Dubai: The Dubai Financial Market General Index (DFMGI) closed lower by 66.17 or 1.91 per cent last week, finishing its fourth consecutive week of lower prices at 3,407.25. While most stocks participated in the weakness, with 30 declining and six advancing, volume fell slightly below the previous week.

For most of the week the index went relatively sideways before breaking below support on Thursday. First, was a drop below the prior week’s low at 3,374.37, and then the swing low of 3,358 from early-January. Volume spiked to a 23-day high.

Before rallying into Thursday’s close, the DFMGI was down 6.9 per cent for the week at the 3,232.79 low. That is relatively equivalent to support of the long-term trend indicator, the 200-week exponential moving average (ema), now at 3,208.37. The area of the 200-week ema was also where the index found support following the December 2014 sell-off. It remains a critical indicator for the health of the long-term uptrend, which remains in a correction phase since topping in May of last year. From the most recent peak of 3,984.78 from six weeks ago the DFMGI has corrected as much as 18.9 per cent.

This second test and success of the 200-week ema being support increases the odds that the four-week drop is done, at least for now. In addition, the DFMGI managed to end the week back above the prior support zone of 3,374.37 to 3,358, after a drop below it, which is a sign of strength. That doesn’t mean the index goes straight up from here, but rather, even on another drop to the 200-day ema, the index can be anticipated to hold above the price area, and the general outlook starts to lean more towards the bullish side.

Confirmation of strength returning is on a daily close above last week’s high of 3,538, thereby breaking the five-week weekly downtrend pattern. There is next a resistance zone starting from prior lows starting around 3,628 (bottom of prior nine-week consolidation range) and up to the top of the range around 4,008. Potential weekly resistance (and bullish signal on a move above) is at 3,710, followed by 3,769.78.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by 5.5 or 0.82 per cent last week to close at 4,373.13, its first positive performance in four weeks. Volume rose to a three-week high, while market breadth was mixed, with 14 advancing issues and 22 declining.

Unlike the DFMGI the ADI did not drop below the prior week’s low, and therefore didn’t get anywhere close to its 200-week ema, which was last hit as support in December of last year, prior to a 10-week uptrend. Further strength is next indicated on a rally above last week’s high of 4,420.17, and confirmed above 4,498. However, short-term resistance could be seen a little lower around 4,454.50.

Important nearby support is at the 4,472.55 low from two weeks ago, as a drop below it triggers a continuation of a three-week downtrend. If that’s the case then next watch for the index to find support around its 200-week ema, which is now at 3,961.72, and close to potential support around 3,976, the peak from August 2013, and now support. Together with the December 2014 swing low of 3,876, these possible support prices can be looked at a zone of support, in case of a drop below 4,472.55 occurs.

Stocks to watch

Emaar Properties fell 1.68 per cent last week to close at 6.43 on lower volume. Volume was about half of the prior week. The stock tested support of the 5.90 December corrective low, dropping to 5.95 at the open on Thursday before rallying to close near the high of the day. At the low the stock was down 9 per cent for the week. This creates an important support zone from 5.95 to 5.90, with a daily close below 5.90 giving a new bearish trend continuation signal. For now it looks like Emaar will hold above that zone for a bounce higher.

The next short-term sign of strength is on a daily close above Thursday’s high of 6.47, and then above the week’s high of 6.81. There are a number of areas where it could then run into resistance, but it looks like the 55-day ema is the higher probability price area. The 55-day ema is now at 7.27.

One stock that is sitting near its high, contrary to the wider market, is Emirates Foodstuff & Mineral Water (Agthia). It was down 0.56 per cent for the week, ending at 7.15, and is the fifth best performing issue in the Abu Dhabi market over the past six months. The 2014 high is 7.29. Given that the current price is so close, and in a relatively weak market, it can be watched for a bullish breakout. Support is at last week’s low of 6.61. A drop below that level will likely lead to a deeper decline.

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