Dubai: The Dubai Financial Market General Index (DFMGI) fell 48.64 or 1.27 per cent last week to close at 3,770.38, while market breadth was bearish with 29 declining issues and only five advancing. Volume was weak — the lowest level in eight weeks.

The near-term uptrend on a weekly basis remains in place (now heading into its twelfth week) as there is a series of higher highs and higher lows during that period. Earlier in the week the index slipped as selling pressure increased, but by the end of the week the DFMGI managed to close in the top half of the weekly range.

In other words, despite ending the week lower, the bulls have been able to hold the market up, even managing to take the index to a new high for the trend on Wednesday, before closing below it. Also, the relatively low volume on a down week is not indicative of sustainable selling pressure.

Regardless, there are signs for caution. Last week was the first down week in 11 weeks, a clear change in the pattern of consecutive higher closes over the prior 10 weeks. Nothing goes straight up forever (or down). As the DFMGI heads into the twelfth week of the short-term uptrend, just based on time the odds favour a correction or consolidation of some degree in the foreseeable future.

Given the sustained pattern of higher highs and higher lows of the weekly range, a move below last week’s low of 3,644.10 would be bearish for the short-term, while a daily close below that level would be needed for confirmation of weakness.

However, the week’s low at 3,586 from two week’s ago is not far from that price level. When put together the area around 3,644.10 and 3,586 can also be looked at as a potential zone of support. Further down is support in the area of 3,504.66. However, if a correction does come before the DFMGI moves higher, then a minimum drop could see a move down to at least the area of the 20-day exponential moving average, currently at 3,337.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) edged higher by 17.75 or 0.38 per cent to close at 4,673.07, just barely a new weekly closing high. Volume reached a seven-week low while market breadth shifted further to the bearish side, with 29 declining issues and 15 advancing. This is not particularly a sign of strength even though the index moved higher.

The odds for a correction lower or choppy consolidation phase continue to be high for the foreseeable future. This doesn’t mean it will happen, just that there is a greater chance that it could. For a short time last week the ADI did drop below the prior week’s low, the first time this has happened in eleven weeks. Regardless, the index did recover nicely given where it finished the week.

A daily close below last week’s low of 4,497.11 would be needed for a clear short-term bearish signal. The behaviour of the drop after that, its momentum and volume levels, would give us an indication of its potential significance.

In recent weeks the ADI has been able to maintain its strength even as it moved into a potential resistance zone starting around 4,553. It also completed a 61.8 per cent Fibonacci retracement (4,686.38) of the long-term downtrend starting from the 2005 peak. This is a significant milestone and a testament to the strength of the recovery over the past couple of years. At the same time it increases the odds for a retracement.

Further, there is a downtrend line that be drawn on the chart for the ADI coming down from the 2005 peak. It represents dynamic resistance of the long-term downtrend. Last year the ADI jumped above the line and then accelerated away from it over the past couple of months. It is common in this type of pattern for a market to move back towards a line that used to represent resistance, and now represents support. This is especially possible here given that the bullish retracement of the long-term downtrend has reached the 61.8 per cent milestone.

Stocks to watch

Green Crescent Insurance has been basing or consolidating sideways for the past four months or so. Last week the stock closed higher by 1.41 per cent to close at 1.44. Resistance of the consolidation pattern is at 1.50, with a daily close above that price level needed to indicate a bullish breakout. Upside follow through would then need to be exhibited for a sustained short-term bullish outlook.

Gulf Navigation closed down 2.13 per cent last week at 0.413. Volatility in the stock has been declining over the past five weeks with a small symmetrical triangle consolidation pattern forming on its daily chart. This type of pattern can frequently lead to accelerated moves.

False breakouts can also and do occur. Investors should be ready for either scenario. An upside breakout seems more likely given the price history. That would first start on trade above 0.46, with strength confirmed on trade above 0.465.

 

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