No end to the current correction yet, keep short. The SGX FTSE China A50 inched down 155 pts to 11,695 pts yesterday and left a black candle. This weak performance extended the correction and led the index to its newest YTD low. We believe the bears are presently in firm control of market sentiment. As the 14-day RSI indicator has yet to hit the 30-pt oversold level, we think there is still room for the downside movement to continue. Moreover, the fact that the 100-day SMA line crossed below the 200-day SMA line points towards a weak outlook, which supports our bearish view.

The current technical landscape suggests the correction is still in play. Technically speaking, it is best for traders maintain short positions, with a stop-loss pegged above the 12,320-pt mark. This is in order to minimise the upside risk. For the record, we made the short call on 31 May after the SGX FTSE China A50 dropped below the 12,060-pt threshold.

Our immediate support is maintained at 11,400 pts, which is located at the low of 14 Aug 2017. This is followed by the 11,115-pt support, or the low of 4 Jul 2017. Conversely, we keep the immediate resistance at 11,985 pts, ie the low of 31 May’s “Bullish Engulfing” pattern. If this level is taken out, the next resistance is found at the 12,320-pt threshold, which was the low of 12 Feb’s “Bullish Harami” pattern.

Source: RHB Securities Research - 27 Jun 2018