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Better safe than sorry

Posted: 10/30/2013 - 9:42 am

N.B: we had put the below note after hours yesterday and with news early this morning over the UAE Central Bank capping mortgages, the argument below becomes even more compelling.

When the UAE markets re-opened after the Eid break, we said that the high volume rally that day was short-term positive for local equities. The move led us to recommend an increase in the exposure to our open trades after having advised taking only small positions since late August (read: The post Eid-rally).

It has been seven sessions and we have yet to see a follow-though in buying interest that will build on the October 20 gains. In fact, we have had a few negative signs lately with Emaar’s weak reaction to the company’s strong set of Q3 results topping the list of bearish patterns.

The sideways behavior in the market in recent days does not necessarily mean that we have reached a short-term top especially since the recent price action was accompanied by low volume which usually reflects consolidation and not a top. Still, the wise thing to do after the huge run-up year-to-date is to use caution and be underinvested at this point.

Therefore, we recommend trimming the exposure across the board and we suggest increasing the protective stops wherever it makes sense. Below is an update on our open trades:

Emaar: bought at 5.81 with a partial exit of 6.30. The remaining positions should now accompanied by a protective stop at 5.95.
RAK Properties: bought at 0.70/0.71 with a target of 0.79. Stop is at 0.69.
Drake & Scull: bought at 1.20-1.22 with an open target. Stop is at 1.19.
Tabreed: bought at 2.41 with a target of 2.60. Stop is at 2.36.
Arabtec: bought at 2.65 with a target of 2.90. Stop is at 2.64.
AirArabia: bought at 1.43 with an open target. Stop is at 1.40.

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