Dubai: Investors in the UAE markets remain hesitant as volatility in international markets and uncertainty about the economies of the US and Europe raise concerns about the future. It could still be a little while before this uncertainty gets worked out and investors feel hopeful again.
Dubai
The Dubai Financial Market General Index (DFMGI) declined 11.84 or 0.79 per cent last week to close at 1,480.60. Volume remained historically low with advancing issues beating declining 16 to 11 respectively.
You can see from the accompanying daily chart how the DFMGI has been in a declining trend now for 20 weeks. A second trendline has been added across the lower side of the price action that parallel's the top downtrend line, thereby identifying a trend channel that contains all the price action of the trend.
Going forward the bottom line can be used to help identify possible support while the top line should be watched as resistance As with any support/resistance level, a move through the level is a sign of further weakness/strength.
This is just one simple example of how geometry shows up in the price charts as it reflects symmetry. Either in your own charting programme or visually draw another downtrend line half way between the top and bottom line and you can see that this new line acted as either support or resistance numerous times during the referenced downtrend.
What this tells us is that this downtrend over time has an organised structure to it. Therefore, the downtrend should be expected to continue until there is evidence to the contrary based on the price action. This is always the case but especially true here given the well structured pattern.
The mild rally over the past several weeks has so far been nothing more than a retracement within a dominate downtrend.
Note that the blue line on the chart identifying the 200 period exponential moving average (ema) is also trending down, thereby confirming the bearishness of the long-term trend, as well as the shorter downtrend of the past 20 weeks.
Nearby resistance is around 1,501, last week's high. If the market can close above that level then strength is indicated and the index would be above the downtrend line. This would be the first sign that the downtrend may be beginning to come to an end with buyers entering the market more aggressively. The next resistance above there is around 1,543.43. Short-team support is in the area of 1,464.34. A close below that level is a sign that the downtrend is starting to continue. Further weakening is seen on a close below 1,440.75, the low from several weeks ago. If the DFMGI subsequently breaks below support of 1,429.55 then the continuation of the downtrend is confirmed, with a move down to the lower trend channel line possible. The actual price represented by the line will depend on when the index reaches it. Support might also be found around 1,414.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) declined 16.38 or 0.63 per cent closing at 2,599.64. Volume continued to be low historically while market breadth was on the bearish side with 20 declining issues versus 12 advancing.
Even though last week saw a small decline, for the past couple of week's the ADI has been bouncing towards the downtrend line on its chart.
There are indications that this bounce has more room to rise over the coming week or three. The ADI will confirm a continuation of the two week uptrend on a close above near term resistance of 2,621.07. This is resistance from last week and the 61.8 per cent Fibonacci retracement area of the internal downtrend from the August 4th high, as well as the 38.2. per cent retracement of the internal downtrend from the July 17th high.
In the short term a further pullback may be seen. Watch for support around 2,577.76 or higher before the ADI continues the bounce, if it is to do so. A close below this level makes a further bounce in the short-term less likely.
Below there is support at 2,551.71, followed by 2,523.81, with the lower level being most significant as a close below it would signal the beginning of a breakout to the downside of a large one-and-a-half year symmetrical triangle consolidation pattern.
That would be the first signal that the long-term bearish trend may be continuing. Further bearish confirmation would be indicated on a close below support of 2,523.81.
Stocks to watch
A number of weeks ago it was noted that a bearish head and shoulders trend reversal pattern was forming in the chart of Abu Dhabi Islamic Bank. This pattern has continued to develop as volatility has died down. Support for the pattern is at Dh3.19, which has now converged with the nine month trendline. In other words, two indicators are identifying the same price area as support thereby making a break below more significant — a move below gives two bearish signals.
Further bearish confirmation is given on a move below the 200ema, currently at Dh3.142. However, a close above minor resistance at Dh3.28 makes a breakdown in the short-term less likely.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com
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.
