Stay short, given that the downside movement remains intact. After six weak performances in a row, the SGX FTSE China A50 finally rebounded by 220 pts to 11,530 pts last Friday. A reversal “Bullish Engulfing” candlestick pattern was formed, which suggested that the current bearish bias had neared its limit. However, a further strong upside development is needed in order to confirm the sturdiness of the bulls. At this juncture, we believe the downside movement remains in play. This is also supported by the fact that the 100-day SMA line crossed below the 200-day SMA line – an indication of a weak outlook. Overall, our bearish view stays intact.

As we believe the bears are still in control of market sentiment, it is best that traders maintain short positions. In order to minimise the upside risk, we advise them to set a new stop-loss at around the 11,985-pt threshold. For the record, our short recommendation was initially made on 31 May after the SGX FTSE China A50 breached below the 12,060-pt mark.

We set the immediate support at 11,400 pts, which was the low of 14 Aug 2017. For the next support, look to 11,115 pts, or 4 Jul 2017’s low. On the flip side, the immediate resistance is set at 11,985 pts, ie the low of 31 May’s “Bullish Engulfing” pattern. If this level is taken out, the following resistance is found at the 12,320-pt threshold, which was located at the low of 12 Feb’s “Bullish Harami” pattern.

Source: RHB Securities Research - 2 Jul 2018