Maintain short positions, with a trailing-stop set above 11,985 pts. The SGX FTSE China A50 posted a 92.50-pt increase at the end of last Friday’s session to 11,030 pts and left a white candle. Nevertheless, this minor increase does not change our bearish view. This is because, despite the appearance of a reversal “Bullish Harami” candlestick pattern on 3 Jul, no strong upside movement has been sighted yet. Technically speaking, the bears are still dominating market sentiment. The fact the 100-day SMA line crossed firmly below the 200-day SMA line points towards a negative outlook. This supports our downside view.

The daily chart suggests the current retracement has not yet found its solid bottom. Hence, it is best that traders maintain short positions. In order to secure part of the trading profits, we recommend setting a trailing-stop above the 11,985-pt threshold. This is in line with our initial short call on 31 May following a breach below the 12,060-pt mark.

We keep the immediate support at 10,735 pts, which was derived from the high of 30 Nov 2016. This is followed by the 10,150-pt support, or the high of 16 Aug 2016. On the flip side, the immediate resistance is found at 11,400 pts, which is located at the low of 14 Aug 2017. This is followed by the 11,985-pt resistance, or the low of 31 May’s “Bullish Engulfing” pattern.

Source: RHB Securities Research - 9 Jul 2018