“I never try to predict or anticipate. I only try to react to what the market is telling me by its behaviour.”

- Jesse Livermore

Dubai

The Dubai Financial Market General Index (DFMGI) fell by 370.52 or 8.07 per cent last week to close at 4,222.75, its largest weekly decline since March 2011. Most stocks fell, while volume was slightly less than the prior week.

The correction to date, off the 5,406.62 peak, has been 27.5 per cent, putting the DFMGI into bear market territory (20 per cent decline). However, there is some reason to suspect that last week’s low of 3,921.84 may hold the descent for a little while as a 38.2 per cent Fibonacci retracement of the key trend was completed at 3,943, and support was found at the 200-day exponential moving average (ema).

The key uptrend being measured starts from the January 2013 lows. Shortly thereafter the DFMGI began a more rapid ascent. A 38.2 per cent retracement of that trend is a minimum retracement that might be expected when using Fibonacci ratio analysis. Given that the 200-day ema is also identifying a similar support zone, the probability that the area of the low will hold for now given confirmation of a second indicator.

The 200-day ema is a key indicator of support for the long-term uptrend, with the DFMGI remaining above it since August 2012. And, until last week, it had not been tested as support since December 2012. Given that, the odds are good that it will hold the descent for now leading to a rally of some degree.

In addition, the index reached its most oversold level since June 2012, based on the daily Relative Strength Index oscillator, a measure of momentum, at that low. This also supports the above short-term bullish scenario.

Further, two additional factors point to a deeper support zone starting around last week’s low. The most recent prior swing low was at 3,869.34 (also a monthly low), and the 50 per cent retracement of the short-term uptrend, from the 2,299.80 swing low in September 2013, is at 3,853.16. Together, the above factors create a support zone down to 3,853.16. This means that a daily close below the low end of the zone would be needed for a clear sign that the downtrend may continue in the near-term. Until then a test of resistance can be anticipated.

The most obvious potential resistance zone is from 4,544 to 4,637, each based on weekly price levels. Then there is a range from 4,837 up to approximately 4,864, followed by 5,191.

In the bigger picture the DFMGI remains at risk. As first mentioned last week, the more significant monthly chart is indicating a downtrend is in place. Three weeks ago the index busted below its near-term uptrend line, increasing the odds that it could eventually reach the lower trend line. That line is now very close to the next lower support zone at 3,491/86, consisting of the confluence of two Fibonacci calculated support levels.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) dropped by 139.02 or 2.89 per cent to close at 4,664.77, not nearly as bad as the DFMGI, but potentially significant nonetheless. Weakness was spread throughout the market with 37 declining issues and only six advancing, while volume fell to a 15-week low.

Support was found at 4,513.41, a 14.1 per cent decline from the most recent peak of 5,253.41, and right in the area of the 200-day ema. Any bounce from here is facing a wide ranging resistance zone, from around 2,723 up to the peak. Last week’s high of 4,875.92, and the prior swing high of 5,004 from February should be especially watched for signs of resistance.

Even though the ADI found support at the 200 ema, the chart pattern over the past several months points to a potential top and could lead to an eventual decline below the 200ema. In addition, as of last week the 18-month uptrend line was breached, and the prior swing low of 4,639.78 was exceeded to the downside, although the weekly close was above it. Each is a bearish indication for the medium-term.

Taking a conservative measure of the potential top gives a lower target around 4,192. A daily close below last’s week’s low would be needed before the ADI heads towards it. Until then the topping pattern could continue to evolve into a larger consolidation pattern.

Stocks to watch

Of course, everyone wants to know about Arabtec, so we’ll stick with it for this week. Without hesitation the stock dropped through multiple potential support levels, both the 200-day ema (around last week’s low of 3.89), and a support zone from 3.76 down to 3.26. It is not yet clear that it is done going down as it ended weak and below 3.26, closing down 27.23 per cent for the week to 3.10.

Near-term support is last week’s low of 2.85, while the 100-week ema is at 2.77. Nonetheless, the next more significant support zone, based on price structure, doesn’t start until around 2.22.

Potential resistance on any bounce from current levels are at 3.76, 3.89, and 4.30 (last week’s high).

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