UPDATE - Hang Seng

for readers who are familiar with this blog, you should have benefited from staying clear of HSBC. read earlier release for HSBC forecasts.

here comes Hang Seng albeit a bit late since the fallout is faster than predicted. Look at the 6 mth chart, this is clearly a multi top chart with neckline at 26000, the minimum magnitude going south would be 20000 [26000-6000], so brace yourself for a rough ride.

the tricky part is the 2 yr chart, if it does reach 20000, bounces up and falls back again breaching the 20000 mark, then a head and shoulder occurs and the chart looks very ugly.
how will recessions wound up hs index:

1. a recession only causes upset of 25-35% from top,
2. a severe one - 40-50%,
3. a major downturn can chop 70-80% off the top [e.g. taiwan, japan and earlier downturn of china stock markets]
   

it would be extremely hard to tell 2nd from 3rd, so bear this in mind when you make your investments around the 20000 mark.

UPDATE - DJ, Subprime

the dow is looking to form a multi top with neckline at 12800, if it falls through it will hit 10800 - a fall of further 16% from this level and that is the minimum. expect a flurry of fiscal spending [sort of direct money printing] announcements and interest rate cuts.

if you look at the volume, it is increasing after the yearend [avoid clashing with yearend window dressing] while index is falling, so the probability of it falling below 12800 is quite high.

both citigroup and merrill have new ceos, they will book the largest provisions possible [ie their capital base can bear] this fourth quarter to avoid further significant losses after they are in town for two or three quarters. such loss announcement might be coupled with further new investors to these two banks as their capital bases may have shrunk further and cannot bear such heavy losses. this will put pressure on hsbc to announce heavy provisions. read my earlier updates and forecast on its price.

if investments made by new investors to citigroup, ML, UBS are locked in with the spot price at the time of announcements, they would have incurred losses now and further going forward. if the investments are convertible bonds or preference shares with convertible options then they are better off.

the subprime mess will take at least 6 years [for the housing market] to reach a bottom. counting from 2006 after its peak, it takes minimum 2012 to get out of the mess. the japs took more than 16 years [1989-2005] to get out of a hole they digged themselves in.