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CapitaMalls Asia: Morning doji star?

Monday, February 21, 2011

You might notice that many charts are spotting reversal signals today which are in need of confirmation. After so many days of down action, many counters seem ready for a rebound. Of course, signals will always need confirmation.

Regular readers would remember that I said I would wait to see if the $1.83 support for this counter would be retested. If the support held up upon retest, I might increase my exposure to the counter. Today, I increased the weight of my long position at $1.86. Why?

1. A lack of selling pressure as exemplified by the low volume.

2. The formation of a doji which is a potential reversal signal.

3. An uptick in the MFI and RSI which suggests some underlying support.

Taking point number 2 further, we could be seeing the first two candles in a three candles reversal pattern which is known as the Morning Doji Star. If price opens higher tomorrow and forms a white candle that ends the day at $1.90 or higher, the set up would be perfect. This set up usually signals a reversal from a downtrend.

Like I said before, TA is useful in giving us glimpses of what might be and not what would be. So, always be prepared for two scenarios.

If price goes up, what do we do? If we connect the highs of 9 Feb and 17 Feb, we get a trendline resistance. On the weekly chart, the resistance shows up as $1.92. On the daily chart, the resistance could be at $1.93 to $1.94. So, in a downtrend, sell at resistance. What about retaining some shares to see if there is a chance of price retesting the 100dMA as resistance as it did on 9 Feb? Why not? This would approximate $2.00 this week and coincides with the upper Bollinger band on the daily chart.

What if price did not go up and went down instead? In such an instance, I would wait to see if $1.83 would be retested as support and if it held up upon retest, I would buy more.

That's all, folks. I have a very early flight to catch tomorrow and I am going to try to sleep earlier. So, this is the only blog post for tonight. Good luck and good fortune.

Related post:
CapitaMalls Asia: Support at $1.88 gave way.


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