Short call remains intact as the correction is still in play. Today we analyse the SGX FTSE China A50 using the weekly chart. At this juncture, the index is still pointing south below the 100-week SMA line. This implies a weak outlook, and indicates that a further correction lies ahead. Meanwhile, there is a possibility that the correction may take a breather, since the 14-week RSI indicator is now situated below the 30-pt oversold level, at 29.82 pts. Nevertheless, as long as no strong upside development is in sight, we believe that opportunities still lean more towards the sellers. Overall, our bearish view remains intact.

Presently, we believe that the correction has not reached its limit. Technically speaking, it best that traders maintain short positions, with a trailing-stop pegged above the 11,985-pt mark to protect part of the trading profits. Our short recommendation was initially made on 31 May, following a solid downside movement below 12,060 pts.

The immediate support is still at 10,735 pts, or 30 Nov 2016’s high. If this level is taken out, the next support is at 10,150 pts, located at the high of 16 Aug 2016. Meanwhile, our immediate resistance is at 11,400 pts, which was the low of 14 Aug 2017. The following resistance is set at the 11,985-pt mark, ie the low of 31 May’s “Bullish Engulfing” pattern.

Source: RHB Securities Research - 5 Jul 2018