Correction or crash?(3)

Right after my second post with the same title Correction or crash?(2) in Mar 12, the stock markets allover the world experienced a horrible Friday in the following day and days of whipsaw fluctuation. The HSI even saw the 22500 level when it hit the day lowest point.

As mentioned in the second post, three technical analysis suggest a very likely southward development for the HSI. The three technical analysis, ranging from short to long term, are the Head and Shoulder formation, supportive line formed after resisting two attempts and the possible Wave C according to Elliot Wave Theory.

Having said, it is still too early to conclude a crash is definitely on its way and there is still hope despite the recent plunge, 22.7% low of the latest peak, looks really in bad shape. The main reason lies on the hypothesis that despite of the divergence between the DJI and HSI since 2018 but in most of the time the two indexes are synchronized in direction. The recent whipsaw in the U.S. market is mainly profit-taking driven and partly event triggered by the global pandemic that sparkle the worry of worldwide recession if the pandemic persists for a long time, say a year or even longer.

The conspiracy in the U.S. market is that Trump will do everything he can to restore the three major indexes in the U.S. back to a relatively high level for the sake of his second term of presidency. The performance of the stock markets was used by Trump as the score of his office of presidency. There is about half year to go prior to the election, as long as the pandemic can be contained and compounded with the global monetary and fiscal stimulation measures that floods the financial world with excessive liquidity, the U.S. market could be saved, perhaps. The liquidity spillage over the Hong Kong bourse might save the HSI as well.

There are several footholds to gauge the possible development of the HSI. As the Index has already dipped below the first foothold of the supportive line formed after the two attempts in 2018 October and 2019 August at 24800 then the next foothold is the target of the head and shoulder formation which is around 23000 where the HSI is nagging in these past two days. A further drop below this level could mean the test of the last foothold of being a correction at the 61.8% adjustment of the total rise from the valley in 2008 till the historic peak in 2018 which is around 19400.

As long as the HSI can stay above the 19400 level, despite it is a huge fall from the historic peak but it will still be a correction because it will rise again and theoretically there should be an even higher record in the future. However, if this last foothold is lost then a true crash is really unavoidable as it is quite evidential that Wave C is really on its way.  Judging from the record in HSI except the first ever crash in 1974 that the Index has dropped from 1774  to 150, the following 10 crashes since then ranged from -48% to -103% of the total hike with the average around -80% as elaborated in my first post Correction or crash?.

Will the HSI be back to or even fall below the 10676 in 2008? Let's wait and see!