Keep in short positions, in line with the ongoing retracement. The SGX FTSE China A50 posted a 95-pt loss to 12,342.50 pts at yesterday’s close. A black candle was formed, which implied the session was led by the bears. We believe the current bearish bias is still in play – although a bullish bias was observed in the “Bullish Engulfing” candlestick pattern on 31 May, no firm upside follow-through has been sighted yet. This indicates that the bulls are unable to wrest control form the bears. Moreover, we highlight that the 14-day RSI indicator is situated at 46.74 pts, ie below the 50-pt neutral level. This indicates that market sentiment is weak, thereby enhancing our downside view.

As we do not see any strong upside development in the daily chart, this implies the retracement is still in play. As such, it is best that traders maintain short positions. For risk-minimisation purposes, we advise setting a stop-loss above the 12,837-pt threshold. This is in line with our initial short call on 31 May, following a firm breach below the 12,060-pt mark.

We keep the immediate support at 12,320 pts, which was the low of 12 Feb’s “Bullish Harami” pattern. Should the SGX FTSE China A50 dip below this level, our next support is seen at 11,985 pts, or the low of 31 May’s “Bullish Engulfing” pattern. Conversely, the immediate resistance is at 12,837 pts, or the high of 15 May. For the next resistance, look to 13,130 pts, which was 5 Mar’s low.

Source: RHB Securities Research - 19 Jun 2018