The Dubai Financial Market General Index (DFMGI) stayed within a narrow range last week, gaining 9.45 or 0.59 per cent and closing at 1,610.84. Such indecision in price was also reflected in market breadth with a slight bearish bias, as there were 12 advancing issues and 15 declining. On a weekly basis volume was at its lowest level in seven weeks, while on a daily basis Thursday’s volume, an up day, reached a nine-week high.
The correction (downtrend) off the 1,656.20 high is now in its ninth week with important near-term support around 1,575.28. Support was found at that level on two separate week’s over a five-week period and it currently marks the low of the correction. That could be the beginning of a bullish double bottom reversal pattern, but we won’t know until the DFMGI has a daily close above 1,631 resistance. If it does then that would be the first sign that the correction may be coming to an end with the long-term uptrend showing signs of continuation. A daily close above 1,656.20 would confirm a continuation of the uptrend with 1,706.60 the next higher target.
Although the index did not get above the prior week’s high, it did close at the highest level of the past month, with a surge in volume on Thursday. However, the larger trend patterns take precedence so far.
If the DFMGI does not continue to strengthen from here then the possibility of a deeper correction lower exists. A long-term uptrend line from the mid-January low of 1,294.10, one representation of support, has been added to the accompanying chart. It shows that the DFMGI broke below the line several weeks ago and the line has since become resistance. If the index falls below 1,575.28 a continuation of the downtrend is in the works which would be a follow-through from the trend line break.
There are then a couple support areas to keep an eye on. First, is 1,538.93, which would complete a 50 per cent retracement of the medium-term uptrend that started from the 1,425.34 June 2012 low. And second, is a range from approximately 1,501 to 1,490. By arriving at this lower range the DFMGI would have completed slightly more than a 62 per cent retracement of the medium-term trend.
Last week the Abu Dhabi Securities Exchange General Index (ADI) ended at 2,625.51, up 5.86 or 0.22 per cent. There were 15 advancing issues and 25 declining, while volume was very weak, one of the lowest volume week’s of the past year.
The past two weeks are just a reaction rally or bounce off support of the long-term uptrend line following a sharp sell-off several weeks ago. That sell-off came with increased volume and reflects some degree of distribution or selling of stock. The bounce has been relatively minor so far.
Since the ADI has stayed above the uptrend line and it has not fallen below any prior swing lows, which form the 11-month uptrend structure, the trend remains intact. At the same time however once aggressive selling is seen coming off a top, it is frequently followed by another round. If this is seen here then support at 2,582.58, the most recent low, is at risk of being busted. That would put the ADI below its uptrend line for the first and point to a deeper correction from the most recent peak of 2,707.67.
The ADI would then be heading towards support around 2,550, 93, which would complete a 50 per cent retracement of the 11-month uptrend off the mid-January low of 2,293.38. Below there watch for support around 2,515 to 2,512.
Alternatively, we could see a period of consolidation with lower volatility as the index progresses but remains above the trend line. Resistance at the top of the trend is 2,707.67 and that level would have to be exceeded before a clear bullish sign is indicated.
Stocks to Watch
Al Salam Bank (Salam) surged as much as 53 per cent week last week before closing at Dh0.54, up 31.39 per cent. This move was accompanied by record high volume. The stock had been hugging support around Dh0.38 for the past six months after hitting an historical low of Dh0.344 back in February 2012. Salam could be finally putting in a long-term bottom. But further confirmation is needed on a daily close, and then a weekly close, above the previous peak of Dh0.60. Support is very clear around Dh0.375/0.38. If the stock stays above that price area the odds will continue to favor a continuation higher over the coming months.
Dubai Islamic Bank has been in an uptrend off the Dh1.85 bottom from June. Last week early signs of a continuation of the trend were given as the stock rallied to an eight-week high. It closed right at prior weekly resistance of Dh2.00 after reaching as high as Dh2.04 on Wednesday. A daily close above Dh2.00 is needed next for additional signs of strengthening. If the trend continues the stock should eventually rally above the recent high of Dh2.11. Clear support is at Dh1.95. At this point a decline below that level puts the bullish outlook at risk.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at firstname.lastname@example.org