Stay short, as the bears are still dominating market sentiment. The SGX FTSE China A50 ended yesterday’s session at 12,307.50 pts and posted a 265-pt gain. It charted a white candle that covered the body of the prior black one and formed a reversal “Bullish Engulfing” candlestick pattern. This shows that a potential upside reversal movement may happen. However, until a strong bullish development is in sight, we believe the current correction remains intact. At this juncture, the increase is viewed as the index merely taking a breather. This is a normal reaction after the SGX FTSE China A50 had dropped – to its more than 7-month low – below the previous 12,060-pt stop-loss on 30 May. Overall, our current view remains bearish.

The current technical landscape suggests that the bears are still dominating market sentiment. From our technical standpoint, it is best that traders maintain short positions with a stop-loss pegged above the 12,837-pt threshold. This is in order to minimise the upside risk. For the record, our short call was initially triggered below the 12,060-pt level on 31 May.

To the downside, our immediate support is at 11,882 pts, which is located at the low of 15 Sep 2017. This is followed by the 11,397-pt support mark, or the low of 11 Aug 2017. On the flip side, we set the immediate resistance at 12,320 pts, which was the low of 12 Feb’s “Bullish Harami” pattern. The next resistance is pegged at the 12,837-pt threshold, ie 15 May’s high.

Source: RHB Securities Research - 1 Jun 2018