Weekly Market Analysis (Week 44)

The weekly market analysis pages have been updated for trading week 44 (October 23rd - October 28th).  Use the links below to view the individual market analysis pages:

Dubai   -   Abu Dhabi  -   Saudi   -   Kuwait   -   Qatar   -   Bahrain   -   Muscat

The table below shows the market outlook based on each study. 

The outlook for the Dubai market moves bearish this week after several weeks of positive price movement.  However, the Abu Dhabi market remains bullish across all studies, as does the Muscat market.

After last week's 1.15% fall the outlook for Saudi stock market remains on the bearish side.

Visit the links above to view the full anaysis reports for all GCC markets.

Enjoy.

Weekly Market Breadth Analysis (Week 38)

Apart from Bahrain, all GCC markets are displaying positive market breadth this week.  To understand what this might mean for future price action please see here and here.

For an explanation of how to interpret the charts below please see here.

Enjoy.

Dubai. The Week Ahead.

So, we have our post hoc explanation for last week's market rise in Dubai: Dubai World Debt Plan Wins Support. 

Is this good or bad news for the market?  I don't know and, to be honest, I'm not a big fan of trying to interpret how large groups of people will react to news stories such as these.

If the market zooms up next week we'll be told that the debt plan agreement has restored confidence in Dubai.  Should the market do very little next week this will be because the news of the debt plan agreement had already been "priced in." And if there is any sizable fall in the market that will be due to "profit taking."

By the end of next week the appropriate explanation will be obvious. Retrodicting is easy.  Prediction is a little harder.

So, whilst acknowledging the potential importance of the Dubai debt plan agreement I'm going to revert to my regular analysis approach:  determine the current state of the market and analyse what has happened in the past under similar conditions.

With this in mind, below are a couple of interesting things I noticed about the Dubai market last week and what they might mean for the upcoming trading week.

1.  Volume

On an absolute basis the volume increase that accompanied last week's market rise was nothing spectacular.  Below is a chart of the volume for the DFM General Index.  As you can see, the recent volume has so far not even matched the volume levels seen previously this year in June/July.

However, looking at absolute volume levels doesn't take into consideration the overall volume environment of the market. A daily volume increase of one million shares can be significant in a low volume environment but but less so in a high volume environment.  Normalising the volume data makes it easier to compare relative volume changes over time. Below is a chart showing the normalsed volume for the DFM General Index going back to the beginning of 2006.

There are many ways to normalize volume data but I've chosen a simple method that calculates how far current volume levels are from their 20-day average.  For example, on Monday last week the volume in Dubai was over two hundred million shares which was about 270% greater than the average over the previous 20 days.

As you can see, the level of normalised volume seen last week (highlighted on the chart above) is fairly rare and has only been exceeded twice since the beginning of 2006.

So, in absolute terms the current volume levels aren't very significant. However, when we take into account the current low volume environment of the Dubai market the actual volume increases seen last week were very unusual. The question is does this tell us anything useful regarding future price action.

Below is the performance of the DFM General Index during and after high normalised volume periods.  The red line is the performance of the DFM General Index for the five days following a daily volume level which is 150% greater than the average volume of the last 20-days.  The green line is the same but for volume levels that are 200% greater than the average volume of the last 20-days.

From the chart above, it looks like the five days following high normalised volume days have tended to be bullish for the Dubai market. When volume has been greater than 150% of the 20-day average the market has been higher five days later 75% of the time (21 out of 28 instances) for an average gain of 6.55%.  When volume has been greater than 200% of the 20-day average the market has been higher five days later 83% of the time (15 out of 18 instances) for an average gain of 5.83%.

Whilst the sample size isn't massive there is a definite tendency for a sizable market increase in the week following high normalised volume periods. 

2.  Price Activity

I noticed on Monday that the Dubai market had closed on it's high for the second day running. Exactly on its high, that is.  I looked to see how often this had happened in the past.  The answer?  Never.

Then on Tuesday the same thing. Another close on the high.  Three days is a row.

What to make of this?  An oddity to be ignored?  A manifestation of the strength of the market and an indication of further strength to come?  Or a sign of "irrational exuberance" and that the market has gone too far too quickly?

Because there are no prior instances of the market closing on it's high three days in a row (or even two days in a row) I decided to test what had happened when the market had closed very near its high.  The chart below shows the five day performance of the DFM General Index when it closed in the top 90% of it's daily trading range for two days in a row (blue line) and three days in a row (red line).

When the Index closed in the top 90% of it's daily trading range for two days in a row the following five day performance was positive 78% of the time (25 out of 32 instances) with an average gain of 4.90%.  In the 22% of instances where the Index didn't close higher five trading days later the average loss was -2.97%.

For three days in a row the following five day performance was positive 98% of the time (11 out of 12 instances) with an average gain of 3.34%.  The only instance where the Index didn't close higher five trading days later resulted in a loss of -0.66%.

So, the fact that the market has closed at its highs three days in a row has historically been a sign of strength and that higher levels are to come, for the next five trading days at least.

Conclusion

So, two studies pointing to higher levels for the Dubai market this week. Did I miss all the studies that point to a market crash this week? Probably.

Enjoy.

Weekly GCC Index Analysis (Week 38)

All market indices are now trading above their respective 20-day and 50-day moving averages.  That's means the 5 day outlook for most markets is now bullish.

Enjoy.

Weekly GCC Trend Analysis (Week 38)

In a shortened three day trading week the DFM General Index still managed to rise an impressive +6%.  This was enough to turn both the short-term and medium-term trends positive and for the overall outlook to turn from Very Bearish last week to Bullish this week.

The same trend changes occurred for the ADX Index but the outlook has only changed to Neutral from Very Bearish. No change in the outlook from last week for the other GCC indices: Saudi = Neutral, Kuwait = Very Bullish, Qatar = Very Bullish, Bahrain = Bullish, Oman = Neutral.

Enjoy.

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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.