Stay short while setting a new trailing-stop above the 30,900-pt resistance. The HSIF’s downside move continued as expected, after it ended lower to form another black candle yesterday. It closed at 30,053 pts, after oscillating between a high of 30,486 pts and low of 29,982 pts. As the index has successfully taken out the 30,296-pt support mentioned previously and posted a second consecutive black candle, this can be viewed as the bears extending their downward momentum. Moreover, as the 14-day RSI indicator deteriorated to a weaker reading at 42.31 pts, the negative sentiment has been enhanced.

As shown in the chart, the immediate resistance is maintained at 30,900 pts, situated near the midpoint of 23 May’s long black candle. The next resistance is seen at 31,499 pts, ie the high of 15 May’s “Bearish Engulfing” pattern. On the other hand, we anticipate the immediate support level at 29,575 pts, which was the low of 7 May. If a breakdown arises, the next support is situated at the 29,000-pt psychological mark.

Therefore, we advise traders to maintain short positions, given that we initially recommended initiating short below the 30,900-pt level on 24 May. For now, a new trailing-stop can be set above the 30,900-pt threshold as well, in order to minimise the risk per trade.

Source: RHB Securities Research - 31 May 2018