Bottom has been made, although volatility should be cautioned.

Following the more than 200 points gain in the DJIA, Hang Seng market reversed the 400 point loss last Thursday to gap up opening at 21,289.70, up approximately 300 points. It spiked even higher during afternoon trading hours with an intraday high of 21,474.31 but was sold slightly by the market making a low of 21,223.99, after which the bulls regained their force and closed 289.60 points up at 21,261.89. It should be noted that the market performance last Friday has shown positive momentum for the market to rally. The doji pattern, as seen in the daily chart, shows that the market has been resilient despite its market leader China Mobile still falling for a second day. Gains were broad in the sector, although not as sharply as before.

Recommendation: Traders should get back to work and enter aggressively in issues when market sells down, since a short term bottom has been in place. The characteristic of the Hong Kong market is unlike the US nor the Philippines because there are gap-ups, leaving traders who do not enter ahead of the pack, left behind. Stock picks include : 2333 HK and 3383 HK. Note that I also illustrated the chart pattern of 576 HK and 1200 HK, as these small cap stocks have already shown the potential upside that can be taken advantage of in this volatile bear market short term bottom. A quick glance at the charts of China Life Insurance (2628 HK), Ping An Insurance (2318 HK) as well as Tsingtao Brewery (168 HK) will prove that Chinese H-shares have been leaders in this market’s rally.

Intraday Hangseng Chart

Daily Hang Seng Chart:

Stock Pick Summary:

I already computed the optimal position size, with a 1% risk size as well as assuming a 500K HKD capital for the following stocks. Thanks.

Watch List:

Midland Holdings (1200 HK) and Zhejiang Express (576 HK)

1200 HK has already moved 33% from its bottom of 3.00, closing at 4 last Friday. Zhejiang Express has moved from its low of 4.60 to a short term high of 5.39 for about a 20% gain in just a week. Sounds familiar? While the substantial gains may find people thinking that the rally may have been finished, I think it is not. Midland Holdings may behave similarly like 2038 HK or Foxconn which still showed further rallies after a short term pullback. Zhejiang Express should be visualized like CEO (a stock listed in the US). The pattern is very similar. This should be taken advantage of, if a pullback ensues due to some profit taking from traders.

Stock Picks:

Great Wall Motor (2333 HK)

Agile Property (3383 HK)