We had split markets in the UAE last week as Dubai was flat and Abu Dhabi had its best week in a month. Meanwhile, oil fell hard, down for the third week in a row and reaching a six-month low.
On a technical basis prospects for a recovery for oil to above 2017 highs in the foreseeable future are rapidly diminishing. In the short-term it should continue to bounce off last week’s lows.
Weak oil may keep pressure on the UAE markets as they continue to consolidate and so far have been unable to breakout above 2017 highs.
Dubai
Last week the Dubai Financial Market General Index (DFMGI) was essentially flat, closing up by only 3.02 or 0.09 per cent to 3,419.73. There were equal number of advancing and declining issues with both coming in at 18, while volume reached a one-month high.
Even though the DFMGI fell below the prior week’s low selling pressure did not increase. If we look at the past eight trading days the index has stayed within a range with a high of 3,455.22 and a low of 3,400.43 (last week’s high and low).
The short-term consolidation pattern that has formed during those eight days shows a small potentially bullish head and shoulders bottom pattern. It is forming around support of the 61.8 per cent Fibonacci retracement level (3,402.99), which was hit last week. This is additional evidence pointing to a potential upside breakout as retracements will commonly find support around Fibonacci ratios, particularly the 61.8 per cent retracement of the prior uptrend.
Regardless, the pattern does not confirm unless there is a daily close above last week’s high. Until then the odds favour a further declines as the trend remains down. For signs of further weakness though we would first need to see a daily close below last week’s low. The index would then be heading towards a potential support zone around 3,378/3,351. The bottom support of the past one-year range is around 3,195.
Downward pressure will continue to dominate unless there is a daily close above last week’s high. Weekly resistance is then at the two-week high of 3,488, followed by the three-week high at 3,515.82. For the bulls the key price area that needs to be exceeded is the most recent swing high at 3,573.25. If that occurs the index will then have a fighting chance of testing and possibly exceeding the 2017 high of 3,738.69.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) jumped by 104.25 or 2.31 per cent to end at 4,617.16. There were 14 advancing issues and 18 declining, while volume increased to a three-week high.
Last week’s strength doesn’t tell us anything about what might come next as the ADI remains within a six-month consolidation phase with a downward slope. Until it breaks out of the range overall choppy behaviour will continue. The parameters of the pattern are defined by a descending line across the top of the range and an ascending long-term uptrend line (starting from the January 2016 low) that hits the low of the past six months. A decisive move through one of those lines will start to indicate where the ADI might be headed next.
Long-term, there remains an upward bias as the price structure of the uptrend that began from the January 2016 low remains intact. But that doesn’t mean we can’t see a more significant retracement from the 2017 high than we’ve seen so far. And it could go on for many months.
The long-term uptrend line was last tested as support 10 weeks ago and price was rejected each time. Since then there has been a somewhat upward bias by the fact that we have generally higher weekly lows. At this point the price represented by the uptrend line is difficult to ascertain but it should be watched. Given prior support levels it looks like a drop below 3,336.65 would also confirm a drop below the trend line.
On the upside the last spike high of 4,655.88 from five weeks ago can be used as a signal price. A decisive rally above that level would signal and upside breakout of the consolidation pattern.
Stocks to watch
Amanat Holdings confirmed a breakout of a bullish wedge trend continuation pattern last week, rising 12.5 per cent to close at 1.17. That’s very close to the week’s high of 1.19.
The bullish wedge had formed following the 1.22 peak that was hit in early-February. It is well constructed with both trend lines outlining the pattern being hit multiples times over the subsequent three months. A bullish wedge forms during a retracement where two downward sloping trendlines are put around the parameters of the pattern, they are heading towards each other and will eventually cross.
The breakout occurred on a move above 1.08 and was accompanied by 13-week high weekly volume. First target is around the beginning of the pattern at 1.22.
However, given the bullish character of the long-term uptrend higher prices seem likely. The 127 per cent Fibonacci extension of the wedge correction is at 1.27, followed by the 161.8 per cent extension at 1.33. In the short-term the stock is extended but it should be watched for pullbacks to lower price entries.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.
