Dubai: It seems like investors have now distinguished between Dubai's problems and Abu Dhabi. On a relative basis the Abu Dhabi Securities Exchange General Index (ADI) has been showing strength compared with the Dubai Financial Market General Index (DFMGI). That strength is likely to continue into the foreseeable future barring conclusion of Dubai's debt restructuring.
Although there are similarities in the chart patterns of each market, the ADI has broken through its downtrend line resistance level while the DFMGI remains below it.
Also, the ADI is over 100 per cent further above its lows of a year ago, 30 per cent off low, when compared to the DFMGI which is only 13.9 per cent off the low.
Uncertainty continues to prevail as market participants are hesitant to commit given the lack of new concrete information surrounding the Dubai World restructuring as well as global credit concerns.
Major international markets are also reflecting heightened uncertainty which will likely continue to weigh on both UAE exchanges.
Dubai
The DFMGI declined 50.21 or 3 per cent last week with declining issues leading advancing 23 to nine, respectively. Volume was also down slightly for the week and also very low historically.
The DFMGI's chart indicates that at some point within the next couple weeks, at a maximum, the next direction will be made more apparent, either up or down.
As can be seen on the accompanying chart, volatility has declined and price is consolidating as it moves towards the apex of a symmetrical triangle pattern.
At some point one of the lines identifying the parameters of the pattern will be broken, therefore indicating the more likely direction at that point.
Keep in mind that the medium trend remains down until resistance is broken. Near-term resistance is now at 1,693.32, the high of last week.
If the index can get through that price level then it will have also broken through its downtrend line resistance, which would be short term bullish, indicating the likelihood of a further rally from there.
A move down through support at 1,541.57 is a sign of weakening. At that point the index would have broken through its short uptrend support as well and could start heading down more aggressively from there.
The next support after that is the low December at 1,461.75. A break through that level increases the chances of hitting new lows not seen since 2004.
Abu Dhabi
Last week the ADI improved 22.63 or 0.82 per cent from the previous week closing at 2,766.63.
Volume rose only slightly and is still low historically; a sign that even though the market may be creeping up there is no momentum to speak of and therefore sustainability of the rally is in question.
It should be watched closely for signs of weakening. The fact that advancing issues of 12 were lower than declining of 29 is also a weak sign particularly since the ADI has been improving for three weeks now.
Near-term resistance is at 2,785.59, followed by the 200 period exponential moving average which is now at 2,843.11, and then 2,907.55, the high of the rally off the drop from the Dubai World news in November.
Minor support is now at 2,709.66 but as long as the current three week uptrend stays above the shorter and lower line on the accompanying chart, the short term trend is up.
Stocks to Watch
DFM
Al Salam Bank Sudan has held up relatively well during the recent declines and is closer to its highs than its lows.
It's been consolidating in a tight range of the past couple weeks.
A move through resistance at Dh2.81 would indicate strengthening and the possibility of a continuation of the rally started on January 26.
The Dubai Financial Market could see a pickup in momentum sometime this week.
It has formed a symmetrical triangle consolidation pattern and is very close to breaking out.
Which direction is still unknown but a move through support at Dh1.46 indicates a continuation of the downtrend, and a break through resistance at Dh1.61 is a sign of strengthening.
In recent weeks Drake & Skull hit a resistance level of Dh0.89 multiple times after it broke up from its downtrend line resistance. If it can move through that level and close above it, we may see a further rally from there.
ADX
Etisalat saw a good rally of 7.14 per cent last week and could see further moves higher after some short term profit taking.
Be careful with Dana Gas as it is likely to have a pick-up in momentum within the next few days. It has formed a bearish descending triangle pattern. If it breaks through support of Dh0.87 it is likely to go lower. Abu Dhabi National Energy Company has been showing signs of strength although it closed down for the week. Short term resistance is at Dh1.31. A move through that level would confirm additional strengthening.
Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached 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.
