Buying support eludes bourses

Dubai: Last week the Dubai Financial Market General Index (DFMGI) declined by 67.07, or 4.24 per cent, to close at 1,515.02. Volume remained muted, near the lows of the past four months. Market breadth was clearly bearish with 26 declining issues and only three advancing.

For 11 of the past 12 days, the DFMGI has been falling. It ended the week 14.8 per cent below the 1,778.25 high put in on March 5. The index has now surpassed the 50 per cent retracement level of the uptrend begun in mid-January, has closed below the 200 daily exponential moving average (ema), an indicator of the long-term trend, and dropped below the long-term trend line.

Just like with trend lines, moving averages identify potential support or resistance, and can help identify when a trend is getting stronger or weaker. In this case, a bearish signal is given as the DFMGI has broken through potential support of the 200ema. Given that the DFMGI has also moved below the 50 per cent trend retracement level (1,536.18), the odds increase that it will reach the 61.8 per cent Fibonacci retracement level (1,479.05), at a minimum, before finding more significant price support.

On May 1, the DFMGI broke down out of a symmetrical triangle price consolidation pattern and has since accelerated its decline. A potential minimum target of 1,501.81 was projected based on this pattern by taking the height of the formation and subtracting that distance in price from the breakout (down) price level. Last week the DFMGI reached a low of 1,503.43.

If the index clearly closes below the 61.8 per cent retracement at 1,479.05, it then heads towards a number of price support levels including 1,455, 1,429.55, 1,413.76, and 1,397.71.

On the upside, a move above Thursday's high of 1,534.17 will give the first short-term strengthening signal. Weekly resistance is at 1,582.09, with higher resistance first around 1,591.84, followed by 1,617.3.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) continued its slow descent last week, closing 23.29 or 0.93 per cent lower, and ending the week at 2,478.15. A little more than twice the number of issues ended the week down rather than up, while volume declined to near the lows of the past several years.

Last week, the ADI broke below the weekly low of two weeks ago signalling a completion of a narrow ranged three-week consolidation phase and a continuation of its eight-week downtrend. The index is now 6.2 per cent below the 2,640.54 high hit back in mid-March.

That's less than half of the decline seen in the DFMGI. But, the DFMGI also had a much larger rally off its mid-January low. The DFMGI got up as high as 37.4 per cent while the ADI rallied only 15.1 per cent.

The next price area to watch for support is around 2,470.81. That price level was support before August 2008 and is in the area of the 50 per cent trend retracement support level at 2,468.

Given the price structure of the declines over the past eight weeks, it looks like there's a good chance the ADI will eventually reach the lower support zone of 2,428 to 2,426.

The higher number is arrived at from measuring the double top trend reversal pattern, which can be seen on the accompanying chart, and which has been discussed in previous weeks.

We arrive at the lower number through Fibonacci ratio analysis which identifies higher probability support levels by measuring the prior trend. In this case the uptrend off the mid-January low.

Fibonacci ratios correspond to proportions found extensively in nature. Since each of these two analysis methods produce a target very close to the same price, we can project that this support zone has a relatively high probability of finding buyer support. Further, a decisive break below this zone would be another bearish sign.

Weekly resistance is now at last week's high of 2,501.02. A decisive move above that price level would be the first indication the ADI is getting stronger indicating it could bounce higher. The next resistance to watch above there is the weekly high of 2,520.62.

Stocks to watch

Arabtec Holding declined over 14 per cent last week after a number of failed attempts to make a new high over the prior month. This reflects significant resistance from sellers around the Dh3.70 price level and follows a 229 per cent ascent off its low from March 2011.

Although there could be a short-term bounce, this type of price action indicates that the rally is probably over for now and that a lower correction in Arabtec is likely in the coming weeks or months.

Deyaar Development exhibited a similar price action a month or so ago and is now down 28 per cent from its most recent high. If Arabtec follows-through to the downside in a similar manner it's looking at greater than 30 per cent correction off its most recent high of Dh3.75.

Ekttitab Holdings broke below a three-month consolidation phase last week, which could lead to a more rapid depreciation in price. Also, Union Properties fell out of a similar pattern last week which increases the odds that this stock could eventually get to Dh0.30.

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

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