Dubai: Uncertainty continues to plague both the Abu Dhabi Securities Exchange General Index (ADI) and Dubai Financial Market General Index (DFMGI) driving volumes down and volatility to a minimum.

Stay aware, though, as low volatility (sideways choppiness, short daily ranges, and low volume) eventually leads to higher volatility (wider daily ranges, trending, and increased volume). We started to see this in some listings recently, such as First Gulf Bank, Ras Al Khaimah Cement, Methaq Takaful Cement, and Dana Gas, as they've each broken out of consolidation (relatively sideways movement), some to the upside and some to the downside.

Dubai

The DFMGI improved by 2.87 or 0.18 per cent last week closing at 1,584.81. Declining issues lead advancing by a very small margin of 15 to 13, respectively. Volume was down slightly for the week and continues to be very low historically. Having advancing issues almost equal to declining also reflects the uncertainty in the market.

Near term support is at 1,540.27 and resistance is at 1,693.32. Given recent price action it seems like the market will be chopping around at least until one of those price levels is broken.

As mentioned in previous weeks in this column the long term trend in the DFMGI is down and price behaviour for the index remains bearish in the medium term.

If the 1,540 level is broken then the next important level of support is at 1,461.75, the low from Dubai World news sell-off in December 2009, followed by 1,428.09, support found in February 2009.

The DFMGI has been forming a symmetrical triangle price pattern over the past several months. Given the position of the pattern, below the long term uptrend line, it is likely to resolve itself to the downside.

A similar pattern can be seen in the Dubai Financial Market listing, which broke down the week before last.

In chart analysis, the symmetrical triangle pattern can be used to identify a possible target of where price might get to before completing the move out of the pattern.

For the DFMGI symmetrical triangle pattern that would be 1,057.17. That target would put the DFMGI 527.64 points below Thursday's close or 33.3 per cent and 26 per cent lower than 1,428.09, the low from February 2009.

This analysis does not mean that it will happen, just that it could happen. If near-term resistance mentioned previously is broken to the upside, the bearish indications of this triangle pattern are invalidated and the odds change to indicate the likelihood of a rally instead.

Possible good news for the bulls is that the DFMGI had an opportunity to fall recently but has held steady. No real selling showed up as the DFMGI broke its shorter uptrend line as seen on the accompanying chart. That doesn't mean it won't be coming but if more time goes by without the index dropping, the chances for a short term rally increases.

Abu Dhabi

The ADI rose by only 25.32 or 0.94 per cent last week and closed at 2,726.83, with declining issues of 20 only slightly higher than 18 advancing. Volume was low reflecting the ongoing lack of buying commitment exhibited by investors.

Overall, the ADI has been showing more bullishness than the DFMGI. The past five weeks or so has seen the ADI with a slight upward bias while the DFMGI has had a downward bias. This minor uptrend can be assumed to continue unless near term support of 2,672.57 is broken. Near term resistance is at 2,785.59.

On the support side, the 2,586.22 support level is important as a move through there greatly increases the likelihood of the index getting back to previous lows from December 2009 of 2,429.97, and consequently the low of 2,130.02 reached in February 2009.

The real estate sector index in Abu Dhabi continues to perform poorly, lead by declines in Aldar Properties. As of a couple weeks ago, it has broken down out of a large head and shoulders top trend reversal pattern indicating that further downside is likely to come.

The odds now favour a return to 300 for the index, the low February 2009. However, as with all trends, there will be rallies in the short term.

Stocks to watch

If Dubai Investments can break above minor resistance of Dh0.95 there could be further upside momentum come into the stock. A move above Dh0.97 is needed to confirm strength.With a move below Dh0.90 Dubai Investments turns bearish.

Watch Arabtec Holding for a move above Dh2.16. Further upside could be seen from there. That would signal a break through its minor downtrend line held since the beginning of the year.

Shuaa Capital has been forming a downward sloping consolidation pattern which could resolve itself to the upside if near term resistance of Dh1.22 is broken.

Emirates Integrated Telecommunications broke out of a sideways consolidation period several weeks ago and has since settled down. A move through resistance at Dh12.15 should see the trend continue higher.

 

Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etftrends.net

 

Disclaimer: 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.