Dubai

The Dubai Financial Market General Index (DFMGI) fell 243.59 or 5.04 per cent to close at 4,593.27. It was down as much as 9.7 per cent before finding support at 4,368.31 and bouncing. The correction to date reached 19.2 per cent off the trend high. Most stocks participated in the weakness, with 31 falling against only four rising. Volume was slightly lower than the prior week.

Last week’s low (support) was right in the area of the 100-day exponential moving average (ema). The 100-day ema has done a good job of determining dynamic support of the uptrend since around July 2012. It could do so again, in which case last week’s low may be the bottom of the current correction.

Near-term resistance is first at 4,837.14, followed by 5,191.50. A daily close above the higher number would be needed before there was any clear sign that the long-term uptrend may be getting ready to continue. Until then the risk of lower prices remains.

Given the importance of the 100-day ema over the past two years, a daily close below 4,368.31 signals the likelihood of a more serious and prolonged correction. Further supporting this scenario is the fact that there are early signs of a downtrend on all time frames; daily, weekly and monthly charts.

The downtrend signal on the monthly chart is the most significant and it points to an eventual continuation to the downside. Last week’s low fell below each of the prior two month lows, and the high for June has been lower than the high for May (lower monthly low, and lower monthly high). This is the first time in nine months there has been a drop below the prior month’s low, and the first time in 15 months there has been a lower monthly high.

The next lower support zone starts around 4,255 and goes down to 3,869, with the 200-day ema currently at 3,971. Support of long-term uptrends is frequently seen at the 200-day ema, and therefore is the maximum downside that would be currently anticipated. But it is important to keep in mind that if the DFMGI falls further the price represented by the 200-day ema will also decline.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) dropped 127.99 or 2.6 per cent to close at 4,803.79. Market breadth was bearish with 26 declining issues and nine advancing, while volume exceeded the prior week, but remained relatively subdued.

The three-month low of 4,723 was tested last week with the ADI briefly dropping lower. Last week’s low was 4,712.09, putting the index just above the six-month uptrend line, which is one measure of support for the trend.

Key lower support is at 4,639.78. A daily close below that level will likely lead to additional downside. The 200-day ema is currently at 4,526.68.

The ADI is now ranging and a higher bounce is likely as long as last week’s low is not exceeded to the downside. Resistance may be seen anywhere up to the most recent peak of 5,239.38, with the 5,000 area given special consideration.

Stocks to watch

Drake and Scull broke out of a four-month rectangle consolidation pattern on Thursday on heavy volume, thereby triggering a bullish trend continuation signal. For the week the stock rose 13.10 per cent, ending at 1.90, and making it the second best performer in the Dubai market. This bullish move is that much more impressive given the overall weakness in the market.

The breakout occurred on trade above 1.87, while the high for the week was at 1.94. A continuation move is now needed to give some confidence that the stock can keep going. A daily close above last week’s high is the first confirmation signal. Based on the rectangle a minimum target of 2.13 can be anticipated.

Declines back towards 1.87 and down to 1.79 support can be looked at for lower entries if a pull back occurs. The upside breakout is at risk of failure if DSI drops below last week’s low of 1.65.

Sharjah Islamic Bank (SIB) has a number of technical factors that puts it on the radar. The stock has been forming a bullish flag trend continuation pattern for the past several months, it has tested support of its 200-day ema twice and held above it (second time last week), and it has formed a potential double bottom reversal pattern within the larger flag pattern. Further, the 38.2 per cent Fibonacci retracement of the uptrend, measured from the April 2013 swing low of 0.90, is at 1.81. Last week’s low was at 1.80, while the prior bottom support was at 1.82, hit six weeks ago.

All these factors combined point to a solid support zone which could keep the stock from falling further. And, if the SIB does dip below last week’s low, potential support of the 55-day ema is at 1.72, and a prior peak (now possible support) is at 1.70.

Regardless, a breakout of the flag, and double bottom, does not occur until the stock moves first above 2.05, and then 2.12.

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