Dubai: The Dubai Financial Market General Index (DFMGI) declined 9.99 or 0.64 per cent last week to close at 1,547.86 while volume was lower. Declining issues beat advancing by 21 to eight, respectively.

Until proven otherwise the DFMGI continues to develop a downtrending channel since hitting a high of 1,691.64 on April 24, 2011. This trend has retraced approximately 50 per cent of the uptrend measured from the early March 2011 low as of June 28. The 200 period exponential moving average (ema) on both the daily and weekly chart of the DFMGI continues to slope downward.

Going forward it's possible that the DFMGI holds support of 1,503.57, the low of June 28 and moves into a longer consolidation period than we've seen the past couple weeks. This could include moving above the downtrend line which identifies the parameter (resistance) of the 12 week downtrend and the 200 ema on the daily chart (seen in accompanying chart) which is now at 1,489.81. The significance of a move above these two indicators would be muted if it happens over the next couple weeks given the price pattern structure that may now be developing.

A close above resistance of 1,612.65 would need to occur before a possible reversal of the 12 week downtrend would be indicated.

Short term, the high and low of last week should be watched for further upside or downside. Resistance for the week is at 1,567.58 and support at 1,529.35. A move below support is bearish while the more significant support level is at the recent low of 1,503.57.

With a close below that level the DFMGI is indicating a likely move to the next important support zone from 1,473.44, the 61.8 per cent Fibonacci retracement level of the March 2011 uptrend, to 1,455.01, previous support from July 4, 2010.

Abu Dhabi

Last week, the Abu Dhabi Securities Exchange General Index (ADI) rose 10.48 or 0.39 per cent to close at 2,725.25. Volume was only slightly below the previous week with market breadth about even with 16 advancing issues versus 15 declining.

The characteristics of the price pattern developing in the ADI continues to be more bullish than the pattern exhibited in the DFMGI. Since breaking out of a large symmetrical triangle consolidation pattern six weeks ago and subsequent rally the ADI found support at its 200 ema on the weekly chart.

This support has held for the past several weeks. The weekly 200 ema support area, now at 2,699.00, is confirmed by the 38.2 per cent Fibonacci retracement level (2,707.04) of the uptrend begun from the May 29, 2011 low.

The subsequent bounce has been choppy however with weak upside momentum. This choppy period may continue for a while longer. A move above 2,732.27, the high of last week signals strengthening but without an increase in volume it may not go far.

Near term support is at 2,698.67, the low from two weeks ago. If the ADI closes below that level further downside is likely. There are two support zones below 2,698.67. First, from 2,690.37 to 2,685.37, previous support from December 22, 2010, and the 50 per cent retracement level of the uptrend starting from the May 2011 low, respectively. Second, is the support zone from 2,663.69, the 61.8 per cent Fibonacci retracement level, to 2,655, previous resistance from mid-March 2011. In between these two zones is the 200 ema on the daily chart, now at 2,678.48.

So, as you can see there are a number of potential price areas where support might be found if the ADI drops below 2,697.67. For the medium term the outlook will remain bullish as long as the ADI stays above the uptrend line which can be seen on the accompanying chart.

This line identifies dynamic support as the price it represents is changing over time and will need to be watched as we move forward.

Stocks to watch

Not much has changed over the past week in many of the individual stock charts which is not surprising given the low volatility in the overall market.

Deyaar Development and Union Properties, discussed last week, continue to be worth watching as the trace out consolidation patterns. At some point a breakout of the ranges will occur.

Two of the stronger looking listings are Abu Dhabi Commercial Bank (ADCB) and Abu Dhabi Islamic Bank (ADIB). Both have been trending higher as the general market has been pulling back.

ADIB closed higher again last week and is now trading where it was back in October 2008. It's now cleared resistance of the 200 ema on its weekly chart. In the short term it could see a bit of a pullback but should be watched as its leading performance is likely to continue over the medium term.

A similar situation of strength exists for ADCB in the medium term. It has rallied above its weekly 200 ema for the past seven weeks and continues to look like price is going higher.

Last week's close of Dh3.28 was last seen back in the last quarter of 2008. Near term resistance is at Dh3.32 with a close above signalling strengthening.

A pullback to support on either of these listings will provide a safer entry for long term holds.

 

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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