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What’s next for the Saudi Tadawul (TASI) index?

Posted: 03/31/2013 - 11:50 am

It took two months for the Saudi Tadawul index (TASI) to make a move but the wait has paid off.

Since mid-February, we have been advising traders to position themselves for a break above the extended range that kept the index within a tight trading zone of 6950-7050.

In our last update on the Saudi market dated March 12, we said that the strategy we have adopted since February had not changed and we advised buying into those stocks that offered attractive reward/risk profiles and were positioned to rally sharply in case the TASI broke out.

That strategy required that we tolerate the whipsaws of the market during its trading range (6950-7050) which led to triggering the stops on many of the positions we recommended taking on in early February. However, by sticking to the strategy and getting back into the market after being whipsawed out of it, we made sure we did not miss on the upside break which ultimately kicked in.

Our approach proved very successful and our latest positions registered gains that eventually turned the balance of our trades deep into positive territory (read: Saudi: are you frustrated by the range).

But now what?

By now, it’s obvious that the Saudi index (TASI) finally and decisively broke above the extended trading range (6950-7050) but there is another hurdle to deal with.

As shown by the chart, the Saudi Tadawul (TASI) is currently testing an important level that has acted as key resistance to the index since September 2012 – the 7180 resistance.

This is a level that probably every chartist and technical analyst is talking about with most waiting for an upside break before turning outright long on the market.

Not us though… this is not how we think the Saudi market should be played.

Just as we positioned our clients and readers ahead of the break from the former range, we think traders should also be positioned for a probable break above that key resistance near 7180.

We think the Saudi Tadawul index (TASI) spent too much time moving sideways for it to simply retest the resistance at 7180 and move back.

Whether or not our reasons for a probable upside break prove right – we will spare you the details which are of more technical nature – we believe traders and investors ought to be positioned for an upside break anyway.

Remember, the key is not to be always right on your call but to limit your downside risk in case you are wrong.

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