Abstract
Despite the future price of individual stocks has long been proved to be unpredictable and irregular according to the EMH, the turning points (or the reversal) of the stock indices trend still remain the rules to follow. Therefore, this study mainly aimed to provide investors with new strategies in buying ETFs of the indices, which not only avoided the instability of individual stocks, but were also able to get a high profit within weeks. Famous theories like Gann theory and the Elliott wave theory suggest that as part of the nature, market regulations and economic activities of human beings shall conform to the laws of nature and the operation of the universe. They further refined only the rules related to specific timepoints and the time cycle rather than the traditional analysis of the complex economic and social factors, which is, to some extent, similar to what the Chinese traditional culture proposes: that every impact on and change in the human society is always attributable to changes in the nature. The study found that the turns of the stock indices trend were inevitable at specific timepoints while the strength and intensity of the turns were uncertain, affected by various factors by then, which meant the market was intertwined with both certainty and uncertainty at the same time. The analysis was based on the data of the Shanghai Index, the Second Board Index and the Shenzhen Index, the three major indices that represent almost all aspects of the Chinese stock market, for the past decades. It could effectively reduce the heteroscedasticity, instability and irregularity of time series models by replacing 250 daily high-frequency data with the extreme points near every twenty-four solar terms per year. The forecasts focusing on the future stock trend of the all-solar-terms group and the eight-solar-terms group were proved accurate. What is more, the indices trend was at a high probability to turn in a range of four days at each solar term. The alert period also provided the readers with a practical example of how it works in the real investment environment.
Highlights
Based on the fact that we only focused on indices in this paper, we did not distinguish between the price and the point, the stock and the stock index
Event Cm stands for the biggest n value of the n-day extreme point in the present alert period which we call m for clarity
The case contradicts common sense, thatlow is, buying on the high; the case proved it the onlycase in the alertitperiod, is necessary to it assess it not accordhigh; proved only inand the it alert period, and is necessary to assess it not according ing to how many days the stock been in total, combine the m value it creates to how manyhas days thefalling stock has beenbut falling in total, but combine the m value it creates with the distance to thethe solar term. to the solar term
Summary
According to the efficient-market hypothesis (EMH) and the adaptive market hypothesis (AMH), the future price of an individual stock is impossible to predict and, as the efficiency of the market goes high, the market tends to be more stochastic and disordered, and there are no methods to make any valid prediction ahead from the present. Our study mainly focused on the turns and reversal of trend of the three major Chinese stock indices (i.e., whether they would rise or fall in the future or fluctuate with no obvious rise or fall but not the forecast of a certain price or point or an analysis of a numeric error). The major finding and philosophy of the study is that market rules and economic activities of human beings conform to the laws of nature and the operation of the universe There are both certainty and uncertainty intertwining in the stock market and, that exists in every aspect of the world, and that is the nature philosophy. This study mainly took the Shanghai Stock Index (000001) as an example to make a detailed process discovering the relationship between the solar term and the turning points. For convenience, we only show the results of these two indices directly with the same approach as dealing with the Shanghai Index
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