Saudi Stock Market (Tadawul) At Pivotal Juncture

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Contributor Since 2007

Bruce Powers has been involved in the financial markets for over 20 years, as a technical and fundamental analyst, manager, trader, educator and writer. He is currently Head of Trading Strategy Development at Relentless 13 Capital, a cryptocurrency and blockchain company, and Corporate Advisor to Chronos Futures, a systematic trading strategy developer. 

Previously, Bruce was Co-founder and Co-chair of the Dubai Chapter of the CMT Association. He was also President at WideVision, online publisher of the MarketsToday.net Middle East financial portal, as well as Chief Technical Analyst at the portal. For the past nine years Bruce has written a weekly technical analysis column on the UAE stock markets for the Gulf News newspaper, the leading English newspaper in the Middle East, and he has appeared over 150 times on TV business news shows. 

Bruce is a CMT® charter holder, a member of the CMT Association, and earned his MBA in Finance from the Eller College of Management, University of Arizona, USA. 


Summary

  • Saudi Arabia market reaches highest daily close in over 3 year.
  • Close to breakout to new highs for the long-term trend.
  • Short-term cautious as, at least temporary, resistance could be seen shortly.

As of yesterday’s (Sunday) 8,528.30 trend high, the Tadawul All Share Index (TASI) has rocketed over 12% in 25 trading days, when counting from the swing low of 7,589.23 on December 23. A long-term bullish trend continuation signal was triggered on the move as the day’s close was at 8,509.43, just above the most recent peak of 8,502.92 from July 2018. Further, yesterday’s close was the highest daily closing price since August 2015.

TASI Daily ChartTASI Daily Chart

During the rally, the index broke out of a head and shoulders bottom trend reversal pattern with a complex right shoulder. You can see from the chart below that there was first a breakout of a head & shoulders bottom as price went through the lower neckline in early-December. Then, the formation continued to evolve, creating a second right shoulder. This led to a breakout of the second neckline three weeks ago. Given that yesterday’s high was just barely above the July peak, it remains to be seen if some resistance may still be seen before the TASI continues higher.

This is all very bullish behavior. Nevertheless, the TASI may have gotten ahead of itself and needs to take at least a short rest before moving higher. Given the rapid ascent over the past five weeks and the fact that the index is hitting potentially significant resistance, it seems like there is a good chance for some sideways movement or a pullback before the TASI is ready to sustain upward momentum. Also, the 14-day Relative Strength Index (RSI) momentum oscillator is well overbought at this point.

TASI Weekly ChartTASI Weekly Chart

Either way, it would be healthy for the advance if the index took a bit of a rest before progressing. This would also give investors a chance to prepare for the next run, as a continuation of the long-term uptrend that began off the October 2016 low. Regardless, so far there is no sign that the TASI will stall or pullback in a more significant fashion than last week’s relatively sideways movement. Investors should be prepared, nevertheless.

Investors in US markets can get exposure to Saudi equities through at least two ETFs. The iShares MSCI Saudi Arabia ETF (KSA) has almost 100% exposure to the Tadawul, while the Wisdom Tree Middle East Dividend Fund (GULF) has approximately 27% exposure, according to ETF Database.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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