Negative investor sentiment triggered by Aldar Properties' restructuring plans, which will be dilutive to shareholders, continued to weigh on the UAE markets last week. Aldar declined to a 23 month low and broke below previous support of Dh2.20.

Optimism about a market recovery in 2011 has now turned to caution and renewed concerns about debt restructurings, persistent real estate issues, and the availability of financing. Further, sentiment is not helped by problems in Lebanon, Tunisia and Egypt.

Dubai

The Dubai Financial Market General Index (DFMG) was down 15.72 or 0.97 per cent for the week to close at 1,609.22. Volume was slightly lower while declining issues clearly won out over advancing at 21 to 3, respectively.

Support was found last week at 1,595.94, very close to previous support of 1,597.00 from four weeks ago.

This is the low of the current declining trend channel. It's also very close to the 61.8 per cent Fibonacci retracement level, 1,589.83, of the uptrend measured from the mid-August 2010 low.

Momentum on the DFMGI continues to be bearish with the price levels just mentioned identifying an important support zone of between 1,589.83 and 1,595.94. A close below 1,589.83 is a strong bearish sign with more aggressive selling likely to be seen at that time.

The next potential support level after that is around 1,566.17, the high of June 21, 2010. Below there, watch for a support zone between 1,534.57, the high of August 30, 2010, and 1,503.20, the 78.6 per cent Fibonacci retracement level of the uptrend.

The downtrend remains in place until the DFMGI closes above resistance of 1,680.69, the high of January 4, 2011.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) declined 53.99 or 1.97 per cent to close at 2,683.66. Volume was the highest in six weeks giving credence to the bearish sentiment. Declining issues were more than twice advancing at 25 to 10, respectively.

The ADI has taken a turn for the worse recently with several bearish signs giving the impression there is more down side to go. Previous price support of the three month downtrend has been broken. For the first time in four months the ADI is back below its long term trend indicator the 200 period exponential average (ema). Four days last week the index closed below this moving average and has since made no attempt to get back above it. The 200ema was support and is now resistance. Also, we've seen the previous support level around 2,690.37, the low from Dec-ember 22, 2010, broken and it now becomes resistance.

Two other bearish pieces of analysis are that the index closed back below its higher downtrend line, and also closed below the 38.2 per cent Fibonacci retracement level of the uptrend begun from the mid-Aug-ust lows.

This 38.2 per cent price area was part of a confluence of support that included the low from December, the 200ema, and previous price support from late 2009 and again in early 2010. So, in other words, the move below these levels last week was a break of significant price support.

For the reasons cited above the ADI will likely go lower over the coming weeks. However, that doesn't mean there won't be a bounce first, which is certainly possible in the short term as eight of the last nine days saw declines.

The two price areas to watch for support below current levels are at 2,652.15, the 50 per cent Fibonacci retracement level, followed by 2,609.73, the 61.8 per cent Fibonacci retracement level.

Each is a measurement of the degree of retracement of the uptrend begun from the mid-August lows. At this point there's a high probability that the 50 per cent level will be hit at a minimum.

Aldar Properties has been in a long term downtrend since at least June of 2008 and is now 85 per cent lower. Last week it declined 11.45 per cent to close at Dh2.01 as it broke out of a symmetrical triangle consolidation pattern to the down side. Selling momentum is evidenced by the large decline for the week along with a clear increase in volume. Volume was the highest since June 2009.

Long term support

This is a classic breakout and continuation of the current leg of the larger downtrend begun from the high of October 2009. It indicates that there is now a significant likelihood that Aldar will bust below long term support. A long term zone of support is between Dh1.96, hit in February 2009, and Dh1.99, touched in August 2010, with a close below Dh1.96 confirming the next stage of the downtrend.

How far might Aldar drop before finding support from buyers? A move below Dh1.96 would move the stock into price levels where it has never traded. Using technical analysis methods to project into the future gives us two support zones. The first is from Dh1.70 to Dh1.80, and the second area is from Dh0.69 to Dh0.74.

Any bounce from this point should be seen only as a temporary reprieve from the decline.

However, a close above resistance of Dh2.48, top of the triangle, changes the above scenario and is a bullish sign.

 

Bruce Powers, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com