Dubai: Last week the Dubai Financial Market General Index (DFMGI) was down slightly, falling 19.69 or 0.59 per cent to end at 3,334.93, the lowest weekly close since late-June. This follows a five-month record one-week decline the previous week. Market breadth leaned on the bearish side with 18 declining issues versus 14 advancing, while volume exceeded the prior week’s level, but was still the second lowest volume level of the past eight weeks.
There is no sign yet that the index has finished the decline that began two weeks ago. The DFMGI is not yet oversold on a daily basis according to the 14-day Relative Strength Index (RSI) momentum oscillator, and it fell below the prior week’s low and closed below it on a weekly basis, thereby signaling a bearish trend continuation. Further, the week ended in the lower quarter of the week’s high-to-low range.
The drop that started two weeks ago triggered a bearish head and shoulders top pattern. This pattern is one of the most well known trend reversal patterns within technical analysis. We can use the height of the pattern to help determine where the minimum target might be once the pattern triggers. For this specific pattern that target is around 3,256. Last week’s low and support for the week was at 3,322.76.
From the pattern’s target and down to around 3,197.32 (May/June swing support low) is a price zone that behaved as support on a number of weeks in the past. Support can be anticipated to be seen again within that price zone.
In the bigger picture, there are two developing price patterns to keep an eye on. First, we have a rectangle consolidation pattern that is developing, with the price action of the past four months or so being contained within that pattern. Resistance or the high of the rectangle is at the 2016 high of 3,623.70, and the June low of 3,197.32 is support. If it continues to evolve, rather than breaking out either up or down, then price could stay contained within the range of the pattern for a while longer.
At the same time, the pattern that has been developing in recent months could also turn out to be a large double top trend reversal price formation. A daily close below the June low would trigger a breakdown of this pattern. Given the pattern’s size the subsequent drop could be aggressive with very bearish implications as the DFMGI remains within a large 29-month descending trend channel.
The Abu Dhabi Securities Exchange General Index (ADI) was down 42.40 or 0.97 per cent last week to close at 4,347.20. Most issues declined as there were 19 stocks down and 10 advancing, while volume dipped to a nine-week low.
Last week’s drop triggered a bearish trend continuation as it put the index below the previous week’s low on a weekly closing basis. A low of 4,319.86 was reached for the week.
For the past six months or so the ADI has been consolidating in a relatively large range up in the area of resistance of its long-term downtrend line. It made a gallant attempt to break through in July and keep going but has since failed. Like the DFMGI, the ADI has been in a large down trending channel since hitting highs around the summer of 2014.
Last week’s low is right in the area of potential support as defined by multiple weekly highs (resistance) and lows (support) over the past year. The next lower price support area looks to be around 4,265, followed by 4,221, the 200-week exponential moving average (ema), and down to 4,175. Bounces will likely find resistance starting around 4,442.
Stocks to watch
Dubai Financial Market (DFM) reached support of 1.19 last week. The stock found support there twice before and bounce, in May and then again in June. It’s now looking like it could do so again. A rally above the two-day high of 1.23 will give the next short-term bullish signal. DFM then heads up into the bottom of a prior consolidation zone starting around 1.30/1.31. Last week the stock was up 0.82 per cent to to close at 1.23. A decisive drop below last week’s low is bearish and negates the above bullish scenario.
Last week Amanat Holdings was down 0.12 per cent to close at 0.843. For the second time in two weeks the stock tested support of 0.83 and held. That’s right at support of the 200-day ema and therefore strengthens the signficance of this support area. In addition, the stock is attempting to breakout of a small double bottom pattern that has formed over the past two weeks. A decisive daily close above 0.847 is needed to confirm a breakout.
Although it’s possible that following a breakout Amanat could eventually exceed the pior 2016 high of 0.918, resistance could also be seen again in that price area and turn the stock back down. Therefore, a higher probable target would be around 0.875 to approximately 0.88, and then up to prior resistance in the 0.895 price area.
Alternatively, a drop below 0.83 is bearish and negates the potential bullish scenario of a bounce off the 200-day ema.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.