Dubai: The Dubai Financial Market General Index (DFMGI) weakened by 19.96 or 0.60 per cent last week to close at 3,298.43. Market breadth was mixed with 15 advancing issues against 19 declining, while volume slightly exceeded the prior week’s high.
Downward pressure continued to dominate last week with the index dropping below the prior week’s low of 3,300.44 to a low for the week of 3,284.35. It also closed below the prior week’s low on a weekly basis, and ended in the bottom half of the week’s range. This is short-term bearish behaviour, but we have to look at it within the context of the larger pattern.
The DFMGI has spent the past few weeks trying to put together a sustainable bottom, which could lead to a rally. So far the reaction off the 3,253.21 low from three weeks ago has had the characteristics of a bounce with no confirmation yet that the move can sustain itself into higher prices. There are indications that this could happen, but no confirmation yet. Confirmation would occur once the DFMGI exceeds a prior swing high.
So far we still have a series of lower swing highs on a daily basis since coming off the 2016 high 10 weeks ago. This means that this downtrend remains in place. The most recent swing high is at 3,368.30 from two weeks ago. That price needs to be exceeded to the upside before we have some confirmation that the trend is turning. In addition, a minor swing high occurred last week at 3,344.11, the high for the week. That’s the first price level that needs to be exceeded to indicate there might be more upside to come and at that point the chance that the index will eventually move above the two week high has increased.
Once there is a daily close above the two-week high then we no longer have a series of lower swing highs and the near-term outlook gets more bullish. However, at the same time, resistance is not too far away. It starts around 3,430 to 3,474. That price zone is the bottom of a two-month price consolidation range that goes up to the 2016 high at 3,623.70. If 3,474 is exceeded then resistance could next be seen anywhere up to the 2016 high. Until then the DFMGI can be expected to stay range bound.
If weakness continues next instead of strength and the index falls below the three-week low of 3,253.21 on a daily closing basis, the next support level of note is at 3,197.32. A drop below that level could lead to more aggressive selling.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) weakened by 10.88 or 0.25 per cent to end at 4,281.62. Declining issues led advancing at 24 to 11, while volume improved to a five-week high.
We’ve now had two consecutive weeks where the high to low range of the week was contained within the week’s range from three weeks ago when the ADI hit a low of 4,216.93. It reflects uncertainty as to the next direction and takes the form of price consolidation. This consolidation could resolve itself to the upside or downside. Given that the consolidation occurred near prior price support from back in May there’s a good chance it will be resolved to the upside.
The first sign of strength will be on a move above 4,315.58 and then confirmed above 4,328.55. At that point the minimum target would be the 38.2 per cent Fibonacci trend retracement at 4,373.09, followed by the 50 per cent retracement at 4,419.22. A more significant resistance zone would then follow from approximately the 61.8 per cent Fibonacci retracement at 4,466.95 and up to prior weekly resistance at 4,476.
Stocks to watch
Gulf Navigation was the fifth best performing stock in the UAE markets last week, as it advanced by 7.89 per cent to close at 1.23. The significance of the move was supported by a surge in weekly volume to the highest level since April. Year-to-date Gulf Navigation is up 98.39 per cent, the fourth best performer in the UAE markets.
Last week’s advance triggered a bullish trend continuation with the stock hitting a new 2016 high of 1.27, a price not seen since April 2014. In addition, the stock closed above the prior 1.21 peak on a weekly basis. This is another example of a market leader remaining a market leader, at least for some period of time. Gulf Navigation bottomed at 0.207 in March 2015 and has been in a steady uptrend since, up 513.5 per cent as of last week’s high.
The next potential resistance zone is up around prior monthly resistance of 1.38. That price area was support or resistance on three separate months in 2013 and 2014. A higher potential price resistance zone starts around monthly resistance of 1.54 and goes up to the 1.809 peak from 2013. That price zone was tested previously as resistance multiple times over seven months and is likely to be a formidable barrier again.
Support of note is at last week’s low of 1.13 as a drop below that price would likely lead to further weakness. It would also lower the probability of Gulf Navigation testing the 2013/14 highs in the near future.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.
