Stay short, as the correction is still in play. The SGX FTSE China A50 registered a 32.50-pt loss to 12,040 pts at last Friday’s close. This weak performance led the index to near the 11,985-pt loss. The current bearish bias is continuing to exert itself and – although we detected a positive momentum in 31 May’s “Bullish Engulfing” and 20 Jun’s reversal “Bullish Harami” patterns – no firm upside follow-through was sighted in the daily chart. Technically speaking, the bulls are still unable to take control from the bears. Overall, we believe the correction is not at its limit yet.

As long as the SGX FTSE China A50 is unable to breach above the 12,640-pt threshold, this implies that market sentiment remains weak. For risk-minimisation purposes, we advise setting a stop-loss above the aforementioned 12,640 pts. Do note that we initially recommended traders to enter short positions on 31 May after the index breached below the 12,060-pt mark.

We set the immediate support at 11,985 pts, or the low of 31 May’s “Bullish Engulfing” pattern. If this level is taken out, the following support is found at 11,397 pts – this was the low of 11 Aug 2017. Conversely, the immediate resistance is set at 12,320 pts, or the low of 12 Feb’s “Bullish Harami” pattern. This is followed by the 12,640-pt resistance, which is located at the high of 7 Jun.

Source: RHB Securities Research - 25 Jun 2018