Stay short, in line with our bearish view. The SGX FTSE China A50 posted a 287.50-pt loss at the end of last Friday’s session to 12,272.50 pts. This resulted in the formation of a black candle that breached below the previous 12,320-pt support, which showed the session was led by the bears. Despite the appearance of 31 May’s reversal “Bullish Engulfing” candlestick pattern, no strong upside follow-through was sighted. Technically speaking, we think the correction has not reached its limit yet. We also note that the 14-day RSI indicator has dipped below the 50-pt neutral level at 45.15 pts. This suggests that market sentiment is weak, thereby enhancing our bearish view.

As we do not see strong upside movement in the daily chart, this implies that the bulls are still unable to take control from the bears. As such, we maintain our short call. For risk-minimisation purposes, traders are advised to set a stop-loss above the 12,837-pt resistance. This is in line with our initial short recommendation on 31 May, following a breach below the 12,060-pt mark.

After last Friday’s weak performance, our immediate resistance is now at 11,985 pts, or the low of 31 May’s Bullish Engulfing” pattern. This is followed by the 11,985-pt support, ie the low of 31 May’s Bullish Engulfing” pattern. Towards the upside, 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 12,837 pts, or 15 May’s high.

Source: RHB Securities Research - 11 Jun 2018