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Abu Dhabi: ADI looks toppy, at inflection point

Posted: 10/14/2012 - 5:03 pm

The Abu Dhabi index (ADI) has registered a strong performance year-to-date. As highlighted on the chart, the ADI was able to find renewed buying interest following the spring correction. It is currently testing the high that was attained in March 2012 and which clearly represents a resistance at this point.

What is interesting about the July-to-date rally is the recent shift to an upward narrowing range as defined by the wedge (the upward titled triangle that began in late August 2012). The move to marginal highs in the last two months and the testing of the March peak reflect weakening buying momentum.

In our view, the recent price action indicates that a top is upon us and hints at a short term correction. However, our experience says that any call (bullish or bearish) would be premature at this point. Effectively, we should be looking for a break from the range defined by the price action of the last weeks and the wedge before taking any bets on a directional move.

Interestingly enough, the ADI faces resistance just as the Dubai index (DFMGI) struggles to pass 1650 (read: Dubai: price action at its best). The fact that both indices confirm one another adds strength to the argument for a short term pull back.

Keep a close eye on the price action and look for a breakout of the narrowing range to determine the direction and size of the upcoming move.

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