This Week Conclusion & Technical Analysis:  

Local market tumbled amid mixed trading this week. At Monday, it slumped over 300 points then became steady Tuesday. However, it slid again Wednesday, hitting intra week low 12457. At Thursday and Friday, it once rebounded to hit intra week high 12820 but reversed to fall quickly. As a result, the benchmark of Hang Seng Index ended at 12612 and was 386 points lower than last week. Average daily turnover rose back mildly to $7.9 billion.

HSI followed US markets to slump Monday and left a big falling gap of 12768-12986. Thereafter, it iterated to trend lower and finished the first measured drop 12529, hitting intra week low 12457 then appeared technical rebound. However, it was just able to refill part of the falling gap left Monday then reverted to fall. Finally, it closed lower while opening higher. Technical trend was very weak. Short technical rebound may be over. 

At early next week, local market may struggle within 12457-12820. If it can penetrate over 12820, it should be able to rout 10MA (this week closed at 12847) and totally refill the falling gap of 12768-12986 left July 09, or even challenge the resistance of 13253. However, if HSI drops below 12457, it is very possible to drop to next measured drop 12337, or even test the important support of 12061. Since Beijing was successful to hold 2008 Olympic Game, offsetting the pessimistic of Friday, we expect possibility of dropping below 12457 and penetrating over 12820 are same. 

In medium term, after penetrating below 12787, trading range for HSI has moved downwardly to the region of 12200-13300. 

In the long-term, local market was still a bear market technically, HSI may still drop to 11737. Just based on measured drop, it may even mark to the low position of 9067. However, Dow Jones Industrial Average still trended firmly after consecutive 6 times lowering interest rate of US. Presently, DJIA is just 12% less than its historical high 11908. Hence, 12061 is the bottom of bear market may be possible. Of course, technically speaking, HSI must hover at 250MA (this week closed at 15048) so that we can assume that local market has seen its long-term bottom.

HSI Daily Chart

Market news and its commentary:

1) US stock markets rose obviously back this week. They just lost Tuesday while other 4 days all gained. Microsoft upgraded its 4th quarter income. In addition, several companies, including General Electric, Motorola and Yahoo!'s results all topped market expectation. Dow Jones Industrial Average was positive and closed with 286 points (2.79%) up in whole week. Tech players were even stronger, Nasdaq composite index was 80 points (4.02%) higher than last week. Long-term bond yield decreased to 5.62%. New York's August light crude oil future closed at US$26.59 ended. We expect US markets may still fluctuate effected by interest rate and news of companies' earnings. Local market may be involved and performed mixed next week.

2) Argentina, which also implements a currency board system same with Hong Kong, is facing serious financial crisis. The market worried that this may lead another financial storm that may effect Hong Kong. Financial Secretary Antony Leung said he believes the Hong Kong financial system is stable and would not be affected. Nevertheless, though the unsteady Latin American financial markets post little effect to global markets, investors should be cautious and keep alert to the development. 

3) Red chips and H-shares followed boarder market to fall this week. However, some of them rose obviously back at Friday's late session. In addition, International Olympic Committee announced that Beijing may hold 2008 Olympic Game in Moscow. We expect red chips and H-shares may become market's spotlight next week. 

4) HSBC (005) was sluggish this week. It once made new 52-week low $86.00 while closed at $87.50 Friday, which dropped $3.5 or 3.9% in whole week. Credit Lyonnais and Deutsche Securities both downgraded HSBC to 'underperform'. SG Securities also decreased HSBC's target price to 700 pence and suggested to sell. We expect HSBC may still face certain selling pressure in short-term. 

5) At Monday, HSI Services Ltd. announced to launch the Hang Seng Composite Index Series on October 03 this year. The Hang Seng Composite index (HSCI) will include the top 200 companies in terms of market capitalisation listed on the Main Borad of the Stock Exchange of Hong Kong as constituents. The HSCI will be subdivided into two geographical indexes – the Hang Seng Hong Kong Composite Index and the Hang Seng Mainland Composite Index, in which the latter will merge all H-shares, red chips and other stocks with 'China concept'. However, since Hang Seng Index composited by 33 constituents has rooted in Hong Kong stock market, we expect it will not be replaced by HSCI. 

Next week forecast and trading strategies:

Local market fell obviously this week and was 386 points lower compared with last week with individual third-to-forth liner caps performing better. Red chips and H-shares dropped generally but some of them seemed strengthening at Friday's late session. General speculation sentiment was just general.  

For day trade futures, our result was poor. We only traded once and lost 80 points per contract. 

For futures options, there was no trading this week. 

For short-term strategy, we have opened shorting position at 13209 and gained 519 points for the time being.

For mid-term blue chips portfolio, we have sold all at 13209. Thereafter, we have not traded.  

For stock picks of day trading, our result was also disappointing. Within them, only China Rich Holdings (1191) can reach target at that intra day while CNOOC (883), Travelsky Tech (696) and Giordano Int'l (709) can gain a little, which let our portfolio record 7.2% loss this week. 

Our stand for performance of HSI next week is negative. We expect HSI may swing between 12457 and 12820. After mid of next week, it may breakthrough upwardly or downwardly. Currently, we expect opportunity of dropping below 12457 and penetrating over 12820 are same. We will update the latest strategies for stock picks, day trade futures and futures options in our daily market commentary.

Accumulated investment result statistics: (From December 1998 to June 2001, total 31 months)

For day trade futures, we gained maximum 30519 points profit.

For futures options per contract, we gained 1750-1790 points profit.

For short term strategy, we gained maximum 6812 points profit . (Since 14 Jun 1999)

For mid term shares, we gained 5509-5599 points profit.

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