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Hong Kong Stocks Like You HAVE Seen Them Before -- And What It Means for the Future Trend
Think the market's rally is a "new" chapter? Our charts show you why its bullish story is actually quite old

By Nico Isaac
Tue, 19 Aug 2014 17:00:00 ET
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The ancient Greek philosopher Socrates wrote: "Our youth. They have bad manners [and] contempt for authority."

Sound at all familiar?
 
The fact is, older generations always believe the impudence of their youth is an entirely new experience, the likes of which the world has never seen before. But as Socrates proves, the exasperated "Kids Today!" grievance has been around since at least 400 B.C.
 
It's akin to something we often hear in the realm of finance -- like the enthusiastic "Stocks today!" cheer. It goes like this: First, stock market 'x' enjoys a strong and steady uptrend. Next, investors dub the rally an entirely new experience the likes of which the world has never seen before.
 
And finally, the mainstream experts use expressions like "This time it's different," and "Prices are responding to a whole new set of fundamentals" -- to emphasize the uniqueness of this uptrend unto all others.
 
But the truth is, the market's behavior is actually a recast of an old, familiar role.
 
Elliott wave analysis accepts this outright: Stock markets are constantly replaying history in one form -- i.e. Elliott wave pattern -- or another. These patterns are fractal in nature; meaning, they repeat the same exact shape at different degrees of trend, from the smallest to the largest.
 
A perfect example of this is the recent action in Hong Kong's Hang Seng Index. On August 19, the Hang Seng rocketed above the 25,000 level for the first time since 2008. The surge was part and parcel of an impressive uptrend that has persisted for the past few months.
 
Yet, according to a recent news source, this uptrend, in fact, reflects "A New Chapter for the Hang Seng," one made possible by the latest proposal for mainland investors to buy Hong Kong shares.
 
From an Elliott wave perspective, though, this chapter in the Hang Seng's here-story is actually quite old. The following chart from page 7 of the August 2014 Asian Pacific Financial Forecast takes you 40 years back in time, to the early 1970's, when one of the most aggressive Elliott wave set-ups began taking shape -- the 1-2, 1-2 wave pattern. (Ed. note: Partial Elliott wave labels shown)
 
 
 
What makes the 1-2, 1-2 so forceful, you might wonder?
 
It's the stair-step, build-up to wave 3 -- the most powerful part of the Elliott impulse pattern. In this case, you can see how at THREE degrees of trend, the multi-year 1-2, 1-2, 1-2 was the loaded canon to an explosive wave 3 bull market that followed in the Hang Seng.
 
Now, let's take a look at another chart. This one comes from the July 2014 Asian Pacific Financial Forecast.
 
 
 
You see it: the same 1-2, 1-2 pattern, but on a smaller scale, figured highly into our "immediately bullish forecast." We wrote: "If the index is in a third wave, it should eventually accelerate away from the lower line [of the trend channel]."
 
In our final chart, also from the August 2014 Asian Pacific Financial Forecast, you can see how prices did, indeed, "accelerate away from the line" in the start of a third wave.
 
 
 
The truth is, you -- and traders and investors across the globe -- have seen the Hang Seng like this before. The question is, will the market's historical bull market repeat itself as well?
 
On August 14, our own Asian Pacific Financial Forecast editor Mark Galasiewski was interviewed by Bloomberg's "First Up" program. His answer was candid: 
 
"If you asked me about this say last year this time, I would have said I'm less sure. But the fact of the matter is, I decided to be on your program at this time because of [this] particular breakout… It's a very special event."
 
Hong Kong's Hang Seng is just one of 3 markets in which this event is taking place.
 
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