Downward momentum is likely to persist; stay short. The HSIF formed a long black candle yesterday, indicating strong selling activity. It plunged 796 pts to close at 25,336 pts, off the session’s high of 26,163 pts. From a technical perspective, we expect that the downside swing that started from early October is likely to continue. This is because the HSIF has erased the previous session’s gains and marked a lower close below the declining 21-day SMA line, implying that the market sentiment is bearish. Overall, we expect the market to further decline if the immediate 25,046-pt support mentioned previously is taken out decisively in the coming sessions.

Judging from the current outlook, we anticipate the immediate resistance level at 26,256 pts, ie the high of 11 Oct’s long black candle. Meanwhile, the next resistance would likely be at 27,175 pts, determined from the high of 4 Oct. To the downside, we are eyeing the near-term support level at 25,046 pts, which was the previous low of 19 Oct. This is followed by the 25,000-pt psychological spot.

Thus, we advise traders to stay short, in line with our initial recommendation to have short positions below the 27,400-pt level on 3 Oct. At the same time, a trailing-stop can be set above the 26,256-pt threshold in order to lock in part of the profits.

Source: RHB Securities Research - 24 Oct 2018