Initiate long positions, as the correction phase is likely completed. The FKLI formed a white candle yesterday and, at one point, tested the high of 21 Apr’s “Shooting Star” formation, ie 1,425.5 pts – by charting its own high of 1,429 pts. It closed 11.5 pts stronger at 1,421.5 pts – above the previous resistance point of 1,416.5 pts. The positive session invalidates our previous bias that the index’s correction phase would likely be extended. Yesterday’s performance is part of the ongoing rebound, following multiple re-tests of the 50-day SMA line in mid-March and mid-April. Additionally, the RSI has also crossed above the resistance line (as drawn in the chart). We switch our trading bias to positive.

Our previous short positions – initiated at 1,370 pts, the closing level of 21 Apr – were closed out in the latest session. As the bulls have regained control, we initiate long positions at the latest close. To manage risks, a stop-loss can be placed below 1,400 pts.

We revise the immediate support to 1,408 pts, followed by the 1,400-pt level. Conversely, the immediate resistance now set 1,425.5 pts – the high of the 21 Apr’s “Shooting Star” formation. This is followed by 1,440 pts, the high of 11 Mar.

Source: RHB Securities Research - 20 May 2020