Last week, the Dubai Financial Market General Index (DFMGI) gained 41.68 or 1.88 per cent to close at 2,264.14. Volume dropped to an 11-week low, while market breadth was on the bullish side with 20 advancing and eight declining issues. The technical picture has not changed much, with the early signs of a possible top intact.
After a rapid rise of 55.2 per cent from the beginning of the year, the DFMGI found resistance at 2,500.56 five weeks ago. Since then, it has retraced lower as much as 12.7 per cent to 2,182. That puts the current correction well beyond the previous two, -7.14 per cent and -4.9 per cent, and at risk of matching or surpassing the largest decline of 19.8 per cent seen in the one-and-a-half year uptrend. A 19.8 per cent drop would complete around 2,005.45.
If downward pressure pushes the index below near-term support of 2,182, then the chance of it reaching at least the 2,037.92 area is pretty good. That lower support area would complete a 38.2 per cent Fibonacci retracement of the complete long-term uptrend, and would be considered a minimum downside target. Less significant short-term support may be seen first from around 2,136 to 2,110. Another lower potential support zone is from approximately 1,959.37, prior resistance, to 1,955, the 200 daily exponential moving average (ema).
The long-term trend should remain intact as long as the DFMGI stays above the 200ema on any further drop. A daily close and subsequent downside follow-through below the 200ema would be needed for clear signs of more significant weakening.
There has been only one consistent drop off the top so far and one bounce (currently). The odds of at least another aggressive drop are therefore likely at some point.Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) gained 22.22 or 0.63 per cent last week to close at 2,562.69. Volume declined once again reaching its lowest level in 10-weeks. Market breadth was positive with 20 advancing and 13 declining issues.
A break below near-term support of 3,494.83 will give a continuation signal for further weakening with the ADI then targeting a potential weekly support zone from 3,369.21 to 3,370. Below there is a potential support zone starting at 3,270 and down to around 3,259.60. The top of the zone is a previous multi year high and now potential support on the way down. The lower level is the 38.2 per cent Fibonacci retracement of the uptrend off the December 2012 lows.
Support of the long-term uptrend (starting in January 2012) is indicated by the 200ema on the daily chart, which is currently at 3,080.49. If the ADI falls further the 200ema will also decline some coming in very close to the prior peak of 3,069.2 from February. Together, these price levels create another potential support zone. This lower zone is the most significant as the uptrend will remain in place as long as the index doesn’t close below and stay below the 200ema.
The correction in the ADI off its recent peak of 3,678.08 has been just shy of 5.0 per cent, much less than seen in the DFMGI. This makes sense given that it has advanced further in its uptrend relative to previous price structure. The ADI cleared above its prior peak from October 2009, while the DFMGI remains below the peak from that year. Regardless, the near-term outlook remains bearish unless there is a daily close above the recent peak.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com
