Stay short, with a new trailing-stop set above the 27,400-pt resistance. Selling momentum in the HSIF continued as expected. A black candle was formed yesterday, which pointed towards a continuation of the downside move. It plunged to a low of 26,490 pts during the intraday session, before ending at 26,563 pts for the day. From a technical perspective, investor sentiment remains bearish in the near term, as the HSIF has breached below the previously-indicated 26,605-pt support and hit its 2-week low. Overall, we expect the market to decline further if the crucial 26,020-pt support is taken out decisively in the coming sessions.

Currently, we maintain the immediate resistance at 27,400 pts, situated near the midpoint of 2 Oct’s “Long Black Day” candle. The next resistance would likely be at 28,037 pts, ie the high of 26 Sep. Towards the downside, we now anticipate the near-term support at 26,020 pts, obtained from the previous low of 12 Sep. This is followed by the 26,000-pt psychological mark.

Hence, we advise traders to stay short, following our recommendation to initiate short below the 27,400-pt level on 3 Oct. For now, a new trailing-stop can be set above the 27,400-pt threshold as well, in order to minimise the risk per trade.

Source: RHB Securities Research - 5 Oct 2018