Strategy for Summer - Hang Seng Theory.

ANALYSIS: Accumulate Chinese Stocks

When picking stocks over the course of the next couple of weeks, and being the technical trader, one needs to look for patterns that have symmetry, similarities, smooth EMA's, etc. The Hang Seng chart above shows a very symmetrical correction, but before we look at chart technicals, let's first look at the common threads of the global hiccup from a correlated numbers perspective.

• Correction started in March of 07 with that 10% overnight Asian selloff that quickly hit all markets worlwide.
• Markets recover and resume higher.
• The US markets finally starting to roll over in August of 07 - Asian markets keep going higher.
• Blowoff tops into November 07
• Bottoming action March of 08.
• Almost 16-18 month corrective pattern, counting the March 07 selloffs as the precursor.

Knowing that the market discounts 6-9months ahead, the 18 month timeframe - which will be this august - would give a nice symmetrical number in addition to the nice symmetrical patter. Lets look at these numbers

-6 months (march07 - aug07) - timeframe from first selloff until US markets rolled over.

-12months (march 07 - march 08) - when US and Hang Seng bottomed

- 18months(march07 - aug08) - this August will be 18 months - which would be 2-3 different discounting periods for the market based on the premise that the market discounts 6-9 months out.

This August, the market will be discounting the 24m-30m timeframes from beginning of correction. I believe there will be an attempt at new territory which puts the market(DJIA, NASDAQ, S&P) moving towards old highs this winter - the 24m discounting period which will start in late August.

What's the importance of this? Well, Technical Analysis is looking at patterns, not only in charts, but in general. Is it coincidence that the numbers look like that(although the august test is yet to be determined) but this is how one should think when it comes to being more of a swing trader, than a long-term investor(although TA can pick some nice LT bottoms also).

Let's also not forget that China started all of this and their markets have corrected the most due to the rise of domestic inflation which has pounded their domestic economy and parts of their exports. This is all good because this is the pangea of economic integration and while the markets are down the most, they also have been consolidating for that 18months, which is numerically related to the lucky number 8 in Chinese philosophy. So, if we are in 2008 and its been 18months, and August is also the 8th month of the year, well then, I'm betting Asian markets, specifically the Hang Seng, will start to outperform world markets again, especially if we get oil pulling back, which seems more likely everyday.

****Look at QUAD strategies in playing the Dow Jones Industrial Average for the summer. Posted below.

Sell in May - VIX and DJIA = QUAD strategies.

VIX at support. DJIA is at resistance.

We should have a meandering market for remaining of summer. Above is the VIX vs. DJIA. The DJIA had a great run since mid march and this is normal. Whether we attempt at old lows or not is not the question, but rather creating a strategy as stocks get cheap to put any cash to work is what one should be looking at. Play a 1/3 Quad Strategy - start purchasing stocks at different price levels within the range channel - you could even play a 1/2 Quad Strategy - with a negative 1/3 backup. Look at charts for details.

QUAD Strategy... the channel quadrant is now divided by 1/3(the green lines) which represent entry points....the blue lines represents the 1/2 strategy which would delay buying until the 1200 area or half of the first quadrant. And then we would put a negative 1/2 quadrant entry point below to give us some insurance(blue lines)...That would give us 2 strategies to get back into markets. QUAD 1/3 is more bullish toned than more bearish 1/2 QUAD.

Look for August at an attempt to breakout out of the corrective market pattern. As oil stays lofty, only time can create the perception that 3.50 is now cheap gas, so as oil hovers here, the market will not go anywhere. A pullback in oil will give the markets a reason to cheer, until then, its a bumpy ride.

All that glitters...

The GLD looks like it's correction may be coming to an end. Look for volatility, but also an attempt at old highs of 100 area - towards second half of year.

FCX Breakout - Revisited - BUY

Look at the first chart and commentary of FCX from a previous blog analysis and then to the current chart analysis below it. The pullback of the 110 area was succesful and now the trend is forming a small upward trending channel. Look for 20+ million days to confirm this breakout.

VIX at support

The VIX is hitting a major support here which suggests that the market has some more downside again. Remember, VIX is good for traders, and also good for small money to piggy back the moves - basically hitch a ride with the big guys, make your trades, and get out - We'll see, but volatility may be moving back into market. What happened to sell in May and go away? - it may be here.

Parallel Pairs (Medium - High Risk)

Pairs Trade:

Long - AMR
Short - USO

For all those who are looking for some strategic plays. Some would say you could go long both and give yourself protection, but that would limit the profits, but would also reduce risk.

Note: On the USO, I would only play it for the correction, and then take that part of the trade off and let the AMR run.

China Life - LFC - BUY

Very symmetrical pattern with recent volume spikes that give it a well-rounded supporting bottom. Look at the last correction - if the pattern diverges away from that, then set a buy order at 53-54 to see if a shake out occurs, but also set a sell stop position at 49 in case the stock breaks down.

3 Positive Technicals

- Money Flows

- MACD's have broken through neutral.

- Symmetrical Pattern