Maintain short positions, as there is still room for further retracements. Yesterday was a weak session for the SGX FTSE China A50, as it dropped 37.50 pts to 11,220 pts. During the session, the index rose to its intraday high of 11,405 pts before the sellers took control. As a result, a black candle with a longer upper shadow was formed. Overall, we believe market sentiment remains weak, and the downside movement could still be extended once the breather above 10,745 pts ends. We note that the 14-day RSI indicator has not hit the 30-pt oversold level yet. This suggests there is still some room for further retracements, thereby enhancing our downside view.

As long as the SGX FTSE China A50 is unable to firmly breach above the 11,570-pt mark, we believe the current correction is still in play. As such, it is best that traders maintain short positions. For risk-control purposes, we advise setting a trailing-stop above the aforementioned 11,570 pts. This follows our short recommendation below the 12,060 level on 31 May.

To the downside, we set the immediate support at 10,745 pts, or the low of 3 Jul’s “Bullish Harami” pattern. The following support is set at the 10,150-pt mark, ie 16 Aug 2016’s high. Meanwhile, our immediate resistance is maintained at 11,570 pts, which was 29 Jun’s high. The next resistance is kept at 11,985 pts – this is located at the low of 31 May’s “Bullish Engulfing” pattern.

Source: RHB Securities Research - 19 Jul 2018