International markets took a decidedly bearish tone last week with most major market indices declining for the week. Sentiment worldwide seems to be changing for a while which could negatively affect the UAE exchanges. It is certainly not likely to help.

The rate of selling in the current two-week decline diminished a bit last week in both the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) as volume also fell. It's possible that the bearish sentiment in international markets could spill over to the UAE exchanges and accelerate the declines. At the same time, it's possible we may see a short-term rally as selling temporarily exhausts itself.

Patterns

Markets don't move straight down. Declines are interspersed with short-term corrective rallies. Although neither the DFMGI nor ADI has clearly found short-term support in preparation of a bounce, they are due for one.

It's important to keep in mind that both exchanges remain in downtrends at all time levels; long, medium and short term. Any rally at this point is likely to be short lived.

Last week the DFMGI declined 55.11 or 3.23 per cent to close at 1,652.26. Volume fell slightly from the previous week while declining issues lead advancing 20 to seven (bearish).

The DFMGI has been dropping for the past couple weeks and closed near the low of the week (bearish). However, downside momentum has begun to slow and the market could be close to finding a very short-term bottom. A move through Thursday's low value of 1,647.02 signals a continuation of the downtrend.

Near-term resistance is at 1,677.66. A move through that level would be the first sign a move up may be starting. Take caution though as any rally is likely to be short lived and this is the least significant resistance level to use as a signal.

Other price levels of interest are further away from current activity. The indexes action over the next week should provide better insight into what's coming down the line, keeping in mind that the DFMGI is in a long, medium and short-term downtrend. In other words, the overall bigger picture remains bearish.

In the case of the ADI, it has declined 70.47 or 2.6 per cent over the past week to close at 2,636.73, also on slightly lower volume than the previous week, and with twice as many listings declining as advancing. The behaviour of price in the ADI is very similar to the DFMGI. It is still clearly in a short-term downtrend and is showing no signs yet of stopping. Watch for near-term support around 2,555 to 2,611. There is no clear near-term resistance that can be used with confidence at this point as a signal of more aggressive buyers coming into the market.

Stocks to watch

Given the market analysis above, any attempt to enter new positions should be part of a long-term accumulation strategy or for short-term trading opportunities. For trading, look for relatively stronger stocks that have clear price levels identified to use as an indication of buyers coming into the stock. At this point, there are very few listings that have good entry setups for the long term based solely on their charts.

Air Arabia has formed a seven-day low volatility rectangle price consolidation pattern with clear support and resistance levels identified at Dh0.89 and Dh0.91, respectively.

A move through either of these levels is the first indication of which direction the stock may be headed next.

Keep in mind that, if there is a bounce, so far the bigger picture remains bearish for Air Arabia.

Gulf General Investments Company has established a bullish wedge formation and looks to be very close to completing the pattern. In other words, it could break out to the upside in the next few days. A clear break above Dh0.99 would be an indication of this. Classically, when price moves out of a wedge pattern it has a good chance of going at least to the beginning of the formation, which in this case would be Dh1.23.

Shuaa Capital has been declining for the past four weeks but may have found a short-term bottom at Dh1.26. Watch for a move through near-term resistance at Dh1.33 for the first sign of strengthening, followed closely by Dh1.37. Compared to many listings, etisalat has actually held up quite well during the recent sell-off and has managed to stay mostly above the lows of last spring (long-term support).

Closing Thursday at Dh10.95, it has been forming a symmetrical triangle pattern. Indications are that it should move out of that pattern with momentum in the next few days.

If it breaks support of Dh10.90 then the odds are it will accelerate a move down. A bullish direction is indicated if it breaks through Dh11.30 resistance. More aggressive traders may find a slightly lower level to signal a move up.

Ras Al Kaimah Cement has formed a small ascending triangle pattern with the top resistance price at Dh1.11, which was hit twice recently. If it can move above that level and close above it, then there is a chance of more upside. In this case, the standard target objective for this pattern would indicate a possible minimal move to Dh1.21.

 

Bruce Powers is a financial consultant, trader and educator based in Dubai and can be contacted at bruce@etftrends.net

 

Disclaimer: Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liability for the results of any action taken on the basis of the above information.