Stay long, as the reversal “Bullish Harami” candlestick pattern remains intact. The SGX FTSE China A50 dropped 360 pts yesterday to 11,115 pts. It charted a black candle that breached below the previous 11,150-pt support – indicating a continuation of the bearish we saw in the prior session. However, this does not negate our positive view, given that the index is still hovering above the 10,745-pt mark. As long as this level is not taken out, we believe the positive momentum since the appearance of 3 Jul’s “Bullish Harami” candlestick pattern remains in play.

At this juncture, we believe the bulls are in control of market sentiment. As such, it is still safe for traders to maintain long positions. For risk-control purposes, they are advised to set a stop-loss below the 10,745-pt threshold. This is in line with our initial long recommendation on 23 Jul after the SGX FTSE China A50 successfully breached above the 11,570-pt mark.

To the downside, we set the immediate support at 10,745 pts, which was the low of 3 Jul’s “Bullish Harami” pattern. This is followed by the next support at 10,165 pts, or the low of 5 May 2017. Conversely, our immediate resistance is now at 11,150 pts, which is located 20 Jul’s low. This is followed by the next resistance at the 11,570-pt mark, ie the high of 29 Jun.

Source: RHB Securities Research - 3 Aug 2018