Dubai: Last week the UAE could not escape global bearish sentiment due to a drop in oil to an 11-year low, and declines in global equity markets. China tipped into mini-crash mode, and major markets in Europe, Asia and the US fell below key price support levels. In the US, growth leaders, the FANG stocks, Facebook, Amazon, Netflix and Google’s parent Alphabet, fell sharply. These stocks were the leaders last year and make up approximately 26 per cent of the Nasdaq-100 Index. When market leaders start to turn down it does not bode well for the future of the wider market. It now looks like the US market could be moving into a more serious correction thereby adding to concerns for developed and emerging equity markets, including the UAE.

The Dubai Financial Market General Index (DFMGI) fell by 184.57 or 5.86 per cent last week to close at 2,966.43, a three-week low. There were only five advancing issues while 29 dropped, and volume dipped below the previous week.

The sharp sell-off puts the recovery rally off the December spike low of 2,851.24 at risk of failure.

Both the 20-month and 12-week downtrends remain intact, and last week’s performance shows signs of a bearish continuation, as the recent rally did not rise above the prior swing high at 3,301.43. Resistance of the rally was found at the two-week high of 3,188.83. That peak has to be exceeded before there is a new bullish signal.

Over the past five weeks the index has been flirting with support of two long-term trend indicators, the uptrend line, starting from January 2012 lows, and the 200-week simple moving average (sma), now at 3,125.61. While last week’s decline put the DFMGI back below its 200-week sma on a closing basis for the first time in several weeks. Last week’s 2,947.69 low or support was right in the vicinity of the uptrend line.

What we need to watch next is for either support to hold, thereby sending the DFMGI back up, or the index will break below support, signalling a continuation of both the intermediate and long-term bear trends. The specific support level most telling is the December 2,851.24 low. If it is broken to the downside the first target is around 2,755, followed by 2,500, and then a zone from 2,300 to 2,182.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 172.29 or 4.0 per cent last week to close at 4,134.97, its worse performance in 20 weeks. Market breadth was clearly on the bearish side, with 30 issues falling and only four advancing, while volume rose to a thirteen week high.

The technical damage done in the ADI was not as severe as in the DFMGI, as last weeks’ decline only put the index at a two-week low. After finding support at 3,983.89 in December, and ending a nine-week decline, the ADI managed to rally and exceed its prior swing high of 4,274.53 on a weekly closing basis. The peak of the rally was 4,313.78. That peak needs to be exceeded for the next bullish signal. If that occurs then the ADI will next be heading up to a potential resistance zone from approximately 4,338 to 4,343. Higher up is resistance at 4,414, followed by 4,462.

Just below last week’s low of 4,128.08 is a weekly support zone from approximately 4,103 to 4,069. That zone is followed by the price area of the December 2015 low, and then the more significant December 2014 spike low at 3,876.44. A drop below the first level signals a continuation of the intermediate bear trend, and falling below the lower level a continuation of the long-term downtrend. For the next six weeks or so the lower level can be used as a proxy for support represented by the long-term uptrend.

Stocks to watch

Real estate and construction was the hardest hit sector last week, falling 7.7 per cent in Dubai and 6.1 per cent in Abu Dhabi. Emaar Properties, the largest component in the DFMGI, fell 9.84 per cent to end at 5.13. That’s the second lowest weekly close since the second half of November 2013 and increases the odds for a test of the December 2015 support low at 4.88. That test could fail leading to a continuation of the decline.

Emaar is now well below its 200-week sma at 6.57, and a bearish moving average crossover occurred several weeks ago, where the 21-week sma crossed below the 200-week sma. A drop below the December low will see Emaar next targeting prior resistance around 4.59, followed by 4.21.

If Emaar can hold above 4.88 and turn higher, then it heads up into a large area of potential resistance, starting from the two week high at 5.88. Other higher price levels to watch are 6.24, followed by 6.65. The more significant price level is at the 7.01 peak from October of last year.

There is currently a bullish divergence in the 14-day Relative Strength Index (RSI) momentum indicator for Emaar. This provides some support for the stock resolving itself to the upside in the short-term, but not enough to rely on just yet.

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