Dubai: So far, the price behaviour reflected in the charts of both the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) has been controlled with the ADI beginning to see signs of strengthening.
The question at this point is what is the price action to watch for that would indicate that either the pullback is complete and the move up can continue, or that the bearish investor sentiment and increased volatility seen in the global financial markets has carried over to the UAE and will influence further declines?
Certainly, from a technical perspective, further downside is likely in the global markets over the coming weeks and months. A more serious correction than seen for over a year is in the works. The biggest surprise at this point would be a move to new highs.
Dubai
The DFMGI ended the week relatively flat having declined 14.99 or 0.86 per cent to close at 1,718.86. Volume was low with the number of declining issues twice advancing.
Support for the week was found at 1,659.07, right around the lower uptrend line, with the DFMGI quickly rallying off that level (a sign of underlying strength).
As mentioned in previous weeks in this article, if the DFMGI can stay above this trend line then the medium trend begun from the December 2009 lows should stay intact.
However, the DFMGI could go back down towards support of the trend line if it breaks near term minor support of 1,706.58. If it then breaks through support of 1,659.07 from last week, the odds for accelerated declines and the possibility of new lows increase.
The DFMGI continues to be in a normal corrective phase of overall declining prices which has now been in place for approximately six weeks.
Trend patterns for the index are indicating the likelihood of another move higher. However, we need to watch for confirmation of more aggressive buying coming into the market first, and indications that this corrective phase is complete.
A move above the downtrend line and near term resistance of 1,745.77 would signal that the index is gaining strength and opens the possibility for a further rally. Confirmation of the strength is seen once breaking resistance of 1,765.84, and once again with resistance of 1,790.63.
Abu Dhabi
Last week the ADI improved by 11.90 or 0.43 per cent closing at 2,803.39.
A small increase in volume was seen over the previous five weeks which can be looked at as mildly bullish, while advancing issues relative to declining was almost even at 20 to 23, respectively.
The ADI closed at the high for the week and has broken out of its downtrend channel correction. This move beyond its downtrend line can still fail however.
Once the index confirms strength by moving above minor resistance of 2,808.42 the environment for a stronger rally will exist, as it shows that the almost two month correction is over.
Above there, the next price level to watch is 2,830.43, which is also in the area of the 200 period exponential moving average, currently at 2,832.55. This is now an area of possible resistance and a sign of strengthening if the index breaks through each to the upside.
On the accompanying chart we can see that a new lower uptrend line has been drawn at the bottom of the recent selloff which identifies the angle of the adjusted uptrend and therefore identifies new levels of dynamic price support.
The ADI found support last week at 2,747.45. If that level is broken to the downside there is a greater chance of further declines, including the possibility of getting back to the lows of December 2009.
Stocks to Watch
Regardless of the potential bullishness of the UAE market indices, from a technical perspective there are very few individual situations that might present good reward to risk opportunities at the moment other than very speculative situations.
In general, in order to help manage our risk we want to focus on listings with consistent daily activity, relatively active volume, and price pattern behaviour which at times identifies higher probability entry and exit setups. Otherwise, our ability to get out when we want and at the price we want is greatly diminished. Even with these elements in place price gaps at the open are a problem.
As was seen in the US stock exchanges a couple of weeks ago, prices can fall very rapidly when there are too few bidders/buyers sitting in the market. This potential of few or no bidders during energised selloffs certainly exists in the UAE.
We could see a bounce in Dubai Investments if it can break through near term resistance of Dh0.90. EmiratesNBD continues to consolidate in a tight range and could see buying strength improve if it can get above minor resistance of Dh3.05.
If Abu Dhabi Islamic Bank breaks above minor near term resistance of Dh2.79, it could see more aggressive buyers join.
Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-bond.com.
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.
