Wen Steel City: 2 Indicators to seize the opportunity to bottom out during a downturn!

How to determine a bear market?

Recently, global stock markets have seen a decline, which the media refers to as a stock market crash. A bear market has very objective rules:

First criterion: Hong Kong stocks break below the 250-day moving average, while US and European stock markets or the Shanghai Composite Index break below the 200-day moving average.

Second criterion: A drop of 20%. For Hong Kong stocks, if there is a 20% drop, it means falling to 19,800 points.

How to determine how long the decline will last?

How to determine the scale and duration of a bear market? It depends on what Trump's true intentions are.

I estimate that it is a very complex purpose. Tariffs are just a way to collect exorbitant profits. In fact, I believe he (Trump) is very ambitious, and the ultimate goal is to become president for three terms or more. To achieve this ultimate goal, it is difficult to convince people without significant contributions. In Trump's thinking, a significant contribution might be reversing trade relations.

If the stock market continues to decline, and if the Chinese government intervenes, for example by cutting interest rates, lowering reserve requirements, stimulating domestic demand, or promoting trade-in programs, the effects would be more pronounced.

Additionally, it is necessary to see if the inflow from the north can maintain a high percentage. This year, the net inflow from the north has been exaggerated, with 500 to 600 billion yuan flowing in since the beginning of the year; in the past, it would take a whole year to reach this effect, but it has already been achieved in the first quarter of this year. Therefore, if there are future inflows from the north, and with policy support added to the momentum from monetary policy, Hong Kong stocks could see a better rebound at certain levels, or even a trend reversal.

If it occurs at this year's low of 18671 points, the PE ratio at this level of the HSI is not high, about 10 times. For many investors, it is not expensive, and many are willing to endure prices or accumulate stocks. Recently, there has been a technology boom in the mainland, providing Topics for speculation. For foreign investors, with the US stocks at a PE ratio of over 20 times and Hong Kong stocks at 9 or 10 times, it is better to buy Hong Kong stocks. Before the trade war, it was already evident that foreign investors were interested in Hong Kong stocks.

During Trump's previous trade war, in the early stage of his last term, the S&P 500 Index fell 20% from its high in the second half of 2018. Hong Kong stocks fell for a long time, accumulating a drop of 26.7% from their high at the beginning of the year to their low in October. Will this time be worse than last?

Assuming a worse situation, a rough calculation: if the high point for Hong Kong stocks this year is 24874 points, assuming a level of 25000 points, to drop 7500 points and fall by 30%, it should be about 17500 points.

When can an entry be made? Is around 18000 points close enough? For medium to long-term investors, this may be the time to enter. After several days of short selling declines, buying a small amount to speculate on a rebound is possible, or if short selling accounts for 20% to 30%, it is a good opportunity to buy at lower prices. Accumulating near the bottom of the Bollinger Bands (BOLL) is also an option.

Two Indicators to grasp the rebound signals.

The poet Shelley once said: Winter is here, but is spring far away? Everyone should be calm, as the saying goes, being calm means having money left.

During the rebound, remember to cherish the rebound. A downturn is a good thing, a stock market crash is a good thing, some people say this is the special price period for quality stocks.

The problem is when will there be a real rebound? There are indicators to support this. The most basic observation is whether there will be a double bottom, and then pay attention to it.

Technically, there is the VIX panic index or the HSI Volatility Index. I have observed for many years that when the US stock market panic index reaches a critical point, for example, above 40 to buy in, there will already be profits in two to three months. Assuming poor performance, after buying in at the bottom and rebounding, it can also rise to the home price.

These artificial factors, once Trump pulls back, all valuations will recover. Suddenly, the valuations seem cheap, with a PE of 9 times. The PE of the US stock market is also shared with everyone: it is currently around 17 or 18 times, generally 15 or 16 times recently, and will also yield profits as a medium to long-term deployment.

If a stock market crash occurs, how should one respond?

Last year there was a significant situation: last year was in a rate-cutting cycle, where logically bond prices should rise, but TLT fell more than 10% in the third and fourth quarters, from over 100 dollars to under 80 dollars. What happened? The USA is no longer attractive, and people think it's better to buy US stocks than US bonds, with quicker returns.

The US government's deficit and bond auctions have traditionally been highly demanded during stock crashes, with oversubscription by multiples, but now the subscription multiples are getting lower. Of course, mainland China has reduced purchases of US bonds and has not increased, which means fewer big buyers, affecting the attractiveness of bond prices, and there are also reports of selling US bonds.

Trump wants the USA government to have money on hand, so it needs to drive capital out of the stock market first. Investors are keen on USA Technology stocks, so it might be better to push them to buy 20 to 30-year perpetual Bonds. What methods can be used? A stock market crash could achieve this, as well as interest rate cuts.

So did anyone notice what Trump did immediately when the US stock market dropped sharply last week? He pressured Powell to cut interest rates. It's obvious what he's after. The Interest Rates futures market shows that the market initially expected two rate cuts, and the expectations increased from one to two, then to three or four, with a maximum of five times.

For the Federal Reserve to be forced to cut rates, a significant event must occur; a Crediting crisis could force the Federal Reserve to cut rates.

In terms of USA commercial property loans, more people are returning to work in offices, but at the same time, many commercial property prices have dropped significantly. The Hong Kong stock market could even fall by 30%, previously dropping to 8000 points during SARS. The Hong Kong stock market during the Lehman period peaked at 33484 points in 2018, and the highest point in 2007 was 31958 points; then it reached a low of 10676 points, a loss of one-third of its value, which is not surprising.

If this is the case, would it be too early to pick up stocks in the Hong Kong stock market at 18000 points?

The financial crisis has several scenarios; as previously mentioned, a short-term rebound could be an opportunity to buy; a long or significant rebound may refer to figures like Buffett.

Berkshire holds the most cash ever, with a cash ratio of 28%. This cash ratio is typically at a high level before a stock market crash occurs. Once a crash happens, the cash ratio will begin to decline, which is a strong signal proving Buffett's buying, fulfilling the saying of being greedy when others are fearful.

I've shared many stories with everyone, and this information is for your benefit. Speculations are just speculations, whether they will be realized, everyone will have to feel their way across the river.