A consolidation pattern can be likened to a tightly coiled spring. When prices eventually breakout from a consolidation pattern they tend to make extended and often explosive directional moves.
As you can see, index levels for the Saudi market have been coiling for several months now. So is a price breakout imminent?
When evaluating the validity of a consolidation pattern traders look for declining volume as prices contract. As the chart below shows, this is exactly what has happened in the Saudi market during the period prices have been consolidating.
Of course, even if we expect a breakout is just around the corner this doesn't tell us if prices are going to breakout to the upside or downside. Currently, prices are at the top of their trading range so there's is an immediate possibility of an upside breakout. The latest weekly market analysis for Saudi is quite bullish for the week ahead which also supports an upside price move.
However, as has happened continually over the past several months prices could easily reverse and quickly move to the lower end of the trading range. In doing so that would raise the likelihood of a downside breakout. Either way, I'll be keeping a close eye on the Saudi market over the coming days and weeks to see what unfolds. Expect updates.
Enjoy.
P.S. A warning. We have to be very careful when interpreting price patterns. The way the human brain is wired we have a strong tendency to see patterns and order in just about any data set. This is particularly true in the complex world of financial markets. As traders and analysts we have to be mindful of pareidolia or seeing faces in clouds.
