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A call for aggressive traders

Posted: 10/22/2012 - 9:02 am

As repeatedly discussed in recent notes, our bias towards the Dubai market (DFMGI) remains positive but our trading approach is one of caution. This was last highlighted on October 17 when we advised traders to look for a decisive break above 1650 before considering new entry points. (Read: Dubai: look for the break).

The Dubai index (DFMGI) continues to test the resistance along the upward channel line and as we made clear in our last update, we expect the upcoming Q3 results to determine the next short-term direction. In other words, a strong Q3 season will likely trigger renewed buying pressure and push the index above the channel resistance line.

Our strategy has been very clear all along. We were long the market near 1570 and then we recommended taking partial profits at 1650. In our most recent comments, our trading approach was one of caution as we advised holding some of the old positions while avoiding initiating new ones.

While we still maintain the above highlighted view, there is a play here for some of the more aggressive traders who are willing to take the extra risk of initiating positions ahead of companies’ earnings announcements.

With the market in standstill mode until the quarterly figures are announced (most of the key companies have yet to report), aggressive traders can take advantage of potentially quick and sharp gains should the numbers come out strong. Clearly, the risk in this case lies in the negative price reaction that will result if the numbers are disappointing – we would not speculate on the numbers.

We are in no way suggesting that you expose yourself to the risk inherent in buying ahead of an announcement but those who are willing to assume that extra risk may consider initiating small positions provided they maintain tight protective stops.

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