Maintain short positions, as the bearish bias is still in play below 13,130 pts. At the end of yesterday’s session, we saw a 60-pt increase in the SGX FTSE China A50 to 12,560 pts. A white candle was formed, which implied that the session was led by the bulls. Despite the increase, we think a further upside development is needed in order to confirm that market sentiment has strengthened. Note that the index is still trading below the 200-day SMA line, which points towards a bearish outlook. Overall, the current bearish bias has not been fully negated yet.

As long as we do not see a strong breach above the 12,837-pt resistance, this indicates that market sentiment is still weak. For now, it is best that traders maintain short positions. In order to minimise the upside risk, we advise setting a stop-loss above the aforementioned resistance. For the record, we initially made the short call on 31 May, following a breach below 12,060 pts.

We set the immediate support at 12,320 pts, ie the low of 12 Feb’s “Bullish Harami” pattern. Our next support is now at the 11,985-pt threshold, or the low of 31 May’s Bullish Engulfing” pattern. Conversely, the immediate resistance is pegged at 12,837 pts, which was obtained from 15 May’s high. The following resistance is set at 13,130 pts – this is located at the low of 5 Mar.

Source: RHB Securities Research - 6 Jun 2018