China Stationery's share price suffered sharp drop from theyesterday's intra-day high and a 'Bearish Engulfing' pattern has been created.The bearish reversal pattern is also confirmed with strong volume. We advisetraders to sell the shares now since its share price is expected to normalizetowards the 10-day MAV line. 

China Stationery faced massive selling pressure yesterdayand a classic a 'Bearish Engulfing' pattern has been created as a result. Thebearish reversal pattern is considered classic because: (i) a long black candleappeared after its share price appreciated 6 days in a row, (ii) the blackcandle of the formation is confirmed with strong volume, and (iii) the dailyRSI reached as high as 85 pts yesterday.

Hence, we advise traders to sell China Stationery now. Weare eyeing the 10-day MAV line, which now lies at the RM1.39 level, as thedownside target since we expect the share price to normalize towards this linegoing forward. The 10-day MAV line is considered the normalized price levelbecause the stock was previously trading around this line towards the end of Marchand started to trend along it in early April. The stock would need to surpassthe RM1.93 peak, which represents the highest price level since its IPO, inorder to neutralize the 'Bearish Engulfing' effect. Nevertheless, we think theprobability of this happening is rather low, considering the other factorsmentioned above.

Immediate support is seen at the RM1.50 level, followed bythe 10-day MAV line. To the upside, initial resistance is seen at yesterday'sopening level of RM1.82, followed by the RM1.93 level. The immediate technicaloutlook of China Stationery has turned bearish, following the emergence of the'Bearish Engulfing' formation.

Source: OSK188