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Sunday, 5 September 2010

GCC Market Analytics: 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."