Dubai: Last week the Dubai Financial Market General Index (DFMGI) declined by 150.98 or 5.09 per cent to close at 2,815.45, its lowest level since mid-November 2013. This was the largest drop in five weeks and it occurred on slightly rising volume, the second highest volume of the past 20 weeks. There were 34 issues that fell and only four that advanced.

The DFMGI has fallen nine out of the past 10 days, indicating that the sell-off is getting closer to a short-term bottom. At the same time the index has only just started to dip into oversold territory based on the 14-day Relative Strength Index (RSI) momentum oscillator, pointing to continued downward pressure. In addition, the week ended weak, closing near the low. Plus, a bearish trend continuation signal for the long-term 20-month downtrend was given as the index dropped below the prior two-year low of 2,851.24, and it closed below that price level on a weekly basis. The low for the week was 2,802.40. At that point the DFMGI was down 48.2 per cent from its May 2014 peak of 5,406.62.

Of greater concern is the technical damage that has been done for the intermediate time horizon. In addition to the long-term bear trend signal, the DFMGI has now fallen well below its 200-week simple moving average (sma) (3,131.64), one indicator used to determine the health of the long-term uptrend (weakening), and has fallen decisively below and closed below the long-term uptrend line. Further, the 61.8 per cent Fibonacci retracement level of the long-term uptrend, at 2,865.04, has been exceeded to the downside. During the last dip in December support was found around that retracement area.

The next target support zone is 2,755, where both support and resistance were seen in the past. Further down is 2,500, followed by a price zone from approximately 2,300 to 2,182. On the way down, rallies will likely be challenging as they face continued downward pressure from sellers. For next week resistance is at last week’s high of 2,979.63, followed by 3,079.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 179.87 or 4.35 per cent last week to end at 3,955.10, it biggest decline in 20 weeks and a 13-month low. There were 22 issues that fell while nine advanced. Volume fell to a seven-week low. Since hitting a high of 5,255.35 in May 2014 the ADI has fallen 25.0 per cent as of last week’s low.

With a low of 3,943.37 hit last week the ADI reached potential long-term support represented by both the 200-week sma (3,955), along with the long-term uptrend line. The two indicators for trend support have been converged for over a year now, thereby highlighting their significance as potential support. Also, it points to the significance of a decisive break below the two lines. That would give a renewed warning to the bulls indicating that the bear trend is continuing to weaken, and therefore more downside is likely.

For now, the December 2014 spike low support at 3,876.44 can be used together with the 3,955 price area to identify a zone of strong potential support. This allows a little wiggle room around the trend line in case there is a minor drop below it but no further downside continuation in the short-term. The December 2014 low is important, as a drop below it would confirm a continuation of the long-term bearish trend.

Given the significant deterioration in the price structure of the DFMGI, it seems likely that the ADI will eventually follow. If there is a drop below 3,876.44 in the ADI the next target is a weekly support zone starting at 3,763 and going down to around 3,700. This is followed by a price zone from 3,494 to 3,455.

On the upside, minor resistance may be seen starting around 3,984, followed by last week’s high of 4,166.87.

Stocks to watch

Gulf Navigation has held up well over the past couple of weeks as the wider market disintegrated. The stock has been progressing higher in an ascending trend channel since hitting a bottom at 0.207 in March of last year. It had advanced over 216 per cent off that low as of the 0.655 peak reached three weeks ago. That peak hit resistance at the 200-week exponential moving average (ema).

Last week Gulf Navigation was down 1.65 per cent to close at 0.595. It is the second best performer in the Dubai market over the past 12 months, having advanced 57.8 per cent.

As Gulf Navigation has progressed higher the high-to-low range of the channel has been narrowing, with the pattern now looking more like a large bearish wedge pattern. However, the stock looks like it can continue to move higher before price breaks down out of the wedge pattern giving a bearish signal, or evolves into a different pattern.

In the short-term a move down to the lower trend line, currently around 0.53, looks likely before a move higher occurs, if it is to come. Other areas to watch for support include 0.545, and 0.51, which is potential support represented by the 21-week ema.

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