Apple Daily --- 29 Oct, 2000

It seems that there are two types of extremists. Some never believe in charts and think that chartists are just a bunch of superstitious followers. They believe that investments should be based solely on economic and political factors. Some Over-believe in charts and think that they are omnipotent. These zealots believe that by looking at patterns formed during the past few days, one is able to forecast movements in the next year.

We do not agree with either view. Charts record the direction of money flow and what the big guys are doing. These big guys have many economists working for them analyzing daily business and political trends. They have the most information and do the most homework. If such is the case, instead of relying on a few newspapers and attempting to analyze the complicated global environment ourselves, why not read the charts, discern what these big-guys are doing and follow their footsteps? We are not here propagating that one should never look at news or company profile when making the investment decision. Rather, after doing the homework, one should acquire further insights by looking at charts and see whether the big guys are thinking the same way as one does.

On the other hand, one should not over-believe in charts. Of course, when a bullish pattern occurred, one should buy. However, remember that the bullish pattern only signifies you that some hot money is flowing into the market. It does not tell you this hot money will be chasing the market forever. Hence, after buying on the bullish pattern, one should not get lazy and just go fishing. Rather, one should monitor the market continuously and should never wishfully think that the pattern will never be wrong.

There are no patterns that are never wrong. The economics and politics are always changing. Major events, which impact the economy, significantly always come unexpected and catch everyone in surprise. Even the big-guys do their homework incorrectly at times. Thus, it is impossible to think that just a few bars or candlesticks can predict a long-term trend.

Hence, assuming that one buys on a bullish pattern and the market does rally the next few days. One should not lapse into complacency and think that he is the God of Stocks? Rather, he should humbly watch out for possible reversal signals. For example, if after jumping the few days, the market stalls and reverses its course, one has to be careful. Some fundamentals may have changed and the bullish pattern may no longer be valid.

Figure 1 shows the Prosticks chart of PetroChina (857). As can be seen, bar C is a long falling bar, with Modal Point, Active Range, and closing price residing in the lower part of the bar, signifying bearishness. However, coincidentally, the Modal Point of C lies exactly 61.8% of the Modal Point of A and B. As discussed before, this 61.8% marks a boundary line between a bull and a bear trend. If price rebounds from this 61.8%, the prior up trend of A and B may continue. The following day at D, unexpectedly, price opens just above C's Active Range, indicating flow of hot money into the market at this 61.8% level. As can be seen, if one longed the stock at the D's opening, one would be able to get a hefty nice profits in the following few days. However, as said before, a pattern only gives you clues on money flow for a short period of time. After buying at D, one should not leave it behind and hope it will rise 10 times a year later. Rather, one should monitor the market closely. If things for some reasons turn sour and the market turns around, one should liquidate the position should price fall back to the entry point.

Figure 2 shows the Prosticks chart of Wharf Holdings (0004). Notice that the low point of B is coincident with the Modal Point of A, indicating that buying forces at A resurfaced at B in the current deeply oversold condition. If one bought at the closing price of B, the investor also enjoyed a hefty profits the following few days. Same as before, the investor should not indulge into self-satisfaction. With these profits in hand, one should use them as cushions to ride on a long-term trend, if it manifests. However, if the market turns around, one should exit at break even level to avoid capital loss.