Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 118.1 or 2.87 per cent to end at 4,000.50. Volume fell to an eight week low, the fourth consecutive week of lower volume. The majority of listings participated in the weakness, with 28 declining and only eight advancing.

The low for the week was 3,986.35, a six-week low, but not by much. The previous weekly low was 3,996.72, essentially where the DFMGI closed for the week.

Overall, the DFMGI continues to hover within a support zone and has not pulled back by much from the 4,253.28 peak reached four weeks ago. As of last week’s low the index had declined by 6.3 per cent. There has been plenty of opportunity for the index to weaken further by now, but buying strength is being maintained and holding up the index, at least so far.

The area of the 55-day exponential moving average (ema), now at 3,973.28, is the next more specific area to watch for support. If that price area is broken to the downside with momentum then the next targets would be around 3,863, and then 3,743. Those price levels are the 38.2 per cent Fibonacci retracement, followed by the 50 per cent retracement, of the uptrend that began off the March bottom at 3,232.79.

For the possibility of a sustainable rally the DFMGI first has to rise above 4,174.42, the high from two weeks ago, and then the more significant peak of 4,253.28 from April 30. A daily close above that peak will confirm strength, with the index next heading into the 4,385 potential resistance area, which was support back in November 2014. Then there are the prior peaks from October and November 2014, with a top of 4,727.97.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 134.1 or 2.88 per cent last week to close at 4,516.56. That’s the biggest drop for the index in 10 weeks. Volume picked up on Thursday, to a 16-day high, as the ADI fell below and closed below the most recent swing low support of 4,534.96, just barely dropping to an eight-week low. Volume for the week remained subdued and near the lows of the past 10 weeks, while market breadth leaned on the bearish side, with 25 declining issues and 11 advancing.

Thursday’s 1.28 per cent drop puts the ADI well below both its 55-day and 55-week moving averages, increasing the chance for further weakness. Regardless, the next area to watch for support is close by, around the 50 per cent retracement level of the uptrend off the March lows, which is at 4,487.80. That price is almost an exact match for where an ABCD pattern completes, which is at 4,487.17. The ABCD pattern is a measured move where the second leg down in a downtrend (in this case) matches the price depreciation of the first move down.

There was an initial decline (first leg down) from the latest peak of 4,723.42 hit in April, before support was found at 4,534.96 and a bounce occurred. The high of that bounce, however, did not exceed the April peak. Subsequently, the index has sold off again and last week breached the 4,534.96 swing low, creating the second leg down. The first target for the ABCD pattern assumes that frequently market moves exhibit a degree of symmetry or similarity to previous moves.

To date the ADI has fallen 4.4 per cent from the five-month peak of 4,723.42, reached in April. Given last week’s price action, lower prices look to be a good possibility. If the 50 per cent retracement price level is breached to the downside, a decline to at least the 61.8 per cent Fibonacci retracement at 4,432.19, becomes likely.

Given the above analysis, until a lower bottom is found, a bounce in the short-term is likely to be met with resistance, all the way up to the two-week high of 4,675.63.

Stocks to watch

Emaar Malls blasted higher on Thursday, rising 6.38 per cent on the day to close at 3.50, matching its prior record high from when it first listed in October of last year. For the week it was up 7.03 per cent, the top performer in Dubai. Volume shot to a 32-week high, its third highest volume week.

In the short-term the stock is extended, but it can be watched for entries on pullbacks, as last week’s performance is proving its strength relative to the wider market. If the wider market turns higher, then Emaar Malls should continue to lead as it advances into record highs. By extending the retracement of the initial downtrend in Emaar Malls, we arrive at a potential initial target of 3.83, about nine per cent higher. This is the 127.2 per cent Fibonacci retracement level.

Support doesn’t start until around 3.34, the most recent peak, and goes down to 3.24. If the stock drops below 3.24, then the above bullish scenario becomes unlikely and the odds increase for a deeper decline.

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