Market Outlook as at September 19, 2008

The KLCI had a very volatile session yesterday. It opened (with a gap down) at 993.2 & thereafter it made a low of 963.3, before rebounding to close at 991.7. This morning, it opened (with a gap up) at 1003.8 & climbed higher. As at 10.30 am today, the KLCI was up 21.0 points at 1012.6. If today's market action can stay positive (say, the KLCI ending the day with a gain of 15 points or more), then we will have a bullish confirmation of yesterday's potential reversal, which is called a doji in Japanese Candlesticks charting. For more on Doji & Bullish Confirmation, see the explanation below.

If the bullish reversal were achieved, I expect the KLCI to continue to move upward, with initial resistance at the horizontal line at 1065 & medium-term downtrend line at 1070-75. Thereafter, the KLCI will face resistance at the horizontal lines at 1100 & possibly 1165. The most important resistance will come from the downtrend line at 1070-75 level. If the KLCI can surpass this hurdle, the short to medium-term outlook for the market will improve considerably.


Chart: KLCI's daily chart as at September 18, 2008 (source: Quickcharts)

Doji & Bullish Confirmation (from the ChartSchool of Stockcharts.com)

After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.

The actual reversal indicates that buyers overcame prior selling pressure, but it remains unclear whether new buyers will bid prices higher. Without confirmation, these patterns would be considered neutral and merely indicate a potential support level at best. Bullish confirmation means further upside follow through and can come as a gap up, long white candlestick or high volume advance. Because candlestick patterns are short-term and usually effective for only 1 or 2 weeks, bullish confirmation should come within 1 to 3 days after the pattern.