SABIC (Last: SAR 87.75, up SAR 1.0)
The stock is in the middle of a severe downward trend. SABIC
is approaching SAR 85 level, which is two years low. Though the long term
downtrend remains, in our view, probability of further decline from current
levels are low and there are certain technical factors which may help arrest
the decline in prices for the time being.
The stock is showing mega oversold readings after a straight
line decline from SAR 110 levels. We are basing our view mainly on the
emergence of divergence pattern on the 14 day RSI (see details of the pattern
on the chart). This is a very reliable pattern and mostly appears after an
extended rise or decline in prices. Expect modest rise in prices if everything
goes well otherwise prices will show a sideways trend around current levels.
Our view may also get support for the fact that SAR 85 is
very important support point. We expect accumulation cum short covering
activity to emerge around this level which may keep the decline in prices under
check.
Trading Strategy
In the short term, we expect modest rise in prices due to
oversold readings, however, it will have a little impact on the long term
trending profile. In our view, the stock will resume its downward trend once
this counter trend movement gets over. Thus we recommend a sell on rise
strategy till the moving average setup indicates a reversal. Major support
levels are SAR 85 and SAR 70 while major resistance levels are SAR 90 and SAR
95.
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