The correction may still extend further, stay short. The SGX FTSE China A50 rebounded by 37.50 pts yesterday to 11,257.50 pts. Despite the increase, the index is still unable to breach above the 11,570-pt mark. This implies the bulls are still unable to take control of market sentiment. As a result, the bullish bias in the appearance of 3 Jul’s “Bullish Harami” candlestick pattern remains unconfirmed. Sentiment-wise, we think the market remains weak, given that the 14-day RSI indicator continues to fluctuate below the 50-pt neutral level at 41.78 pts.

Based on the daily chart, we believe the correction could still extend once the breather above 10,745 pts reaches its limit. As such, traders are advised to stay in short positions, with a trailing-stop pegged above the 11,570-pt mark. This is to lock in some of the trading profits. For the record, we initially made the short call below the 12,060-pt threshold on 31 May.

Our immediate support is maintained at 10,745 pts, which was the low of 3 Jul’s “Bullish Harami” pattern. For the next support, look to 10,150 pts, ie 16 Aug 2016’s high. On the flip side, we set the immediate resistance at 11,570 pts, which is located at the high of 29 Jun. This is followed by the next 11,985-pt resistance, or the low of 31 May’s “Bullish Engulfing” pattern.

Source: RHB Securities Research - 20 Jul 2018