Dubai: The Dubai Financial Market General Index (DFMGI) fell hard last week, losing 184.30 or 5.28 per cent to end at 3,307.61. This was the largest decline in 15-weeks, since the index bottomed in January. Volume was lower, down to a 22-week low, but not unexpected given the four-day trading week. There were 33 declining issues and only two advancing.

Some technical damage has been done. Let’s remember that although there have been strong rallies since the DFMGI topped out in May of 2014, the dominant trend has been down. The recent rally may now have run its course. During the rally the index was up as much as 39.1 per cent from the January lows to the April high of 3,604.70. It has now fallen as much as 9.7 per cent off the high as of last week’s low of 3,255.96. This after encountering resistance in the area of the long-term downtrend line. Last week’s low put the DFMGI at a five-week low, while the close for the week was at a nine-week closing low. Further, the index ended the week below both long-term and intermediate-term moving averages on both the weekly and daily charts. These are all signs that we might be moving back into a phase where the long-term bearish trend again dominates.

Support for the week was seen in the area of support from the previous three-week pullback, which is at 3,248. That is the low end of a current critical support zone, which if broken to the downside increases the odds for further selling as it violates the basic structure of the three-month uptrend. The next support zone would then be around 3,189, followed by 3,124. Also, a 50 per cent retracement completes at 3,097.70.

On the bright side, for the short-term the DFMGI has fallen for six consecutive days and could be getting close to a bounce. We may have seen the beginning of it on Wednesday as the index ended in the top quarter of the day’s range. Last week’s high of 3,495 is resistance of note, with the 3,420 area the first zone to watch.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 114.92 or 2.53 per cent last week to close at 4,428.61, a six-week low. Volume dropped to a six-month low during the shortened trading week, while there were six advancing stocks and 26 declining.

The ADI was unable to sustain upward momentum once it broke above its long-term downtrend line three weeks ago and subsequently hit a new 2016 high of 4,637.24. It has clearly failed to hold above that line since and has fallen as much as 5.8 per cent as of last week’s low at 4,368.65, as it fell back below the line. Last week’s low was a three-week low and at support of the 200-day ema, which is now at 4,377.01.

On Wednesday the index bounced off the area of the 200-day ema and closed positive, at the high of the day, for the first time in five days. Together, this analysis points to a higher bounce in the coming days. Weekly resistance is at last week’s high of 4,536.48, and is followed by the 4,588 resistance area, and then the 2016 high.

Since topping out in September 2014 the ADI has been in an overall downtrend. This is where it remains as the 2016 swing high is lower than the previous swing high from July 2015, and at least for now a failure has occurred at the downtrend line. Therefore, investors should be prepared for an eventual decline below last week’s low, particularly given the technical damage that is occurring in the DFMGI. This doesn’t mean it will happen, just be prepared.

A drop below last week’s low would have the ADI next targeting the previous swing lows from 4,298 to around 4,265. Further down is potential support around 4,147.

Stocks to Watch

Year-to-date the best performing sectors in both Dubai and Abu Dhabi markets is telecommunications, up 26.27 per cent and 18.01 per cent, respectively. The charts of the two main components, Emirates Telecommunication (Etisalat) and Emirates Integrated Telecommunications (Du), remain bullish. Etisalat was up 0.53 per cent last week to end at 19.00, and has advanced 18 per cent for 2016, while

Du fell 0.16 per cent last week and 26.27 per cent year-to-date.

Etisalat has been forming a potentially bullish ascending triangle trend continuation pattern on its chart for the past couple of months around support of the 21-day ema. A bullish breakout occurs on a decisive move above the 2016 high of 19.10. Based on the pattern the target would then be around 20.65. However, if the stock drops below the three-week low of 18.55, the outlook turns short-term bearish.

In the case of Du, the stock has been retracing from the 6.84 2015 high for the past eight days but remains within an ascending trend channel defined by support of the 55-day ema, which is now at 6.19. Watch for a retracement into this support zone to take advantage of a continuation of the uptrend. Alternatively a daily close below the 55-day ema is a sign of weakening, which is further confirmed if Du falls below 6.01.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.