Last week the Dubai Financial Market General Index declined by 45.03 or 2.34 per cent to close at 1,882.07
As of last week it looks like a correction has begun in both UAE markets. There’s no way to know at this point whether a downside correction will take weeks or months. Given the very bullish action in recent months upside momentum should continue once the correction is complete as key long-term resistance levels have been broken recently indicating further upside in the medium and long-term.
Dubai
Last week the Dubai Financial Market General Index (DFMGI) declined by 45.03 or 2.34 per cent to close at 1,882.07. Most listings participated in the selling as there were 26 declining issues versus eight advancing. What we aren’t seeing yet is an increase in volume as volume decreased from the prior week.
As mentioned in previous weeks, the DFMGI has been very overbought for a while and due for a correction. Given last week’s price action the correction has started. It is likely to last for a number of weeks if not months given that it follows a strong rally which saw the index gain as much as 24.4 per cent in 10 weeks. Signs of weakening include a bearish candlestick pattern on the weekly chart two weeks ago (spiked to new highs then ended the week near the lower end of the weekly range and near the opening for the week), a lower high on a weekly basis (only the second time in 11 weeks and the first time was minor), a break below two prior week’s lows, and very important, the lowest weekly closing price of the past six weeks. These are all signs of momentum turning to the downside as investor sentiment switches from bullish to bearish, at least for the short-term. A drop below last week’s low of 1,860.44 will give the next bearish signal.
Now that it looks like a peak for the recent rally is in place we can anticipate a minimum decline down to at least the 1,778 to 1,755 support zone. That area consists of a prior peak (was resistance now support) and the 38.2 per cent Fibonacci retracement level of the uptrend measured from the June 2012 low, respectively. It is followed by a potential support zone from approximately 1,706.60 to 1,691.60.
On the upside, the DFMGI would first have to close above last week’s high of 1,938.86 before it has any chance of moving higher in the near-term. It would then need to contend with resistance at the recent peak of 1,959.37.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) fell by 74.26 or 2.44 per cent last week to close at 2,970.63. Declining issues led advancing at 22 to 16, while volume declined noticeably from the prior weeks yet remained in the top of the range of the past several years.
As with the DFMGI, the ADI has been extremely overbought on a weekly basis for almost two months now — the most overbought in at least five years. Last week’s action began a correction as it was the first lower high and lower low on a weekly basis in eleven weeks. The high-to-low range for the week was wide and the index ended in the lower half of the range.
A decline to below near-term support of 2,936.21 will give the next bearish signal with the ADI then targeting the 2,836 to 2,821 support zone. At a minimum, we can anticipate a fall to this first support zone. The next lower potential support areas are around 2,777, followed by 2,707.67, with a number of minor levels in between. Just below this lower level is the 200 daily exponential moving average, now around 2,697.75.
Near-term resistance is at last week’s high of 3,047.48, followed by the recent peak at 3,069.20.
Be aggressive in risk management and patient when entering new positions. Now that the near-term outlook for the UAE markets has shifted to the bearish side, at least for now, investors can be expected to get more aggressive taking profits, placing further downside pressure on prices. At the same time, investors interested in entering new medium to long-term positions are likely to wait in anticipation of lower prices.
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