Studying the bear market :

Initial stage:

Recalling the stock market before Oct'07, the global market has trended up tramendously until a sudden drop end of Oct'07. ( I am refering to regional market; Sh-comp, 'H' share, Tsec & HSI captured their highest somewhere mid to end of Oct'07 ). That has probably signaled the withdrawal of the institutional investor and the beginning of the bear market. The PER is always high, sometimes reaching above 40x.

Normally during this stage, the economy outlook has not really turned bad as institutional investors tend to sell before it is too late as valuation tells that the market has been overbought and becone expensive and risky. On the other side, there are still many retail investors trying to log in emotionaly thinking to make more money while price is rocketing.

Study the Bear Market

Second stage :

The initial stage of the bear market normally does not last long and creates few false rebounds to enter the second stage of the bear market. The false rebound attract more retailers to the market thinking the end of the bear market.

This is when the investor started to buy and sell along the up and down of the market until the economy outlook turn bad. Remember retail investor always act slower than institutional investor simply because there are bunch of emotional investor out there. This stage always last longer.

Third Stage

The market is feaful in the third stage. Economy outlook can hit historical bad. Confidence level drop dramatically. Any good news during this stage seems to be too weak to boost up the market.

Trading volume getting lower and lower. Most of the investor tend to sell off their stocks to cut lost. PER is approaching below 15x or even 10x. It is extremely important to identify the rebound signal as the institutional investor can anytime log in to the undevalued market.

Rebound signal :

In my personal view, as long as that has attracted the overnment attnetion to steps in to stabilised the market, just like what is happening now, it is believed that the end of the bear market will come soon. Through valuation, institutional investor is easier to boost up the market price when trading volume is low. Again it will be too late for institutional investor to log in to the market after the economy recovery as there will be no seller during good market outlook. We saw more than 3 buying signals since end of Oct' 08. We are now nearly 4 months away from the bottom. Can we say we could have passed the lowest of this round crisis? SH-Comp hits lowest on end of Oct'08 exactly one year after their highest.

And it has now rebound by 35% reaching 2300 from lowest of 1700 points. 'H' share has rebound by 40% passing the 7000 points from to its lowest 4990 points. HSI from its lowest 11000 points, only at 35% of its highest 31000, has rebound by 20% to pass 13000 points. Bad news from financial report and economy outlook seems not impacting much to the stock market any more as it is believe to be comprehended in the current low price.

We saw this situation frequently especially after the Deepavali on end of Oct'08. The market volume increase due to capital injection from the institutional investors. To further confirm, we can identify the next head is higher than the previous head. Likewise, the next bottom is higher than the previous bottom.

Every crisis creates opportunity

Benchmarking China stock market, while it has dropped from its highest of 6000 to the lowest of the year of 1700, and now rebound back passing 2300, with the increasing domestic consumption and the sustainable GDP growth, we believe China government should take not longer than 10 years to hit the 6000 points. i have mentioned that when it is below 2000 points.

Now the potential has drop from 200% to 160%. Of course, 6000 points would not be its permanent resistance. 160% over the next 10 years, which is equivalent to 10% annual return by 10 years is what i think convincing. Likewise the China 'H' Share from now 7500 to highes 20000 points. Does China need 10 years to be back to 6000 points?