Market Outlook as at January 22, 2008

Yesterday, the KLCI broke its medium-term uptrend line support at 1420, when it closed at 1408.60 (see Chart 1 below). At the end of the morning session, KLCI lost 56 points to close at 1352.


Chart 1: KLCI's daily chart as at January 21 (courtesy of Quickcharts)

From Chart 2 below, we can see that the KLCI has been trending upward in a channel. If we drew a line in the middle of the channel, we can see that whenever the KLCI has crossed above this line, the KLCI has a tendency to go near to the upper boundary of the channel. Similarly, whenever the KLCI crossed below this central line, it has a tendency to go near to the lower boundary of the channel. With the sharp fall experienced this morning, the KLCI has now crossed below this central line. Thus, we may see a test of the lower boundary of the channel at 1250-1270 in the near future. Hopefully, the KLCI would be able to hold above this level, or else the current longer term uptrend in our market would be terminated.


Chart 2: KLCI's weekly chart as at January 21 (courtesy of Quickcharts)

Given the current bearish outlook, it maybe advisable not to add to your position now. Use any rebound to reduce your position in the market. The bearish view is the result of a few major markets (such as DJIA, FTSE, DAX, CAC & Nikkei) exhibiting either possible long-term reversal or a break to the downside of their long-term uptrend line or their long-term 200- or even 400-day SMA. In my view, the global equity market could be entering into a bearish phase. Please ignore all earlier BUY recommendations until further notice.