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Saudi: support tested, now what?

Posted: 10/20/2012 - 1:45 pm

On October 14, we highlighted the key support zone of 6500-6650 in the Saudi index (TASI) and we said the market would soon present new buying opportunities (read: Saudi: how to play the pull back in TASI). We then quickly followed our note with buy recommendations on two of the banks and said that more would follow.

Judging by the market’s price action in recent sessions, our call could not have come at a better time. As the chart shows, the TASI bounced right off the upper support line near 6650 and then moved above the month-long down trendline (red) to 6815 further validating the importance of the support zone.

Indeed, the price action was very positive last week but more evidence is needed to turn outright bullish. Today, we are seeing a pull-back triggered by a drop in oil prices and US markets and the pressure could continue as funds/traders cash in ahead of next week’s long Eid holiday in Saudi.

Effectively, we are dealing with two opposing arguments here. On one hand, we have evidence of an important support that stands not too far from the current price. On the other, there is a strong case for renewed selling pressure this week.

That said, our strategy is unchanged. At last week’s first sign of support near 6650, we recommended an entry in two banks that already reported and we avoided turning bullish on the entire market until we received further positive validation. With today’s market pull-back, our focus turns to the next support level the TASI will be able to find.

We believe there are many attractively-priced stocks but we will gradually turn more aggressive as we get additional confirmation from the market’s price action.

click to enlarge


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