Dubai: Last week the Dubai Financial Market General Index (DFMGI) was down by 37.13 or 1.04 per cent to close at 3,517.33. There were 16 advancing issues and 20 declining, while volume fell to a seven-week low. To date the index is up 14.8 per cent for 2016.

The DFMGI continued to pull back off the new 2016 high of 3,658.61 hit two weeks ago as it closed below the prior week’s low on a weekly basis. A bullish breakout was triggered on the approach to that high as the index was moving out of a large rectangle consolidation pattern. So far though the breakout shows signs of failure that should lead to a deeper retracement than what has been seen so far.

A decline below last week’s low of 3,490.66 signals a continuation of the decline. The first support target has been around the 38.2 per cent Fibonacci retracement at 3,479.85, not too far below last week’s low. Also, the 21-day exponential moving average (ema) is at 3,475.40 and it too represents a potential support level. This provides a clear tight range from 3,479.85 to 3,475.40 as the next target. Therefore, a decisive drop and daily close below that range increases the likelihood that the DFMGI could fall further before seeing much of a bounce or recovery. Otherwise, support would be seen in this price range leading to at least a stall if not a bounce.

The next lower potential support zone would be around the 50 per cent retracement of the prior uptrend at 3,427.05. Also, 3,430.15 was swing low support in early-August and could be support again. Regardless, two indicators are pointing to a similar price and therefore the chance that support would be near this price zone increases.

Resistance

Still lower we have the 61.8 per cent Fibonacci retracement at 3,372.40. The significance of that price area is supported by the fact that resistance (now potential support) was seen from 3,378 to 3,370 over four occasions in May and June.

Fibonacci ratio analysis is a method of mathematically projecting potential support/resistance levels based on the prior uptrend/downtrend, respectively. Price levels derived from the analysis prove more reliable when confirmed by other types of analysis as in the examples above, where either a moving average or prior support or resistance levels match the area of the Fibonacci price level. Fibonacci ratios are found frequently in the natural world and therefore also show up in patterns of human behaviour, as in the case of the stock market. The most well known Fibonacci ratio is the golden ratio or Phi, which is the irrational number 1.618.

Near term resistance is at last week’s high of 3,588.17. A daily close above that price level is a sign of strength, at least for the short-term.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 26.17 or 0.59 per cent last week to end at 4,436.82. Market breadth was mixed with 16 advancing issues and 18 declining, while volume fell to a seven-week low.

The ADI also continued to pull back off its high of two weeks ago at 4,589.91, falling below the low of the prior week and closing at the low for the week. That was not a new high for 2016 as we see in the DFMGI. Instead that high was at a resistance zone that goes up to the 2016 high of 4,637.24. A further retracement from that high is anticipated at this point.

One of the reasons Fibonacci analysis is now being used to help identify support levels is that when looking at the recent multi month consolidation zone it becomes difficult to identify important support and resistance levels as they are usually not so clear. Fibonacci analysis helps to distinguish the more important price levels to watch.

Just based on price it looks like the ADI will get down to at least the 4,350 price area. However, the 61.8 per cent Fibonacci retracement is at 4,336.05 and close by. This provides greater confidence that support could be seen around 4,350 to 4,336.05. Higher Fibonacci support levels start with the 38.2 per cent retracement at 4,431.35, and then the 50 per cent level at 4,384.52. The 50 per cent level is close to the 200-day ema support level around 4,396.30

Stocks to watch

Dubai Islamic Bank has not been a leader this year as its stock is down 10.2 per cent year-to-date. Last week it closed at 5.55, up 0.73 per cent. Nonetheless, it has started to show signs of strength recently as it broke above a prior swing high of 5.63 three weeks ago and its long-term downtrend line, closed above its 55-week ema on a weekly basis for the first time since October 2015, and closed above and has remained above its 200-day ema for the past 12 days. For the past six days the stock has been testing support of the 200-day ema as it hovers just above it during a retracement off the recent 5.73 peak. So far support has held at 5.50.

Even if Dubai Islamic continues to retrace lower in the near future the long-term implications of recent price behaviour are bullish and point to a change from a long-term downtrend into an intermediate term uptrend.

 

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