Maintain short positions, as opportunities are still leaning more towards the sellers. The SGX FTSE China A50 dipped 35 pts last Friday to 12,272.50 pts. A black candle was formed that implied the session was led by the bears, and we believe the opportunities are still leaning more towards the sellers. Although a reversal “Bullish Engulfing” candlestick pattern appeared on 31 May, there was no positive continuation that confirmed the bullish bias. Technically speaking, the index is merely taking a normal breather after having dropped to a more than 7- month low on 30 May. Overall, our bearish view remains in play.

In the absence of any strong upside developments, this implies the retracement has not reached its limit yet. Hence, it is best that traders maintain short positions. In order to minimise the upside risk, we advise setting a stop-loss above the 12,837-pt threshold. This is in line with our initial short recommendation on 31 May, after the SGX FTSE China A50 dipped below the 12,060 pts level.

We keep the immediate support at 11,882 pts, or the low of 15 Sep 2017. For the next support, look to 11,397 pts, ie 11 Aug 2017’s low. Towards the upside, our immediate resistance is pegged at 12,320 pts, which is located at the low of 12 Feb’s “Bullish Harami” pattern. This is followed by the 12,837-pt resistance, or the high of 15 May.

Source: RHB Securities Research - 4 Jun 2018