Upward momentum starts to deteriorate as UAE markets pull back from 2016 highs. Resistance is seen at the long-term downtrend lines thereby maintaining dominance of the bearish two-year decline. Whether last week’s weakness is just the start of a normal mild retracement remains to be seen. At this point the 2016 highs need to be exceeded with conviction to negate the power of the downtrend.

Dubai

Last week the Dubai Financial Market General Index (DFMGI) fell by 91.91 or 2.56 per cent to close at 3,491.91, its worst performance in 14 weeks. Market breadth was on the bearish side with 27 issues declining and 11 advancing, while volume fell to a four-week low.

Although the index was able to get above the long-term downtrend line two weeks ago and stayed above it for six days, it was never able to move very far above it. Therefore, we did not get confirmation of strength that might have occurred following a trend line breakout. Last week’s decline put the DFMGI back below the downtrend line, and therefore the area of the line represented resistance.

In regards to the structure of the 14-week uptrend, last week the uptrend line was broken to the downside, and the 21-day exponential moving average (ema), another indicator for support of the uptrend, was exceeded on the downside. Subsequently the DFMGI closed above the 21-day, which is now at 3,480.78. A break below the uptrend line may be an early sign of future weakness or it could just mean that the angle of ascent could be slowing while the overall uptrend remains intact.

Sustainable upward momentum

A decisive drop below the 21-day means the chance of reaching the intermediate 55-day ema at 3,360.22 has increased. At the same time, the DFMGI has been above its 200-day ema for the past few weeks and accelerated higher once moving above it. As the index pulls back from the 2016 high of 3,604.70 reached last week, whether support is seen around the 200-day will be telling. If the move above it was a sign of sustainable upward momentum it should represent support on the pullback. If it does so then the chance for a shot at exceeding the 2016 high is good. If instead, it drops below the 200-day (now at 3,413.77) then the 55-day is not far below and support should be seen there. The second scenario would be less bullish than the first for the near-term, but still maintains the uptrend.

Therefore, a decisive drop and daily close below the 55-day puts the uptrend at risk of failure. Then the key support level to watch is 3,248, which was support on March 28. Failure to hold above that level turns the uptrend into a downtrend.

A breakout above the 2016 high is needed for the next bullish signal. At that point the DFMGI would then be heading towards the 3,740 price area.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 93.22 or 2.01 per cent last week to end at 4,543.53, its weakest performance in five weeks. There were 29 declining issues and 12 advancing, while volume fell to a four-week low.

For the first couple days of the week the index fought to go higher as it continued to push up against resistance around the prior week’s high of 4,637, creeping up to a new 2016 high of 4,637.24 on Sunday. By Tuesday the bulls failed to push above it and the index started to sell-off. The ADI is still above its uptrend line, which is now around 4,481. The 21-day ema does not do a good job of identifying dynamic support of the uptrend as does the 55-day ema. Therefore, the 55-day should be used for the ADI now as a key trend indicator, along with the uptrend line. The 55-day is now at 4,402.21.

When looking at the price structure/pattern of the uptrend, the key support level to watch is the 4,264.94 swing low from March 28. If the ADI drops below that level then the odds increase for further selling and a test of the January lows.

Stocks to watch

National Central Cooling (Tabreed) has formed a very clear bullish pennant pattern on its daily chart. This is a classic trend continuation pattern. It starts with a rapid rise called the pole, and is followed by a small symmetrical triangle consolidation formation. This creates a rest period in preparation for a follow-on rally. The triangle or pennant consolidation has formed sitting on support of the 21-day ema.

In this case Tabreed rallied 0.26 or 21.7 per cent in six days to a 1.46 high before moving into consolidation. If the current pattern is to break out then it should happen within the next few days. Thereafter, the pattern has either failed or is evolving into a different pattern.

Last week Tabreed was up 0.73 per cent to 1.38. A bullish breakout is triggered on a decisive rally above 1.39, with strength confirmed above 1.46. Based on the pattern a minimum target of 1.65 can be estimated following a breakout and continued strengthening. A drop below 1.35 signals a pattern failure and is bearish.

 

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