Dubai : Emotions are running high as once again fear rules the day. Negative sentiment which has been impacting world markets with increased volatility has now hit the shores of the UAE and is also being felt throughout the region's stock exchanges.

Important, but not yet critical, near-term price support levels broke last week in both the Dubai Financial Market General Index (DFMGI) and the Abu Dhabi Securities Exchange General Index (ADI), turning the medium-term outlook bearish.

Meanwhile, the Dubai World restructuring is not yet complete, although there is progress, and now there is new uncertainty in regards to Dubai Holding's debt restructuring.

Volatility is increasing therefore raising uncertainty among investors. Further declines over time are possible including the risk of breaking to new lows — below December 2009 lows hit from the Dubai World restructuring announcement.

There are many listings whose charts continue to be bearish with a number likely to accelerate their declines. Investors should look to lower their risk in the market and take a defensive posture. This is not the time to be jumping in other than for short term rallies.

Dubai

As mentioned previously in this column the long-term trend in the DFMGI has remained bearish. Last week we began to see that bearishness show up in the short-term picture. Although the chance of the DFMGI going to new lows in the short to medium term is not assured the probability of it happening has increased.

Confirmation that the larger downtrend is continuing would be seen once the DFMGI moves through an important zone of support identified from 1,540.27 (January 27, 2010 low) to 1,562.14 (last week's low). If the low of that zone, 1,540.27, is broken then the DFMGI will likely reach the next support zone which is from 1,428.09 (February 5, 2009 low) to 1,461.75 (December 10, 2009 low). A daily close below the 1,428.09 level further confirms a continuation of the long term trend and would have the DFMGI hitting levels not seen since June 2004.

The DFMGI declined last week by 86.49, or 5.11 per cent to close at 1,605.22 while volume was relatively low. However, almost all listings were on board for the bearish drop with declining issues clearly beating advancing at 28 to 2, respectively. Year-to-date the DFMGI is down by 11.0 per cent and is now 8.9 per cent away from the intraday low hit on December 10, 2009 and 11.0 per cent from the February 2009 low.

Support from buyers was found last week at 1562.14, the support area from late February, after a clear break down through the lower uptrend line. You can see from the accompanying chart how selling accelerated once that line (dynamic support) had been broken.

Although the DFMGI may see a further bounce from here back up towards the downtrend line the chances of if going back down to at least re-test the higher support zone mentioned above is strong.

Alternatively, in the bigger picture, rather than trending to new lows, either of the two support zones mentioned above could hold with the index rallying from there.

There is then the possibility of moving back to the top of a wide ranging sideways rectangle pattern that's been being formed from December 2009.

The top resistance of that pattern is around 1887. This scenario would likely take months to unfold however.

Abu Dhabi

Contrary to the DFMGI, the ADI did not find a bottom last week and ended near the low of the week, although the rate of decline (momentum) has slowed noticeably. The most obvious next support zone is approximately 2,586 to 2,600.

The ADI ended the week down 139.53, or 5.02 per cent to close at 2,641.10 with volume near the highs of the past couple months. Breadth was decidedly bearish with 39 declining issues versus 4 advancing.

Overall, the ADI has held up much better than the DFMGI as it has declined 3.7 per cent year-to-date versus the DFMGI's 11.0 per cent decline. However, it has now also taken on a technically bearish posture, although a decent bounce may be had once near term support is found.

Although there are several potential resistance levels the 2,747.45 price area is the clearest along with dynamic resistance represented by the downtrend line on the accompanying chart.

Stocks to Watch

Here are a couple listings that are so far showing relative strength in their price behaviour when compared with the market indices and other listings.

Unfortunately, these are the only two found lastweek meeting these criteria.

Abu Dhabi Islamic Bank has held above its uptrend line and 200 period exponential moving average. It has formed a small downward trending channel over the past month and would need to decisively break up out of that channel before buying strength would be confirmed.

Shuaa Capital has also formed a small downward sloping channel over the past eight weeks, although not as well constructed as with Abu Dhabi Islamic Bank. If it can close above Dh1.42 Shuaa may see buying strengthen regained.

 

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