#$uae

Here are some of the most noteworthy new highs and lows across the markets for Friday,February 7, 2020.

Johnson & Johnson $JNJ Breaking Out To New All-Time Highs

Biotech ETF $IBB Testing ~5-Year Highs

Italian Stocks Testing Decade Highs

Oil & Gas Exploration & Production ETF $XOP Hitting All-Time Lows

Industrial Metals Hitting 3-Year Lows

United Arab Emirates ETF $UAE Drops To All-Time Low

If you’d like to see these charts as they come out in real-time, follow us on Twitter and StockTwits. And if you’re interested in the daily “all-access” version of all our charts and research, please check out our site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Despite the rout in oil prices, the technical setup of the Saudi Arabian stock market (again) correctly foretold a rally.

Last September, we wrote a post focused on the Saudi Arabian stock market. The point of the post was two-fold. First, we highlighted some potential technical support on the chart of the Saudi Tadawul All Shares Index (TASI), which was in a free fall at the time.

Here is that chart from 9/30/2016:

The day before, the Saudi market had been the beneficiary of some good news related to OPEC supposedly curbing oil production. Our second objective to the post was to show how “good news” has a tendency to occur when a stock or market is technically in a position to support a bounce. More accurately, markets tend to react better to news events when in a technically favorable chart position. In that sense, one can often “predict” the news based on the proximity of a market’s price level.

As it turns out, the TASI proceeded to bottom within 2 days and commence a 3–month, ~35% rally. Again, we are not fortune tellers. We merely identified an area of potentially significant support on the chart and suggested that, whatever news did come out subsequently, would indeed be perceived bullishly if the TASI bounced off that support.

Over the past week, we’ve noted a similar opportunity. The TASI’s bounce from its late-September, early-October low was stopped by a Down trendline stemming from the index’s 2014 highs. After holding below the trendline for 3 months, the TASI popped above it in April. It was unable to get much lift off of the trendline for the next few months, however, treading along the top side of the line until early June.

On Monday, the TASI popped by more than 2%. In the process, it broke the near-term Down trendline from the early January high. As we pointed out in our Daily Strategy member videos at The Lyons Share, that positive development opened up immediate-term upside in the index. It also suggested that impending news events would be stock market-friendly, or at least result in a favorable stock market interpretation.

2 days later, 2 big news events hit pertaining to Saudi equities – one anticipated and one out of the blue. First, MSCI announced that they would be considering Saudi Arabia for inclusion in their emerging markets index. In addition, in a surprise move, Saudi Arabia replaced the kingdom’s Crown Prince. The 2 significant news events had the anticipated reaction in the Saudi stock market, i.e., a continued bounce.

On Wednesday, the TASI closed higher by 5.5%, with more upside follow-through coming today.

Like last September, this week’s action has served as an important reminder on a couple fronts. First, we continue to scour the globe for more attractive opportunities as the U.S. rally gets, uh, mature. Secondly, when considering news events, or the interpretation thereof, do yourself a favor and take a glance at the charts beforehand. They just might help you “predict” the news – or at least its interpretation.

In a premium post at The Lyons Share, we take a deeper dive into the TASI chart to determine how much opportunity remains for investors, in the short and long-term, as well as how to take advantage.

If you want that “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share.

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News of OPEC production curbs occurred fortunately -- but not surprisingly -- as the Saudi stock market was testing key long-term support.

The big news yesterday in the financial markets was a supposed agreement by OPEC nations to curb oil production. The news sent oil prices shooting higher. It was also a lucky dose of support for a Saudi stock market that has been decimated lately. Or was it? We have discussed before the notion of price predicting the news. In other words, the situation whereby the technical circumstances of a certain market make it more receptive to either bullish or bearish “news”. Today’s Chart Of The Day provides a potential example of this dynamic.

To wit: following a brutal 20% selloff over the past 5 months, the main index of Saudi Arabian stocks (the “TASI”) currently finds itself at a major long-term juncture of support. As the chart reveals, this support comes in the form of 7-year lows set back in 2011 and again in January-February of this year. These lows also coincide with the 78.6% Fibonacci Retracement of the TASI’s 2009-2014 rally.

Given the fact that the TASI is severely oversold and on top of substantial 7-year support, at least a bounce from these levels is to be expected. As such, even the slightest bullish headline could easily “cause” the index to rise. Conversely, despite the pronounced downtrend in place, it will be increasingly difficult at this juncture to push prices significantly lower based on “bad news”. Thus, while not a guarantee, the odds greatly favor the “happenstance” of bullish news while prices test this key support area.

A good example of price predicting the news that we touched on involved Saudi Arabia’s fellow stock exchange in Dubai. About 2 years ago, the Dubai Financial Market General Index (DFMGI) was in the midst of a dead-cat bounce following a mini-crash a few months prior. Based on our read of the price action in the DFMGI, we viewed another sharp down-leg, and at least a re-test of the prior lows, as the likely course of action. We also surmised that such a move would likely correspond with a resumption of the drubbing in oil prices, perhaps serving as catalyst to a widespread decline in global risk assets. One month later, crude oil was down 30%, the DFMGI was 35% lower and the plummeting oil complex was all over the front pages. Price predicting the news.

In this case, the Saudi stock market’s close proximity to major 7-year support suggests that the path of least resistance should be up, in the near-term. Therefore, do not be surprised to see more positive headlines “providing” a boost to Saudi shares.

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More from Dana Lyons, JLFMI and My401kPro.

BY MAULDIN ECONOMICS

News that Russian President Vladimir Putin had ordered a Russian air wing home from Syria indicates weakness to some observers. Low oil prices forced Putin to abandon the foreign venture. 

Geopolitical expert George Friedman disagrees.

Speaking in a Mauldin Economics video, Friedman says the Russian deployment was part of an elaborate US–Russia negotiation. The real issue is further north.

Syria-Ukraine Connection

According to Friedman, the US is in a quandary. It needs a stable Syrian government to contain ISIS, but can’t overtly support the brutal Bashar Assad regime. 

Meanwhile, Russia desperately wants Ukraine neutralized and outside NATO or other Western security guarantees. Moscow also wants relief from economic sanctions, though Friedman says the sanctions are minor compared to the oil problem.

This set up a bargain.

Russian air strikes damaged ISIS enough to put Assad back in at least a temporarily stable position. The US got what it wanted without leaving any American fingerprints.

The next step will be quiet US–Russia discussions of a new balance in Ukraine.

Publicity Coup for Putin

A small but successful deployment outside Russia’s normal sphere was a public relations coup for Putin, but carries little military significance. With their goal achieved, the Russians could declare victory and go home.

The operation didn’t solve long-term regional challenges. ISIS still controls much of Syria, but Damascus is safe for now. Both the US and Russia need a Ukraine resolution, and it is now significantly closer. 

Watch the full interview (4:19) below or on the Mauldin Economics site.

Subscribe to This Week in Geopolitics

First off, this post has nothing to do with any military operations. It is one, a comment on our view of the Dubai stock market based off of its chart. Secondly, it is an example of how a chart -- or asset price moves, in general -- can foretell larger future developments.

Let's look at the chart of Dubai's Financial Market General Index. From the beginning of 2012 to May of this year, the DFMGI rose 315%. It gained 90% just since November of last year. The meteoric rise was halted abruptly, however, in May as the index crashed some 30% over the following 2 months from its high around 5400. It arrested its drop near the 3800 area, a level which we highlighted on June 24. Subsequently, the DFMGI began the healing process, during which it would be determined whether the index was A) ready to resume its long-term uptrend or B) destined to retest the crash lows. Our vote is leaning toward "B" at this point.

Why are we leaning toward a retest? For one, crashes typically see a test of their lows, whether quickly or months later. Witness the October 1987 crash that saw its lows retested in early December after a bounce. A 2-month bounce in the DFMGI into early September saw the index retrace roughly 88.6% of the crash declines. This was the final Fibonacci Retracement hurdle to overcome before it would have been a pretty sure bet that the index would be off to new high ground again, i.e., scenario "A". However, the index could not quite overcome that level and has proceeded to falter again.

The failure in September was also important as it established a lower high on the chart. Another troubling development was the swiftness of its October decline, in concert with global equity weakness. Unlike many of its international counterparts, however, the DFMGI has only mounted a meager comeback from its mid-October lows.

The meagerness of the bounce is made more significant due to the location of the bounce. It occurred at both the 61.8% Fibonacci Retracement of the July-September rally as well as the rising trendline connecting the September 2013 lows and the July lows (as well as the December 2012 and April 2013 lows using a logarithmic scale). And whereas the bounce off that trendline in July was explosive and lasted for 3 and a half months, the recent bounce was mild in magnitude and lasted only 3 weeks before the index again returned to the trendline last week. Furthermore, while the 200-day simple moving average also served as support at the July lows, the index has now dropped below it.

To us, this points to the potential failure of the October low as well as the up trendline, and in fairly short order. Barring an immediate rally above the late-October highs, the index could be on its way back down to test the key 3800 area again. This represents a decline of approximately 17% from the DFGMI's current level around 4600.

So what about the second point of this post -- the larger context? Investors are always wondering about the origin of the next market "scare". And while sometimes the negative catalyst is seemingly out of the blue, at times it is foreshadowed by the price action of a particular market. For example, the Russian stock market was showing significant weakness earlier this year before the Crimean crisis unfolded. It was a similar story with the Cyprus scare last year, the Greek issues in 2012 and this year and the Portugal issues this summer. None of those issues were "out of the blue". The charts showed well beforehand that something unhealthy was going on.

So is Dubai the next global "scare"? Since it already crashed earlier this year and since the potential weakness associated with a possible retest would amount to "only" about 17%, perhaps that is overdoing it a bit. Then again, anything that produces a drop of even 2% in the S&P 500 could be considered a scare these days. And should the Dubai Financial Markets General Index drop 17%, that would most likely produce some ripple effects globally, even if only in the very short-term. On top of that, such a hypothetical drop in the heavily oil-dependent region could very well transpire concurrently with a plunge in oil prices. While that development may or may not be welcome news in the long-run, in the short-term, it could produce various sharp dislocations in the financial markets.

Obviously, this is all conjecture based on a development in the Dubai stock market that has not even happened yet, and may not. However, it is an example of how price action can give one a tipoff of where the next trouble spot might occur in the markets, before it becomes apparent. That is the discounting genius of financial markets. Therefore, we wanted to post it beforehand, just in case something along those lines does unfold and we can make the point better than having to rely on hindsight.

Even at the risk of our crystal ball being faulty.

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"Dubai Desert Cityscape" photo by Thamer Al-Hassan.

On June 24, we posted a chart showing the Dubai Stock Market crashing. We also noted that it was approaching its first major support level around 3800-3900. Notwithstanding one temporary intraday break and reversal, it held that precise support level. On July 3, we noted that the DFM General Index hit the 38.2% Fibonacci Retracement of the crash and that the next target was the 4770 level, representing the 61.8% Fib Retracement level, as well as the 50-day SMA. Today, it traded up to 4766.86. We'll call that "mission accomplished".

A 28% return in 3 weeks isn't bad -- hopefully some readers were able to take advantage of it. The iShares UAE ETF, by the way, was up 14% over that period.

On June 24, we posted a chart showing the Dubai Stock Market crashing. We also noted that it was approaching its first major support level around 3800-3900. It reached that support level a few days ago and it held, spectacularly.

After a quick intraday break on July 1, the DFM General Index reversed in textbook fashion to close above the key 3800 level (representing the 38.2% Fibonacci Retracement of the 2012-14 rally, 200-day SMA and the March low.) It has bounced 21% off that level in the past two days all the way to the 38.2% Fibonacci Retracement of its crash around 4400, where it has paused. A break above that level ushers in the next target at the 61.8% retracement (50-day SMA also comes in there) around 4770.