news can make stocks head for the pits, if they already aren't?

May be those who bought at HSI 20,000 & STI 2,400 and then cut-loss when support breaks - selling begets selling...low becomes lower...cheap becomes cheaper...

A great unwinding after 25 years of credit expansion?

[winston]

So how does the market go so much lower - HSI 18,000 (auspicious!), STI (how about 1,800 i/o of 2,000)?

What worst news can make stocks head for the pits, if they already aren't?

Short-selling..