The 14-day RSI indicator suggests more room for the correction to extend, stay short. The SGX FTSE China A50 posted a 342.50-pt loss at yesterday’s close to 12,000 pts. As a result, a black candle that breached firmly below the previous 12,320-pt support was formed. This implied that the session was mainly led by the sellers. Should the index extend its downside movement below the 11,985-pt threshold, this will be the end of the bullish bias we detected in 31 May’s reversal “Bullish Engulfing” candlestick pattern. Based on the daily chart, we believe market sentiment is pointing towards a negative outlook. The fact that the 14-day RSI Indicator is above the 30-pt oversold level – at 37.87 pts – suggests there is still room for the correction to extend further. This enhances our bearish view.

From our technical perspective, the SGX FTSE China A50 is still on a correction mode. As such, it is best that traders maintain short positions, with a stop-loss set above the 12,837-pt threshold. This is in order to minimise the upside risk. Recall that our short call was initially triggered on 31 May, after the index dipped below the 12,060-pt level.

After yesterday’s weak performance, we revise the immediate support to 11,985 pts, ie the low of 31 May’s “Bullish Engulfing” pattern. This is followed by the 11,397-pt support, or the low of 11 Aug 2017. Conversely, our immediate resistance is pegged at 12,320 pts, which was the low of 12 Feb’s “Bullish Harami” pattern. For the next resistance, look to 12,837 pts, or 15 May’s high.

Source: RHB Securities Research - 20 Jun 2018