Both UAE markets are holding strong in an area of prior resistance. Even though there could be further upside in the short-term, this is also an area where the chance for a pullback lower has increased. Watch for signs of weakening or strengthening, relative to key support and resistance levels, for an indication of the next direction.
Last week the Dubai Financial Market General Index (DFMGI) improved by 17.38 or 0.98 per cent to close at 1,792.30. Volume was lower than the prior couple of weeks. But this is to be expected given the four-day trading week.
“A daily close below last week’s low of 1,770.40 would indicate weakening, which could lead to further declines. Other potential price areas to watch for support include 1,726.22, 1,681.75, and 1,656.20.”Tweet this
Upside momentum has been slowing for the past couple of weeks. This is a warning sign that the odds for a retracement, or at least a sideways consolidation resting phase, is closer than it has been recently. However, it doesn’t always happen right away and some additional upside is still possible.
If you look at a weekly chart (not shown here) you will notice that the range of each of the past four weeks has been narrowing as the DFMGI rises. In addition, using the same chart, the index has reached the second most overbought level in at least four years when looking at the Relative Strength Index (RSI). It is also overbought on the daily chart. The RSI is an oscillator used to identify changes in momentum or rate of change.
Further, market breadth is telling us to be cautious as declining issues beat advancing at 19 to 12, respectively. This is a change in the trend in market breadth relative to the prior three weeks when it has been bullish with more advancing than declining issues.
So far the resistance zone around the 1,793.10 swing high from November 2010 is holding the advance. Last week’s high in the DFMGI was at 1,804.73. But notice that the close for the week was below that prior resistance level. Regardless, if the index can continue higher from here the next zone of resistance is up to 1,887.21, the peak from March 2010.
A daily close below last week’s low of 1,770.40 would indicate weakening, which could lead to further declines. Other potential price areas to watch for support include 1,726.22, 1,681.75, and 1,656.20, with the lower level being potentially the most significant.
The Abu Dhabi Securities Exchange General Index (ADI) rose 17.18 or 0.62 per cent last week to close at 2,783.00. Like we discussed with the DFMGI there are also signs of momentum slowing in the ADI; the weekly range has been narrowing as the index rises, RSI is overbought on both the weekly and daily charts, and the index is sitting up against a potential resistance zone (2,777.21 from June 2011 peak). But unlike in Dubai market breadth remained on the bullish side with 21 advancing and 16 declining issues. And even with the shorter trade week volume was higher than the prior week.
The next resistance zone above current levels is around 2,836.05. That is where resistance was found back in October 2010 and there is a good chance it will be seen there again. If the ADI can continue higher from there then the next resistance zone will be around 2,944.45. A move above last week’s high of 2,798.86 will signal short-term strengthening.
On the downside, last week’s low of 2,754.03 is near-term support. A daily close below that level will indicate an increased likelihood of further downside. Other weekly support areas include 2,729.39, followed by 2,686.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at firstname.lastname@example.org