Business | Markets
Volatile week awaits investors
A wait-and-see attitude is the safest approach until facts become clearer
- by Bruce Powers, Special to Gulf News
- Published: 00:00 November 29, 2009
Dubai : The announcement by Dubai World requesting bond holders to grant a six month moratorium on interest payments on approximately $5.9 billion (Dh21.7 billion) of debt owned by Nakheel roiled financial markets worldwide.
This would not likely have been done unless the decision-makers felt they had no better choice.
Apparently, some of the unanswered questions raised by the announcement will be addressed early this week.
However, be careful as markets have a tendency toward increased volatility when the level of uncertainty rises rapidly. It's possible that new information could come out causing the markets to react opposite to the past couple days.
On a technical basis (i.e. price charts) the UAE stock markets are already in a precarious position with the Dubai Financial Market General Index (DFMGI) having broken down through its upper uptrend line and the Abu Dhabi Securities Exchange General Index (ADI) having dropped below its major uptrend line. Both indications are bearish for the short term and more so for the ADI. Regardless, wait for the market to tell us which direction it is going by how it responds to particular support and resistance levels.
By using charts to help interpret market behaviour we are looking to determine what the market is telling us about the forces of supply and demand and when there is a change in those forces.
By identifying key price levels where supply is dominant versus demand and vice versa we can establish a rational investing or trading plan before the market moves thereby helping to diminish emotion from our decisions.
In most cases it is not being used as a forecasting tool but rather to help with the timing of buy and sell decisions and as a risk-management tool. We're looking for when the odds might be moving in our favour, or against us. Just like in athletics, it takes practice and time to progress. Improving your knowledge of the markets, investing or trading, is no different.
Dubai
Last week the DFMGI declined 36.59 or 1.72 per cent to close at 2,093.16. Declining issues lead advancing 18 to nine. Volume was relatively low which is not surprising given the holiday and shortened trading week.
The DFMGI has held support at the 2,064 price area for the past month, which is also now on the 100 period exponential moving average (lower curved line in accompanying chart). This price support level is the area to watch for a signal that the index is getting weaker and therefore likely to continue the decline of the past six weeks.
Now, the DFMGI is clearly below its 200 period exponential moving average (upper curved line), after making an attempt a couple weeks ago to move above it and stay there. It has been unsuccessful, a bearish sign.
The next support area is 1,918.50/1,920.50 to 1,954, with the lower levels of 1,918.50/1,920.18 determined by the 50 per cent and 61.8 per cent Fibonacci retracement levels, respectively, of the two major uptrends. Previous resistance of August 11 identifies the 1,954 level. After that the next level to watch for buying support is the uptrend line, followed by the 1,757 to 1761 price zone (important support).
For a clear sign of strengthening the DFMGI would need to move through resistance of 2,206.22, the high of two weeks ago.
Abu Dhabi
During the past week the ADI dropped 14.4 or 0.49 per cent to close at 2,967.66. Declining issues were three times advancing at 31 to 10. Volume was very low partly due to the shorter trading week.
In the short term a move below 2,861.29, the low of last week, would signal a continuation of the six week correction. The index would need to break through resistance of 2,979.25, the high of two weeks ago, before giving a clear sign of strengthening.
We can say that the ADI is a bit more bearish in the bigger picture than the DFMGI as it has broken down through its long-term trend line whereas the DFMGI is still above its long-term trend line.
It is also now below both its 200 period exponential moving average (top curved line in chart) and its 100 period exponential moving average (lower curved line).
Further, it is below the clear support area of 2,915.79.
Both these moving averages have now converged to the same price area (2,942 to 2,950), now there is resistance. The uptrend line and downtrend line also create resistance in this area.
In the bigger picture the next level of possible support is the 2,768 to 2,786 price zone. This is followed by 2,705.02, the high of mid-June and also the 50 per cent Fibonacci retracement level of the full upward trend.
The most significant price support level is around the 2,555 to 2,560 area, the lows of late June and July, and also close to the 61.8 per cent Fibonacci retracement level of 2,565.26.
Stocks to watch
In regards to taking any new positions, a wait-and-see attitude is the safest approach right now. If you're a short term holder, tighten up your exit strategy in case there is a further drop.
Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etftrends.net
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