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Dubai: still playing it safe

Posted: 10/30/2012 - 1:52 pm

On October 17, we said that our initial target of 1650 was attained by the Dubai index (DFMGI) and we highlighted the tight trading zone of 1620-1650 the index was stuck in. Our view was that a break from the range was needed to determine the upcoming trend in the market (read: Dubai: look for the break).

At the time, we said that the direction of the break from the tight range would likely be determined by the quality and strength of the earnings season. Interestingly enough, we saw the somewhat disappointing results of key companies trigger a sharp pull back in the index which seemed very close to breaking to the upside last week.

While the latest market reaction was negative as evidenced by yesterday’s fall, we have yet to see a break of the key short-term support that is represented by the July-to-date up trendline and the former low near 1620. In fact, one could say that an argument for a short-term bounce is in order given that the index is testing the channel line that has been lending support to the market since July.

We have adopted a cautious trading approach ever since the DFMGI first approached 1650 back in early October and we maintain the same watchful view as we look to see the index’s reaction when the Saudi market re-opens next week. Any buy recommendation should be coupled with a call for small allocations at this point.

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