Market pullbacks and position building

Bassam Al-Obeid

The Saudi market has been in a downtrend since the end of last week, and these declines have continued during the current week, since the general market index reached the level of 12,220 points, which is a resistance area that the market was close to at the beginning of last November, and the market was unable to maintain it and close above it for two days, and the decline has begun in the form of profit-taking so far, although the decline came at an accelerated rate as the general index fell by more than 2.25% and by about 275 points, and thus the market broke its recent upward trend that it started at the end of last November from levels of 11,590 points.

It also broke its 50-day average last Tuesday and closed below it, and what increases the negativity of the trend in the short term is that Tuesday's trading rose with the breaking of support areas, and even the outgoing liquidity constituted about 863 million in favor of the exit, which is a high percentage that often indicates a continuation of the decline!

The market still has the most important support at the 11940 point area, which the general index must maintain if it wants to return to the rise again and exceed its last peak at 12220, otherwise it will witness a decline to the support areas that follow it, although they are less important than the previous one at 11830 followed by 11590 points.

There is no clear reason yet for such declines, except for some statements made by the White House about President-elect Trump's intention to support the energy sector and open the field of investment in it wide open, with his pledge to remove all obstacles facing the oil production sector in the United States, and his keenness to significantly raise production levels, to support reducing the cost of living in his country, in which high energy prices play a significant role.

These statements put pressure on oil prices despite the announcement of a decline in inventory in the United States. However, this did not constitute support for prices, which reflects the extent of the pressure that prices may witness in the future, in addition to the decline in demand suffered by the Chinese dragon, the second largest oil importer in the world.

There is no doubt that the relationship between oil and the Saudi market is historical, so despite the rise in global market indicators and their achievement of record numbers during the past period, and despite the achievement of positive results by a number of sectors in the local market during the past period, the local market is still experiencing fluctuations that are mostly in decline so far.

The decline during the past two weeks was not limited to the Saudi market, as the Dow Jones index witnessed its worst series of declines since 1978, as it continued to decline for 10 consecutive sessions, and gold prices also declined, as mentioned.

The outlook for the market remains positive in the long term, reinforced by the increase in the share of foreign investment in the market and successive flows, as well as the recent subscription operations that were offered, which attracted a large number of subscribers and received great coverage from investors from the institutional and individual sectors.

Despite the Fed cutting interest rates by a quarter point this week, the dollar has gained, due to the Fed restricting monetary policy for the coming year, and reducing the number of times it expected to cut interest rates, which the markets considered to reflect the Fed’s fear of the return of inflation, and uncertainty about future economic data, which reinforced the rise of the dollar and the violent decline of US markets. Therefore, the current period requires more focus and thinking about building long-term positions instead of being affected by current fluctuations that are subject to many changing factors.