Qatar Market in Overbought Territory — Qatar Analysis , Relative Strength — GCC Market Analytics
Qatar Market in Overbought Territory | GCC Market Analytics

Saturday, 15 January 2011

Qatar Market in Overbought Territory

The Qatar market continues to advance higher.  The QE Index is up 9% since the 2022 World Cup announcement on December 2nd.  Clearly there's a lot of optimism surrounding Qatar at the moment.

However, the Relative Strength Index (RSI) is signaling that the Qatar market is in overbought territory.  For those not familiar with the RSI see here.  In short, the RSI is a momentum measure that oscillates between zero and 100.  When the RSI is below 30 this signals that the stock or index is oversold.  When the RSI is above 70 this signals an overbought stock or index.

That chart below shows the QE Index (top chart) along with the 14-day RSI indicator (bottom chart).  The green shaded area represents oversold RSI levels and the red shaded area overbought levels.

Qatar Stock Market Relative Strength Index
As you can see, the RSI for the QE Index is currently above 80, well into overbought territory.  Does this mean a big sell-off is imminent?  Not necessarily. When a stock or market does get this overbought it is certainly vulnerable to a sizable sell-off.  For example, the first two overbought occurrences highlighted on the chart above resulted +10% market falls.

But more recent overbought levels have just been met with a pause or mild pullback prices. So, on its own, a high RSI level isn't a reason to sell (especially when the weekly market analysis of the Qatar market is so bullish).  However, entering the market at such overbought levels probably isn't a good idea either and certainly wouldn't provide a good risk-to-reward trade.

At the very least when the RSI level for a stock or index is above 70 this should be taken as a "proceed with caution" signal.  With that in mind below are the Qatar stocks with the highest current RSI levels.

Qatar Insurance Relative Strength Index

Qatar International Islamic Bank Relative Strength Index

Qatar Islamic Bank Relative Strength Index

Masraf Al Rayan Relative Strength Index

United Development Co. Relative Strength Index