The most important thing to keep in mind at this time is that the market trend of both the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) continues to be down. There is high risk of further declines both in the near and medium term.

Last week the DFMGI declined 120.05 or 6.39 per cent to close at 1759.21. Declining issues lead advancing by a wide margin of 28 to one, a bearish sign.

Trend indicators continue to point to further downside for the DFMGI. The index closed last week below its uptrend line after rallying from the lows of three weeks ago instigated by the Dubai World news. That rally found resistance at 2,000.72 and then turned back down. The 200 period exponential moving average also continues to trend down.

The more significant trend continues to be the long-term downtrend begun from the highs of 2005. It remains to be seen whether the trend down will continue in the near-term or whether the market will get choppy.

A choppy period could include short-term rallies and attempts to break through resistance of the downtrend line and may present trading opportunities. Overall, the odds still favour a further move down in the coming months.

The more significant support level to watch is 1,618.09. A move below that level further confirms the downtrend. The next important support zone below there is from 1,428.09 to 1,461.75.

On the upside the DFMGI would need to bust through 2,000.72 and close above it to give a clear sign of strengthening, which would indicate the possibility of further upside from there. Currently, that price level is very close to the downtrend line (resistance) shown on the accompanying chart.

During the past week the ADI dropped 75.2 or 2.71 per cent to close at 2,699.07. Declining issues lead advancing 32 to 11.

During the recent market turmoil the ADI's volatility has been a bit less than the DFMGI, a sign that investors seem to have differentiated between troubles in Dubai versus Abu Dhabi. Regardless, the ADI is also giving bearish indications.

The ADI remains clearly below its uptrend line and has turned back down after rallying from the lows made several weeks ago. Significant resistance is at 2,907.55, the high made on the recent rally. The 200 period exponential moving average also continues pointing down for the ADI.

In the near-term we could see the ADI attempt to break the 2,907.55 price resistance area again on short term rallies. But, the odds favour that those rallies will fail and that the larger more significant downtrend started from the high in 2005 will continue to new lows in the coming months.

Important support levels to watch are 2,554.92, then 2,429.97, the recent low.

Stocks to Watch

A speculative environment in both indexes prevails. Higher volatility provides less clear patterns making trading and investing plans difficult to formulate. Given the current trends entering long positions at this time, other than for short-term trading opportunities, remains very risky. Important resistance levels need to be broken before the odds change to favour the upside.

Most stocks are mimicking the general characteristics of the market indexes. Let's take a look at a few of the more widely followed listings that may be exhibiting some patterns with support and/or resistance levels identified.

Given all the recent volatility, by the end of last week Emaar Properties had actually held up relatively well. It is above its uptrend line and has been consolidating the past week or so not too far from its downtrend line.

A move up through the downtrend line at approximately Dh3.96 would be the first indication that buyers may be getting more aggressive in the stock and it could go higher.

More importantly the high of December 15, Dh4.14, needs to be broken and price to close above there before any strengthening is validated.

The trend of Aramex has stayed relatively contained during the recent declines. It stayed above its clearly defined uptrend line for most of the past few weeks even making an attempt two weeks ago to get back up to previous highs.

If Aramex falls below the Dh1.14 near term support level then the odds increase that it will go lower. It would have to get above the Dh1.95 resistance level before strengthening would be confirmed.

Aldar Properties has two clear prices levels that can be used to indicate whether it is getting stronger or weaker. Resistance is now at Dh5.46, the high of Dec-ember 20, and support at the low of Thursday, Dh4.94. If Aldar breaks back through the Dh4.94 price level then the odds increase that it goes to at least Dh4.53, the filling of the trading gap.

Aabar Petroleum Investments has formed a small symmetrical triangle consolidation pattern in a downtrend. In this case, it is considered a bearish pattern but needs to break through a support or resistance level first to confirm direction.

A move through the top of the pattern, resistance of Dh2.36, would indicate the possibility of a further rally. But, a drop through Dh2.16, signals the likelihood of more downside in the near term.

 

Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etftrends.net

 

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.