Last week the Dubai Financial Market General Index (DFMGI) retreated by 73.55 or 2.54 per cent to close at 2,824.88. Most issues participated in the drop with twenty-seven declining and only nine advancing, while volume reached a three-week high. But, volume managed to remain well below levels seen during the most recent advance.

Earlier in the week the DFMGI was down as much as 4.9 per cent, reaching a five-week low, before finding support at 2,755.45 and bouncing. It ended just shy of the 50 per cent level of the weekly range, providing some short-term optimism to investors that a further bounce may be forthcoming.

The low of the week is now an important support level to watch for the short-term. It’s significance is strengthened by the fact that it was also at the 55-day exponential moving average (ema) and support (prior resistance) of the peak from late-August. Two out of three previous declines over the past year have found support around the 55-day ema. Those drops were followed by gains to new highs. That could happen again this time, especially since the levels just mentioned have been recognized by the market.

This also means that a drop below last week’s low, and especially a daily close below it, will likely lead to a deeper retracement. A fall to at least 2,703.29, the 38.2 percent Fibonacci retracement of the near-term trend, is a high probability. There is also a good chance a 50 per cent retracement down to 2,627.27 would occur, as it is now merged with the support indicated by the 100-day ema (2,623). Keep in mind that as the index moves the price level of the 100-day ema will change.

On the upside, a higher bounce from current levels will likely meet resistance in the area of the recent two-week narrow consolidation pattern. That potential resistance zone is from around 2,884.31 to 2,952.65. A daily close above the higher price level is needed before any clear bullish signal is given. If that occurs the DFMGI would then be targeting monthly resistance at 3,049.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) declined by 57.2 or 1.49 per cent last week to close at 3,794.61. Market breadth was bearish with 30 declining issues against 10 advancing. Volume was at a four-week low, but not by much.

The technical situation in the ADI is a bit more precarious than in the DFMGI, as it did not advance above its August peak during the most recent advance. This reflects greater downside as we now have a lower swing high. In addition, last week’s decline moved below and closed below the 55-day ema. Therefore, the downside potential is and seems likely given how these price patterns generally play out.

At the same time there is important support not too far below last week’s low of 3,762.80. The 100-day ema has merged with the 38.2 per cent retracement level at 3,731.61, while the long-term uptrend line is nearby. Of course the price level represented by the trend line will depend on when the ADI might reach it.

If the trend line is breached to the downside then watch for support to be found around 3,678 (prior resistance) and the 50 per cent retracement of the near-term trend. A daily close below 3,678 will be a clear violation of the trend line. At that point we could see further selling or a wide consolidation base evolve.

Stocks to Watch

Although Abu Dhabi Commercial Bank (ADCB) did not rise much last week it did manage to reach an eight-week high before closing just below it at 5.07. The stock ended up 0.60 per cent for the week with a high of 5.12 and a low of 5.00. Both the high and low were above the prior week’s high and low.

ADCB has been consolidating sideways in a relatively tight range for the past eight weeks. Support of the pattern is at 4.98 and is also indicated by the 100-day ema, which has been tested as support and held a number of times over the eight-week time frame.

A decisive move above last week’s high, and a daily close above it, is needed for a stronger bullish signal. The stock will then have to contend with resistance from the most recent peak, up to 5.36. If the stock can get above that price level, the next targets would be around 6.03, followed by 6.63. Monthly support is at 4.89, followed by 4.80.

Al Salam Bank has been forming a large bullish ascending triangle price formation for the past five-months or so. Four weeks ago it hit a high of 1.11, just above the prior high of 1.10. Those highs identify clear resistance of the pattern. The lower part of the pattern is identified by ascending trend line across the swing lows. Now merging with the trend line is the 55-week ema at 0.82. Last week the stock reached a three-week low thereby increasing the chance it will now fall towards the 55-week ema.

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