As Oil Drops, Saudi Stocks...Soar?
Despite the rout in oil prices, the technical setup of the Saudi Arabian stock market (again) correctly foretold a rally.
Last September, we wrote a post focused on the Saudi Arabian stock market. The point of the post was two-fold. First, we highlighted some potential technical support on the chart of the Saudi Tadawul All Shares Index (TASI), which was in a free fall at the time.
Here is that chart from 9/30/2016:
The day before, the Saudi market had been the beneficiary of some good news related to OPEC supposedly curbing oil production. Our second objective to the post was to show how “good news” has a tendency to occur when a stock or market is technically in a position to support a bounce. More accurately, markets tend to react better to news events when in a technically favorable chart position. In that sense, one can often “predict” the news based on the proximity of a market’s price level.
As it turns out, the TASI proceeded to bottom within 2 days and commence a 3–month, ~35% rally. Again, we are not fortune tellers. We merely identified an area of potentially significant support on the chart and suggested that, whatever news did come out subsequently, would indeed be perceived bullishly if the TASI bounced off that support.
Over the past week, we’ve noted a similar opportunity. The TASI’s bounce from its late-September, early-October low was stopped by a Down trendline stemming from the index’s 2014 highs. After holding below the trendline for 3 months, the TASI popped above it in April. It was unable to get much lift off of the trendline for the next few months, however, treading along the top side of the line until early June.
On Monday, the TASI popped by more than 2%. In the process, it broke the near-term Down trendline from the early January high. As we pointed out in our Daily Strategy member videos at The Lyons Share, that positive development opened up immediate-term upside in the index. It also suggested that impending news events would be stock market-friendly, or at least result in a favorable stock market interpretation.
2 days later, 2 big news events hit pertaining to Saudi equities – one anticipated and one out of the blue. First, MSCI announced that they would be considering Saudi Arabia for inclusion in their emerging markets index. In addition, in a surprise move, Saudi Arabia replaced the kingdom’s Crown Prince. The 2 significant news events had the anticipated reaction in the Saudi stock market, i.e., a continued bounce.
On Wednesday, the TASI closed higher by 5.5%, with more upside follow-through coming today.
Like last September, this week’s action has served as an important reminder on a couple fronts. First, we continue to scour the globe for more attractive opportunities as the U.S. rally gets, uh, mature. Secondly, when considering news events, or the interpretation thereof, do yourself a favor and take a glance at the charts beforehand. They just might help you “predict” the news – or at least its interpretation.
In a premium post at The Lyons Share, we take a deeper dive into the TASI chart to determine how much opportunity remains for investors, in the short and long-term, as well as how to take advantage.
If you want that “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share.
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.