Not that long ago, Hong Kong was on the verge of an equity market collapse and a potential currency devaluation. Today, courtesy of the Hong Kong Monetary Authority that overtly intervened to buy 10% of the country's shares, and the subsequent admission of China to the WTO, few are looking for much trouble out of Hong Kong.

And yet when we look at the monthly chart of the Hang Seng index below, we spot huge momentum divergence going back to the 1994 and 1998 highs and comparing those highs to the price action of late. In March of this year we also finished a complete 5-waves up from the 1998 low. Is the pattern since then a I, II, 1, 2 decline -- getting ready for a 3-wave down? Perhaps.

Chart courtesy of FutureSource.com

The average high tech U.S. stock is now down a huge amount - anywhere between 20% and 90% in value. Israel and Palestine remain more or less at each others' throats. Since events so often happen in threes, we'd be on the lookout now for something to go wrong in the Far East hemisphere. Then, the Hang Seng Index might once again start setting the tone for New York's markets, in lieu of the Far East simply following our cue (as has so often been the case of late).

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