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Saudi: awaiting the break from the dull range

Posted: 02/25/2013 - 3:22 pm

On February 6, we highlighted the tight range near 7000 within which the Saudi Tadawul Index (TASI) was trading and we said there was little reason for us to alter our positive bias towards the market. Our strategy was to focus on selective buying of those stocks which offered attractive reward/risk profiles (read: Saudi: don’t lose sight).

It’s been nearly three weeks and little has changed. The index remains range-bound in what clearly is a balance of forces between bulls and bears.

As shown on the chart, Saudi’s Tadawul index (TASI) is clearly defined by the tight 6950-7050 range. This extended sideways move which has been in place for over a month highlights the significance of the upcoming breakout – after an extended balance of bull-bear forces, a meaningful directional move almost always unfolds.
While we tend to argue for a positive break, it remains a best guess as the market is clearly in neutral mode at the moment. Traders should know that the table can easily be turned around if a negative catalyst unfolds.

That being said, our approach and trading strategy have been very clear throughout the market’s sideways move in the last few weeks as we tried to take advantage of the attractive reward/risk profiles that some of the underlying stocks provided in the market.

Our rationale is simple: traders should be well-positioned in case an upside break unfolds while limiting the downside risk by buying near obvious short-term support levels and managing the size of their positions.

Until we get a clear indication from the market’s price action, our bias will likely remain to the positive side. At the same time, our recommendations will be focused on those trades where the downside risk is limited and manageable.

click to enlarge

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