ANALYSIS OF INVESTMENT IN THE SAUDI STOCK MARKET

Transcription

1 ANALYSIS OF INVESTMENT IN THE SAUDI STOCK MARKET By AHMED ATEF BAKHSH A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science [Industrial Engineering]. FACULTY OF ENGINEERING KING ABDULAZIZ UNIVERSITY JEDDAH SAUDI ARABIA SAFAR 1429 H FEBRUARY 2008 G

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4 ANALYSIS OF INVESTMENT IN THE SAUDI STOCK MARKET AHMED ATEF BAKHSH ABSTRACT The aim of this work was to identify the top sectors in the Saudi Stock Market for purposes of invest for three predetermined investment periods (Short term investment, Medium term investment, and Long term investment), and to identify the top companies in each selected sector. The selection of those sectors and companies was depending on surveys distributed to investors in the Saudi Stock Market. According to the sectors and companies selected for each investment period, I applied the time series forecasting technique in order to get a clear picture of the company's stock prices behavior in the future. Finally, I applied the technical analysis concept on each selected company and made use of popular technical indicators in order to indicate when to purchase and when to sell stocks of those companies, and then to determine the efficiencies of these indicators. vi

5 TABLE OF CONTENTS ACKNOWLEDGMENT ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES Page v vi vii xi xii CHAPTER I INTRODUCTION BACKGROUND SAUDI STOCK MARKET STATEMENT OF THE PROBLEM MAIN GOAL OF THE STUDY OBJECTIVES OF THE STUDY LITERATURE REVIEW METHODOLOGY PROJECT PLAN OUTLINE OF THE STUDY LIMITATIONS OF THE STUDY 12 CHAPTER II SELECTION OF SECTORS AND COMPANIES FROM THE SAUDI STOCK MARKET FOR THE STUDY STOCK MARKET STOCK MARKET DEFINITION IMPORTANCE OF STOCK MARKET INVESTMENT STRATEGIES TADAWUL HISTORY OF TADAWUL COMPONENTS OF THE SAUDI STOCK MARKET (SECTORS) Banks Industry Cement Services Electrical Telecommunications Insurance Agriculture KIND OF TIME HORIZON TIME HORIZON PERIODS QUESTIONNAIRE DESIGN DEFINING THE OBJECTIVES OF THE SURVEY WRITING A QUESTIONNAIRE QUESTIONNAIRE TYPES Open format questions 22 vii

6 The disadvantage of open format questions Closed format questions The advantage of closed format questions How to design a questionnaire? Designing of a Questionnaire THE APPROACH THAT HAD BEEN TAKEN THE SURVEYS RESULTS Years of experience within the Saudi Stock Market Two important sectors for short term investment Two important companies in each selected sectors for short term investment Two important sectors for medium term investment Two important companies in each selected sectors for medium term investment Two important sectors for long term investment Two important companies in each selected sectors for long term investment SELECTION OVERVIEW 47 CHAPTET III DATA GATHERING INTRODUCTION TO DATA GATHERING PURPOSE OF DATA GATHERING THE PRINCIPLES OF DATA GATHERING SELECTED COMPANIES FOR DATA GATHERING IMPORTANT INFORMATION FOR EACH OF THE SELECTED COMPANY Tabuk Agriculture Saudi Fisheries SAPTCO Taiba SABIC SAVOLA RJHI ALBI DATA GATHERED FOR EACH OF THE SELECTED COMPANY 56 CHAPTER IV TIME SERIES FORECASTING INTRODUCTION FUNDAMENTAL ANALYSIS DEFINITION OVERVIEW OF TIME SERIES FORECASTING METHODS FORECASTING BY USING ARIMA (BOX & JENKINS) MODEL SHORT TERM FORECASTING Services Sector SAPTCO Company Taiba Company Agricultural Sector Tabuk Agriculture Company Saudi Fisheries Company MEDIUM TERM FORECASTING 90 viii

7 4.6.1 Industrial Sector SABIC Company SAVOLA Company Services Sector SAPTCO Company Taiba Company LONG TERM FORECASTING Banking Sector Al-Rajhi Bank Al-Bilad Bank Industrial Sector SABIC Company SAVOLA Company 139 CHAPTER V TECHNICAL ANALYSIS AND ITS INDICATGORS INTRODUCTION AND PURPOSE TECHNICAL ANALYSIS History Use of Technical Analysis TECHNICAL INDICATORS What is a Technical Indicator? What a Technical Indicator Offers Why Use a Technical Indicator? MOVING AVERAGE CONVERGENCE/ DIVERGENCE (MACD) Interpretation of MACD RELATIVE STRENGTH INDEX (RSI) Summarization & Findings Interpretation of EMA Cutler's RSI STOCHASTIC OSCILLATOR Interpretation of Stochastic Oscillator DATA ANALYSIS Analysis Steps Signal's Prices and Efficiencies Tabuk Agriculture Analysis Summary Comments on the Indicators Saudi Fisheries Analysis Summary Comments on the Indicators SAPTCO Analysis Summary Comments on the Indicators Taiba Analysis Summary Comments on the Indicators SABIC Analysis Summary Comments on the Indicators SAVOLA 206 ix

8 Analysis Summary Comments on the Indicators Al-Rajhi Analysis Summary Comments on the Indicators Al-Bilad Analysis Summary Comments on the Indicators 229 CHAPTER VI CONCLUSION AND RECOMMENDATIONS CONCLUSION RECOMMENDATIONS 238 REFERENCES 239 APPENDIX A 241 APPENDIX B 245 x

9 LIST OF TABLES Table 2.1 No. of People vs. Years of experience 2.2 Top two sectors for short term investment 2.3 Top two companies from Services sector for short term investment 2.4 Top two companies from Agricultural sector for short term investment 2.5 Top two sectors for medium term investment 2.6 Top two companies from Industrial sector for medium term investment 2.7 Top two companies from Services sector for medium term investment 2.8 Top two sectors for long term investment 2.9 Top two companies from Banking sector for long term investment 2.10 Top two companies from Industrial sector for long term investment 5.1 Tabuk Agriculture MACD, RSI, & SO Signals and their Efficiencies 5.2 Tabuk Agriculture Summery of the efficiency 5.3 Saudi Fisheries MACD, RSI, & SO Signals and their Efficiencies 5.4 Saudi Fisheries Summery of the efficiency 5.5 SAPTCO MACD, RSI, & SO Signals and their Efficiencies 5.6 SAPTCO Summery of the efficiency 5.7 Taiba MACD, RSI, & SO Signals and their Efficiencies 5.8 Taiba Summery of the efficiency 5.9 SABIC MACD, RSI, & SO Signals and their Efficiencies 5.10 SABIC Summery of the efficiency 5.11 SAVOLA MACD, RSI, & SO Signals and their Efficiencies 5.12 SAVOLA Summery of the efficiency 5.13 Al-Rajhi MACD, RSI, & SO Signals and their Efficiencies 5.14 Al-Rajhi Summery of the efficiency 5.15 Al-Bilad MACD, RSI, & SO Signals and their Efficiencies 5.16 Al-Bilad Summery of the efficiency Page xi

10 LIST OF FIGURES Figure 1.1 Project Plan 1.2 Winning Buy (Indicators Efficiencies) 1.3 Winning Sell (Indicators Efficiencies) 1.4 Loosing Buy (Indicators Efficiencies) 1.5 Loosing Sell (Indicators Efficiencies) 2.1 No. of People vs. Years of experience 2.2 Top two sectors for short term investment 2.3 Top two companies from Services sector for short term investment 2.4 Top two companies from Agricultural sector for short term investment 2.5 Top two sectors for medium term investment 2.6 Top two companies from Industrial sector for medium term investment 2.7 Top two companies from Services sector for medium term investment 2.8 Top two sectors for long term investment 2.9 Top two banks from Banking sector for long term investment 2.10 Top two companies from Industrial sector for long term investment 4.1 Time Series plot of SAPTCO 4.2 Autocorrelation plot of SAPTCO 4.3 Partial Autocorrelation plot of SAPTCO 4.4 Time Series plot of SAPTCO with first differencing 4.5 Autocorrelation plot of SAPTCO with first differencing 4.6 Partial Autocorrelation plot of SAPTCO with first differencing 4.7 The Residuals plot of SAPTCO 4.8 Sample of Time Series plot of SAPTCO with forecasts 4.9 Time Series plot of Taiba 4.10 Autocorrelation plot of Taiba 4.11 Partial Autocorrelation plot of Taiba 4.12 Time Series plot of Taiba with first differencing 4.13 Autocorrelation plot of Taiba with first differencing 4.14 Partial Autocorrelation plot of Taiba with first differencing 4.15 Residuals plot of Taiba 4.16 Sample of Time Series plot of Taiba with forecasts 4.17 Time Series plot of Tabuk Agriculture 4.18 Autocorrelation plot of Tabuk Agriculture 4.19 Partial Autocorrelation plot of Tabuk Agriculture 4.20 Time Series plot of Tabuk Agriculture with first differencing 4.21 Autocorrelation plot of Tabuk Agriculture with first differencing 4.22 Partial Autocorrelation plot of Tabuk Agriculture with first differencing 4.23 Residuals plot of Tabuk Agriculture 4.24 Sample of Time Series plot of Tabuk Agriculture with forecasts 4.25 Time Series plot of Saudi Fisheries 4.26 Autocorrelation plot of Saudi Fisheries Page xii

11 4.27 Partial Autocorrelation plot of Saudi Fisheries 4.28 Time Series plot of Saudi Fisheries with first differencing 4.29 Autocorrelation plot of Saudi Fisheries with first differencing 4.30 Partial Autocorrelation plot of Saudi Fisheries with first differencing 4.31 Residuals plot of Saudi Fisheries 4.32 Sample of Time Series plot of Saudi Fisheries with forecasts 4.33 Time Series plot of SABIC 4.34 Autocorrelation plot of SABIC 4.35 Partial Autocorrelation plot of SABIC 4.36 Time Series plot of SABIC with first differencing 4.37 Autocorrelation plot of SABIC with first differencing 4.38 Partial Autocorrelation plot of SABIC with first differencing 4.39 Residuals plot of SABIC 4.40 Sample of Time Series plot of SABIC with forecast 4.41 Time Series plot of SAVOLA 4.42 Autocorrelation plot of SAVOLA 4.43 Partial Autocorrelation plot of SAVOLA 4.44 Time Series plot of SAVOLA with first differencing 4.45 Autocorrelation plot of SAVOLA with first differencing 4.46 Partial Autocorrelation plot of SAVOLA with first differencing 4.47 Residuals plot of SAVOLA 4.48 Sample of Time Series plot of SAVOLA with forecasts 4.49 Time Series plot of SAPTCO 4.50 Autocorrelation plot of SAPTCO 4.51 Partial Autocorrelation plot of SAPTCO 4.52 Time Series plot of SAPTCO with first differencing 4.53 Autocorrelation plot of SAPTCO with first differencing 4.54 Partial Autocorrelation plot of SAPTCO with first differencing 4.55 Residuals plot of SAPTCO 4.56 Sample of Time Series plot of SAPTCO with forecasts 4.57 Time Series plot of Taiba 4.58 Autocorrelation plot of Taiba 4.59 Partial Autocorrelation plot of Taiba 4.60 Time Series plot of Taiba with first differencing 4.61 Autocorrelation plot of Taiba with first differencing 4.62 Partial Autocorrelation plot of Taiba with first differencing 4.63 Residuals plot of Taiba 4.64 Sample of Time Series plot of Taiba with forecasts 4.65 Time Series plot of Al-Rajhi 4.66 Autocorrelation plot of Al-Rajhi 4.67 Partial Autocorrelation plot of Al-Rajhi 4.68 Time Series plot of Al-Rajhi with first differencing 4.69 Autocorrelation plot of Al-Rajhi with first differencing 4.70 Partial Autocorrelation plot of Al-Rajhi with first differencing 4.71 Residuals plot of Al-Rajhi 4.72 Sample of Time Series plot of Al-Rajhi with forecasts 4.73 Time Series plot of Al-Bilad 4.74 Autocorrelation plot of Al-Bilad 4.75 Partial Autocorrelation plot of Al-Bilad 4.76 Time Series plot of Al-Bilad with first differencing 4.77 Autocorrelation plot of Al-Bilad with first differencing xiii

12 4.78 Partial Autocorrelation plot of Al-Bilad with first differencing 4.79 Residuals plot of Al-Bilad 4.80 Sample of Time Series plot of Al-Bilad with forecasts 4.81 Time Series plot of SABIC 4.82 Autocorrelation plot of SABIC 4.83 Partial Autocorrelation plot of SABIC 4.84 Time Series plot of SABIC with first differencing 4.85 Autocorrelation plot of SABIC with first differencing 4.86 Partial Autocorrelation plot of SABIC with first differencing 4.87 Residuals plot of SABIC 4.88 Sample of Time Series plot of SABIC with forecasts 4.89 Time Series plot of SAVOLA 4.90 Autocorrelation plot of SAVOLA 4.91 Partial Autocorrelation plot of SAVOLA 4.92 Time Series plot of SAVOLA with first differencing 4.93 Autocorrelation plot of SAVOLA with first differencing 4.94 Partial Autocorrelation plot of SAVOLA with first differencing 4.95 Residuals plot of SAVOLA 4.96 Sample of Time Series plot of SAVOLA with forecasts 5.1 Technical Indicator 5.2 MACD indicator 5.3 RSI indicator 5.4 Stochastic Oscillator 5.5 Winning Buy for Tabuk Agriculture (Indicators Efficiencies) 5.6 Winning Sell for Tabuk Agriculture (Indicators Efficiencies) 5.7 Loosing Buy for Tabuk Agriculture (Indicators Efficiencies) 5.8 Loosing Sell for Tabuk Agriculture (Indicators Efficiencies) 5.9 Sample of MACD indicator chart for Tabuk Agriculture 5.10 Sample of RSI indicator chart for Tabuk Agriculture 5.11 Sample of Stochastic Oscillator indicator chart for Tabuk Agriculture 5.12 Winning Buy for Saudi Fisheries (Indicators Efficiencies) 5.13 Winning Sell for Saudi Fisheries (Indicators Efficiencies) 5.14 Loosing Buy for Saudi Fisheries (Indicators Efficiencies) 5.15 Loosing Sell for Saudi Fisheries (Indicators Efficiencies) 5.16 Sample of MACD indicator chart for Saudi Fisheries 5.17 Sample of RSI indicator chart for Saudi Fisheries 5.18 Sample of Stochastic Oscillator indicator chart for Saudi Fisheries 5.19 Winning Buy for SAPTCO (Indicators Efficiencies) 5.20 Winning Sell for SAPTCO (Indicators Efficiencies) 5.21 Loosing Buy for SAPTCO (Indicators Efficiencies) 5.22 Loosing Sell for SAPTCO (Indicators Efficiencies) 5.23 Sample of MACD indicator chart for SAPTCO 5.24 Sample of RSI indicator chart for SAPTCO 5.25 Sample of Stochastic Oscillator indicator chart for SAPTCO 5.26 Winning Buy for Taiba (Indicators Efficiencies) 5.27 Winning Sell for Taiba (Indicators Efficiencies) 5.28 Loosing Buy for Taiba (Indicators Efficiencies) 5.29 Loosing Sell for Taiba (Indicators Efficiencies) 5.30 Sample of MACD indicator chart for Taiba 5.31 Sample of RSI indicator chart for Taiba 5.32 Sample of Stochastic Oscillator indicator chart for Taiba xiv

13 5.33 Winning Buy for SABIC (Indicators Efficiencies) 5.34 Winning Sell for SABIC (Indicators Efficiencies) 5.35 Loosing Buy for SABIC (Indicators Efficiencies) 5.36 Loosing Sell for SABIC (Indicators Efficiencies) 5.37 Sample of MACD indicator chart for SABIC 5.38 Sample of RSI indicator chart for SABIC 5.39 Sample of Stochastic Oscillator indicator chart for SABIC 5.40 Winning Buy for SAVOLA (Indicators Efficiencies) 5.41 Winning Sell for SAVOLA (Indicators Efficiencies) 5.42 Loosing Buy for SAVOLA (Indicators Efficiencies) 5.43 Loosing Sell for SAVOLA (Indicators Efficiencies) 5.44 Sample of MACD indicator chart for SAVOLA 5.45 Sample of RSI indicator chart for SAVOLA 5.46 Sample of Stochastic Oscillator indicator chart for SAVOLA 5.47 Winning Buy for Al-Rajhi (Indicators Efficiencies) 5.48 Winning Sell for Al-Rajhi (Indicators Efficiencies) 5.49 Loosing Buy for Al-Rajhi (Indicators Efficiencies) 5.50 Loosing Sell for Al-Rajhi (Indicators Efficiencies) 5.51 Sample of MACD indicator chart for Al-Rajhi 5.52 Sample of RSI indicator chart for Al-Rajhi 5.53 Sample of Stochastic Oscillator indicator chart for Al-Rajhi 5.54 Winning Buy for Al-Bilad (Indicators Efficiencies) 5.55 Winning Sell for Al-Bilad (Indicators Efficiencies) 5.56 Loosing Buy for Al-Bilad (Indicators Efficiencies) 5.57 Loosing Sell for Al-Bilad (Indicators Efficiencies) 5.58 Sample of MACD indicator chart for Al-Bilad 5.59 Sample of RSI indicator chart for Al-Bilad 5.60 Sample of Stochastic Oscillator indicator chart for Al-Bilad 6.1 Winning Buy (Indicators Efficiencies) 6.2 Winning Sell (Indicators Efficiencies) 6.3 Loosing Buy (Indicators Efficiencies) 6.4 Loosing Sell (Indicators Efficiencies) xv

14 232 CHAPTER I INTRODUCTION 1.1 BACKGROUND With respect to the human being, the highest adventures on earth, who have generated the concept of stocks revolution. The Saudi stocks revolution took place beginning of this millennium. The words stock, shares, capital, market, buy-sell order, limit up/ down and profitslosses are known to a very limited community, where as the majority either do not know or believed that such words and market exists. By categorizing the Saudi population to groups, it is found that the highest groups are non-employed group and the fixed income employees group. Those two groups share generally the lack of education about investments and savings but high education in consuming and spending. Beginning of the collapse of the stock market started by loading tremendous amounts of owned and loaned cash into the market by all categories of people with no knowledge but wishing for fast profits. This resulted in historical catastrophic market collapses. 1

15 2 The Saudi Stock Market generally became un-trusted, risky and slow to many people due to certain factors such as misleading analysis and lack of investment knowledge among the population. Today the Saudi Stock Market (SSM) is characterized as one of the largest dynamic markets in the world and is attracting prospective multi national investors. The purpose of this study is to analyze when to buy/ sell different stocks in the Saudi market by using the fundamental and technical analysis, which could help a major investor population. This could build confidence and could direct an investment project in a safe way. 1.2 SAUDI STOCK MARKET The Saudi Stock Market is one of the most important media in the country. However, investing in the stocks could be risky due to fluctuating phenomena. Investors try to find the tools to forecast stock prices prior to their investment aiming to reduce investment risks, and to assist their decision making on investment. The two popular tools used to analyze the stock price movement in Saudi Arabia are fundamental analysis, and technical analysis [1]. The Saudi Stock Market is divided into sectors such as, banks, industry, cement, services, electrical, telecommunications, insurance, and agriculture. Each sector includes a number of companies based on their activities and nature of business.

16 3 Several major factors determine the strength of a certain company's position within the Stock Market. The factors are volume of trade, number of shares, and change in stock price. 3.1 STATEMENT OF THE PROBLEM The Saudi Stock Market crashed in February 2005 as a result of some phenomena which took place at a time. Saudi investors lacked a trusty recommendation to contribute into the Saudi Stock Market and invest with minimum possible risk. 3.1 MAIN GOAL OF THE STUDY The goal of this work is to analyze the top companies in each selected sector of the Saudi Stock Market, considering the company's stock price and to indicate the buying and selling signals for those companies. 3.1 OBJECTIVES OF THE STUDY The objectives of the study are as follow: 1. To identify the top companies in each selected sector. 2. To forecast the company's stock prices by a suitable forecasting method. 3. To indicate when to buy and when to sell stocks in those companies by using the technical analysis concept. 3.1 LITERATURE REVIEW Screening allows investor to search for equities using both a bottom-up analysis and / or top-down methodology. A bottom-up investment manager conducts research on

17 4 individual stocks and investments based on the underlying companies' financial fundamentals. A top-down investment manager examines broad economic trends, selects an industry, and then search for companies within the selected industry for investment. Despite some limitations, the benefits of screening are too powerful to ignore. In a matter of seconds, screening can take 10,000 possible stocks and narrow them down to 10 based on characteristics a particular investor is looking for. It clearly saves time of investors and portfolio managers looking for investments. As mentioned earlier, screening indicates discipline in the investment process. A company either passes a screening filter or fails. If a screen is looking for stocks with market caps above $1 billion, any company with a market cap below this amount will not be included in the results. Screening puts each stock on equal footing. Since it is based primarily on numbers, it takes the emotion element out of the process. Strictly using screening helps investors avoid buying over-hyped stocks. Furthermore, many investors hold company's a stock too long because the investor may that consider it, has a glorious past, or has a well-regarded household name. Screening helps investors identify stocks that no longer meet the parameters outlined in the screen. Not using screening is equivalent to a baseball manager deciding on a pinch hitter without looking at the batting averages of the players he has on the bench. If you run the same screens periodically, it will give you new investment ideas of stocks to purchase. Also, if a stock falls out of a screen, it may give you a reason to pause and investigate whether you still want to own it.

18 5 Screening is a great way to help people learn what is happening in today's market. By running these from time to time, investors can find interesting trends and tidbits of information regarding different companies. Simple screens, such as the daily highest percentage gainers and losers, and highest volume, stocks are shown in newspapers on daily basis. Screens can also show which sectors and investment styles are working or not working in the current investment environment. Screening process has the following seven steps: 1. Determine the theme or characteristics, 2. Determine the variables and their ranges, 3. Input data and run screen, 4. Assess results, 5. Explain qualitative overlay, 6. Investment decision, 7. Follow up, run screen periodically [2]. Fundamental and technical analyses are two important methods of forecasting the future price movements of a financial instrument. They are based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. They indicate to the investor the buying and selling signals of their portfolio stocks. Fundamental analysis focuses on what will happen in a market. Factors involved in price analysis such as supply and demand, seasonal cycles, weather and government policies.

19 6 A method of evaluating a security can be determined through attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price in hopes of figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell or short) [3]. Many profitable trades can be made moments prior to or shortly after the major economic announcements [4]. Stock Market forecasting models usually take into consideration the fundamental variables such as P/E ration, earnings per share, book value, and variables related to macroeconomics such as oil prices, money supply, GDP, Per-capita income, interest rate [5]. Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. In its purest form, technical analysis considers only the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels.

20 7 Technical analysis is widely used among traders and financial professionals. Some studies say its use is more widespread than of "fundamental" analysis in the foreign exchange market. Academics such as Eugene Fama say the evidence for technical analysis is sparse and is refuted by the efficient market hypothesis, yet some Federal Reserve and academic studies include evidence that supports technical analysis. MIT finance professor Andrew Lo argues that "several academic studies suggest that technical analysis may well be an effective means for extracting useful information from market prices". Burton Malkiel argues, "Technical analysis is anathema to the academic world" [6]. What is Portfolio Management? Portfolio management is the identification of measured risk exposures that are controlled in the context of defined risk tolerance. Other acceptable definitions include managing a portfolio of assets to achieve the best possible mix as distinct from managing individual assets within the portfolio. Some others may prefer describing portfolio management as a tool to minimize aggregate risk problems while achieving or exceeding hurdle returns for risks the lender or investor is willing to accept [7]. 3.1 METHODOLOGY In order to achieve the stated objectives, the following steps shall be taken: 1. Giving a clear picture for the Stock Market concept. 2. Select some sectors for the study by surveying large number of investors. 3. Identify the top companies in each selected sector by surveying large number of investors.

21 8 4. Data gathering for the selected companies (Change in share price, volume, dividend yield %, and PE) for the year 2005/6. 5. Identify and explain important time series forecasting techniques, and concepts. 6. Forecast short term (4 months), medium term (6 months) and long term (12 months) stock prices. 7. Clarify the technical analysis indicators and concepts. 8. Identify the buying / selling signals for the chosen companies. 9. Give Conclusions and make Recommendations of this study. 3.1 PROJECT PLAN The project will take around 12 months to be completed as shown below: Figure 1.1 Project Plan

22 9 3.1 OUTLINE OF THE REPORT This study does come up with the following: 1. Determination of the top companies for trading in each selected sector and they are as follow: i. Short Term Investment o Services Sector SAPTCO Company Taiba Company o Agricultural Sector Tabuk Agriculture Company Saudi Fisheries Company ii. Medium Term Investment o Industrial Sector SABIC Company SAVOLA Company o Services Sector SAPTCO Company Taiba Company iii. Long Term Investment o Banking Sector Al-Rajhi Bank Al-Bilad Bank o Industrial Sector SABIC Company SAVOLA Company 2. A good forecasting method(s) which will support the Saudi Market's investors in trading within the chosen companies, in each of the selected sectors and they are as follow:

23 Tabuk Agriculture Saudi Fisheries SAPTCO Taiba SABIC SAVOLA RJHI ALBI 11 Short Term Investment, Medium Term Investment and Long Term Investment: o Services Sector SAPTCO Company with ARIMA(1,1,1) Taiba Company with ARIMA(4,1,5) o Agricultural Sector Tabuk Agriculture Company with ARIMA(1,1,2) Saudi Fisheries Company with ARIMA(0,1,5) o Industrial Sector SABIC Company with ARIMA(2,1,2) SAVOLA Company with ARIMA(3,1,2) o Banking Sector Al-Rajhi Bank with ARIMA(5,1,5) Al-Bilad Bank with ARIMA(1,1,3) 3. To carry out technical analysis for the chosen companies (buying and selling signals) and the efficiency of the signals are as follow: Indicators efficiencies 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% MACD RSI STO Winning Buy Figure 1.2 Winning Buy (Indicators Efficiencies)

24 Tabuk Agriculture Saudi Fisheries SAPTCO Taiba SABIC SAVOLA RJHI ALBI Tabuk Agriculture Saudi Fisheries SAPTCO Taiba SABIC SAVOLA RJHI ALBI 11 Indicators efficiencies 0% -10% -20% -30% -40% -50% -60% -70% -80% Loosing Buy MACD RSI STO Figure 1.3 Winning Sell (Indicators Efficiencies) Indicators efficiencies 80% 70% 60% 50% 40% 30% 20% 10% 0% MACD RSI STO Winning Sell Figure 1.4 Loosing Buy (Indicators Efficiencies)

25 Tabuk Agriculture Saudi Fisheries SAPTCO Taiba SABIC SAVOLA RJHI ALBI 12 Indicators efficiencies 0% -5% -10% -15% -20% -25% -30% -35% -40% Loosing Sell MACD RSI STO Figure 1.5 Loosing Sell (Indicators Efficiencies) 1.10 LIMITATIOINS OF THE STUDY The study will be applied on limited number of companies from the Saudi Stock Market.