Sunday, 5 September 2010

Dubai Index Increases +2.69%. What Next?

The DFM General Index increased by 2.69% today. The last time the Index moved up by more than 2.50% in a single trading session was way back on June 20th (that was 55 trading days ago). Today's close also represents a 50-day high for the DFM Index.

On the chart below I've highlighted all previous instances of +2.50% daily Index moves going back to October 2008 (yellow diamonds). The larger blue diamonds represent +2.50% daily moves which coincided with 50-day closing highs.

As you can see, it's been quite a long time since a +2.50% daily move and even longer for one that coincided with a 50-day Index closing high.

I did a quick study of next day DFM General Index returns following +2.50% daily moves, going back to late 2005. If you had systematically bought the Index (hypothetically speaking, that is) at the close on a +2.50% up day and then sold at the close on the following day you'd be down about 50% by now:

This represents quite a strong downside effect following +2.50% daily Index rises.

Looking at the data in a bit more detail we find that 68% of days following +2.50% moves have been negative whilst 32% of days have resulted in another Index increase. When the Index has fallen in value following a +2.50% move it has lost -1.94%, on average. When a +2.50% day has been followed by another Index increase it has tended to rise by +2.40%, on average.

In short, the probabilities suggest a down day tomorrow. However, if the DFM General Index can overcome these odds we could be in for another sizable increase tomorrow.

I took an even quicker look at how the DFM General Index performed in the five and ten days following a +2.50% daily move but didn't find anything that pointed to a significant upside or downside price move.

It's also worth bearing in mind that the outlook for the DFM General Index is bearish in both the Weekly GCC Index Analysis and Weekly GCC Trend Analysis.

It's a pleasant change to see the DFM General Index putting in a nice daily increase but remember: "one swallow does not a summer make."

Enjoy.

GCC Sector Analysis

Below are the year-to-date percentage returns for all GCC market sectors. The top performers this year are the insurance sector in Qatar and (surprisingly?) the banking sector in Kuwait.

Seven of the bottom ten performing sectors are from the UAE market. The Dubai utilities and Abu Dhabi real estate sectors have been by far the worst sectors so far this year.

Is there a tendency for the best or worst performing sectors to continue to perform well or poorly in the future? I'll be taking a look at sector rotation strategies in an upcoming post.

Enjoy.

Saturday, 4 September 2010

Market Breadth: Part II

In the previous post on market breadth I looked at the advance/decline indicator and how it could be applied to the Dubai market to determine the future price direction of the DFM General Index.

In this post I want to share the results of applying the advance/decline indicator to other GCC markets.

A quick recap. The advance/decline indicator is calculated on a daily basis and represents the net number of rising versus declining stocks as a percentage of the total number of stocks. The daily advance/decline percentages are averaged over a certain number of trading days so the results are smother and easier to interpret.

When the advance/decline indicator in greater than zero this tells us that more stocks have risen in price than fallen. When the indicator is less than zero more stocks have declined in value.

In the previous post I looked at the performance of the DFM General Index when the advance/decline indicator was either above or below zero. The results showed that the Index tended to increase in value when the advance/decline indicator was above zero and decrease in value when it was below zero.

The charts below show the results of applying the advance/decline indicator on other GCC markets. The charts on the left-hand side show the historical price performance of each GCC market index and the corresponding advance/decline indicator. The right-hand charts show the historical performance of each market index (blue line) and the performance of the index when the advance/decline indicator was above zero (green line) or below zero (red line).

[ Click to enlarge ]

As you can see, the above results are similar to those for the DFM General Index in the last post. The performance of all market indexes was significantly better when the advance/decline indicator was above, rather than below, zero. Quite impressive results for such a simple application of the indicator.

In the next post on this topic I'll introduce a study based on the advance/decline indicator which I'll use to evaluate the GCC markets on an ongoing basis.

Enjoy.

P.S. The results above are based on slightly different rules than I used in the last post. In this post I used a 10-day rather than 20-day advance/decline indicator and there was no requirement for the indicator to be greater/less than it was two weeks ago. The reason for the change was simply because the rules used in this post performed more consistently across all markets than did the rules in the last post.

Weekly GCC Index Analysis (Week 37)

Both the GCC Index Analysis and the GCC Trend Analysis are in agreement this week on the outlook for each market: DFM/ADX = Bearish, Saudi/Oman = Neutral, Kuwait/Bahrain/Qatar = Bullish (especially Qatar).

Weekly Index Analysis for week ending 2nd September 2010 (1st September 2010 for Saudi Tadawul Index).

Enjoy.

Friday, 3 September 2010

Weekly GCC Trend Analysis (Week 37)

[ Click to enlarge ]

Notes:
1. In the "Current Trend Conditions" section the short-term, medium-term and long-term trend values are determined by dual moving averages. The trend value is "Up" when the the shorter length moving average is greater the longer length moving average. The trend value is "Down" when the the shorter length moving average is less then the longer length moving average. For more information on dual moving averages see previous post here.
2. Dual moving average parameters are specific to each index and time-frame (short, medium and long).

3. The "Outlook" value can be "Very Bullish," "Bullish," "Neutral," "Bearish" or "Very Bearish." The value is determined by the historical performance of the index when the same short, medium and long-term trend conditions were in evidence in the past.

4. The top chart shows a plot of the historical price performance of the index. Highlighted on the chart are the past periods when the current trend conditions were in evidence in the past

5. The bottom chart shows the non-compounded percentage returns of the index when the current trend condition were in evidence in the past.