Negative indicators imply a weak outlook, stay short. The SGX FTSE China A50 posted a 15-pt loss to 11,367.50 pts yesterday. This shows no continuation of the climb we saw in the prior session. As a result, we believe the bulls are still unable to take control from the bears. The fact the 14-day RSI indicator is at 41.90 pts, ie below the 50-pt neutral level, implies that market strength is weak. In addition, we highlight that the 100-day SMA line is currently situated firmly below the 200-day SMA line, which points towards a weak outlook. These negative indicators support our bearish view.

Until a strong positive follow-through is present in the daily chart, we believe it best that traders maintain short positions. In order to secure part of the trading profits, we advise them to set a new trailing-stop above the 11,570-pt threshold. This is in line with our initial short recommendation on 31 May following a breach below the 12,060-pt mark.

We set the immediate support at 10,745 pts, which was obtained from the low of 3 Jul’s “Bullish Harami” pattern. The next support is found at the 10,150-pt threshold, or the high of 16 Aug 2016. Towards the upside, our immediate resistance is pegged at 11,570 pts, which was the high of 29 Jun. For the next resistance, look to 11,985 pts, or the low of 31 May’s “Bullish Engulfing” pattern.

Source: RHB Securities Research - 11 Jul 2018