The Dubai Financial Market General Index (DFMGI) gained 3.97 or 0.21 per cent last week to close at 1,927.10. Market breadth is continuing to weaken as there were 20 declining issues versus 10 advancing. At the same time volume declined from the prior week. Volume has been steadily falling over the past six weeks. Weakening in both market breadth and volume, along slowing momentum, are signs that the uptrend is getting tired. One sign of momentum slowing can be seen when looking at the 6.3 per cent advance (low to high) of the past four weeks compared to the 12.4 per cent gain during the four weeks before that. Another concern is that the close for the week was very close to the open and ended near the bottom of the weekly range.
Short-term support is now around 1,881.18, the weekly low from two weeks ago. But the first sign of weakness will come on a daily close below last week’s low of 1,915.61. There are two lower support areas to keep an eye on. The first is from approximately 1,793 to 1,773, which is where sharp resistance was seen in the past, and may now be support. That zone is then followed by 1,691.64.
If we see a daily close above last week’s high of 1,959.37, then the rally could go a little further before a correction occurs. Potential areas of resistance include 2,000.72, followed by 2,201, then 2,408.90, the peak from October 2009.
The Abu Dhabi Securities Exchange General Index (ADI) closed higher by 22.41 or 0.74 per cent last week ending at 3,044.89. Market breadth remained slightly on the bullish side with 22 advancing issues and 17 declining. Also, volume continued to come in on the high side. Volume levels reached the fourth highest level for the year, as well as the fourth highest for at least the past three years.
As of last week the ADI has reached its next target of 3,060.94, thereby completing a 78.6 per cent Fibonacci retracement of the long-term downtrend measured from the October 2009 peak. Last week’s high was 3,3069.20 putting the index 18.8 per cent above the mid-December 2012 low of 2,582.58.
We’ll have to watch last week’s high closely to see if the index will be able to close above that level and continue higher. If that occurs then the ADI will then be targeting the October 2009 swing high at 3,269.92.
However, the ADI has been in an uptrend for the past 11 consecutive weeks with each subsequent weekly high and low range above the prior weeks. Even though there was little movement in the first two weeks of the uptrend in late December 2012, those weeks remain part of the trend structure. Investors should remain cautious in the short-term as nothing goes straight up forever. Eventually, sellers will dominate buyers and a pullback will occur. The ADI remains the most overbought of the past five years on a weekly basis as it has for the past month.
Price behaviour along with very healthy volume levels continue to point higher for now until there are signs of weakening. That would first occur on a move below last week’s low of 2,999.10, and further still on a daily close below that level. The index would then target the 2,944.45 area. That would then be followed by a potential support zone from around 2,777.21 to 2,768.47. Reaching the lower level of the zone would also complete a 61.8 per cent Fibonacci retracement of the 11-week uptrend.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai. He can be reached at firstname.lastname@example.org
Stocks to Watch
Dubai Islamic Bank has been forming a bearish descending triangle consolidation pattern on its chart over the past month. In the case of this stock the pattern would be a reversal pattern rather than a continuation pattern as it formed at the end of an uptrend that began from the December 2012 lows.
A bearish descending triangle forms when support is found at the same price over some period of time and the rallies hit resistance at lower levels during successive rallies as the pattern forms. A descending trend line can then be drawn across the highs of the pattern and a horizontal line across the bottom.
Even though the odds favour a decline out of the pattern there is no assurance it will occur as anticipated, so one must wait for price to signal direction. A bearish breakout occurs on a move below Dh2.20, while a failure of the pattern, and therefore a bullish signal, is given on a move above Dh2.25.
Dana Gas has been consolidating over the past seven weeks or so and has formed the opposite pattern to what we see in Dubai Islamic Bank. Following a rally from the December 2012 lows the stock has formed an ascending triangle on its chart. This is where resistance is horizontal, at Dh0.54, and support is ascending. It can be identified on a chart by drawing an uptrend across the bottom of the pattern and a horizontal line across the top or resistance. A bullish breakout would be signalled on a daily close above Dh0.54, while a failure occurs on a daily close below support of Dh0.49.