Given that the UAE equity exchanges were closed last week for Eid holiday, today we’ll look at some of the larger patterns of the general indices.

Dubai

The Dubai Financial Market General Index (DFMGI) ended at 2,830.92 two weeks ago, the last day of trading prior to Eid holiday. That put the index 119 per cent above the low reached in January 2012, the lowest price subsequent to the 2008 financial crisis. The uptrend that followed is now in its 22nd month, reaching a high of 2,860.39 three weeks ago. That’s a 121 per cent gain from January 2012 when the accent increased its rate of change. For 2013 the DFMGI is up 74.5 per cent.

The index reached a record high of 8,544.67 back in November of 2005, several years before the peak in the UAE real estate market. Until the January 2012 low the DFMGI had been in a downtrend for a little more than six years, losing 84.9 per cent of its value. Since then it has recovered or retraced 21.6 of the prior drop.

Fibonacci ratio analysis would suggest a potential long-term target of at least 4,063.82. That’s where a 38.2 per cent retracement of the long-term downtrend occurs. Generally, a 38.2 per cent retracement of a prior trend is the minimum that might be expected in a security once a retracement of a trend begins. Of course it could take some time before reaching that level as it’s 43 per cent higher. Further upside can be anticipated over time given the potential of the 38.2 per cent retracement target.

A second and lower peak occurred at 6,314.98 in January 2008, completing a 74.2 per cent rally. That was the peak before the significant drop in reaction to the 2008 financial crisis, and it creates another long-term downtrend when measured to the January 2012 low. The retracement of that downtrend has been a little over 50 per cent (3,804.54). It was reached and exceeded three weeks ago and represented a potential long-term resistance area. Being exceeded is a sign of strength.

The next milestone for the DFMGI would be a decisive rally above the long-term downtrend line. All price action of the past eight years has occurred below that line. A break above a trend line is not as reliable as a push through horizontal resistance, but it is a bullish signal nonetheless. So far the DFMGI seems to be recognising the line as it has been sitting just below it for the past two weeks.

Given the above analysis, it seems likely that investors will continue to accumulate shares during weakness thereby supporting a continuation of the uptrend.

Abu Dhabi

The recovery in the Abu Dhabi Securities Exchange General Index (ADI) relative to its prior decline has been greater than what has occurred in the DFMGI. In May 2005 the ADI peaked at 6,266.53, and subsequently lost 66 per cent of its value in a little more than three-and-a-half years. A bottom was reached at 2,130.02 in January 2009. Since then the ADI gained as much as 86.7 per cent. For 2013 the ADI is up 46.05 per cent.

The long-term downtrend is measured from the 2005 peak down to the 2009 low. A second and shorter downtrend begins from a lower peak of 5,158.56 reached in June 2008. To date the ADI has retraced 44.4 per cent of the larger downtrend, significantly more than the 21.6 per cent retracement seen in the DFMGI. On that basis alone the ADI is showing relative strength compared to the DFMGI. For the second and shorter trend the retracement has been just over 60 per cent.

Drawing a descending line starting at the first peak and connecting the lower peak creates the downtrend line. The ADI busted above that line several months ago before falling back below it for a few weeks. It got back above it several weeks ago. A clear break above the 3,975.74 peak will have the index moving away from the line, a significant accomplishment given its long-term implications. The next target would then be around 4,209, a recovery of 50 per cent of the long-term downtrend.

Stocks to Watch

Deyaar Development has been trending higher since rallying off 0.351 support in June. It’s up 92 per cent since then, last closing at 0.674. On most of the way up the 21-day exponential moving average (ema) has identified support for the trend and it continues to. Aggressive traders can look to accumulate on declines to the 21ema (now of 0.64) in anticipation of a trend continuation higher. For longer term investors watch or lower entries on any significant drops as the stock has a solid base of support of more than one-and-a-half years starting around 0.46.

Dubai Investments spiked to a new high (above 2.01) for its uptrend several weeks ago, last closing at 2.12. Its price pattern indicates it wants to go higher. The next bullish signal is above the recent peak of 2.22. The 21ema is also indicated as support, now around 1.95, while weekly support is at 1.99. The next long-term targets are 2.36, followed by 2.90.

 

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