Activity levels on the Dubai Financial Market General Index (DFMGI) were very low last week, with volume falling close to the lowest level of the year. The DFMGI closed at 1,451.87, down 18.58 or 1.26 per cent for the week. Market breadth was bearish with 21 declining issues and only eight advancing.

Last week the DFMGI closed below support of five of the prior six weeks. It remains to be seen whether any real technical damage was done. Closing below the lows of prior weeks indicates that selling pressure dominated and now a re-test of the recent 1,425.34 low is more likely than it has been. Also, the DFMGI could break below that price level. If it does so, the next price areas to watch for support are around 1,397.71, and then 1,352. The swing low of 1,338.56 from the sell-off in March of 2011 is an even more significant potential support area given its importance at the time.

The chart pattern of the DFMGI looks like it’s been trying to form a bottom but there is no confirmation yet. It had a chance to rally the past few weeks but was unable to get going. If the bulls cannot rally the market soon we could be faced with continued choppiness around the bottom as we head deeper into the summer months and holiday period.

If the global markets can hold up for a while longer the DFMGI still has a chance to rally. A daily close above 1,488.36 resistance would be needed to signal strengthening and give the index a chance of trending higher from there. Resistance of the downtrend line and 200 daily exponential moving average (ema) is around 1,517. For real conviction of strength a close above that level will be needed. At that point the DFMGI would be back above these two trend indicators, a more significant sign that the downtrend correction in price is completing, and that the DFMGI is moving into the beginning of an uptrend. The next resistance zone above the 200ema is from approximately 1,592 to 1,613.

 

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) fell by 60.97 or 2.43 to close at 2,447.62. Market breadth was bearish with 24 declining issues and nine advancing. Volume was roughly flat with the prior week. Given that the prior week included a one-day holiday, last week’s volume is even more lacklustre. Price action is always more important than volume though.

The prior week’s 2.54 per cent rally was completely erased last week as the ADI fell below 2,444.39, support for that period, to 2,443.89, before closing a little higher. This means that the strength seen two weeks ago has now been negated, thereby adding uncertainty as to the future progression of the ADI. The 2,443.89 support area is now an important near-term support.

Further, the rally two-weeks ago was the biggest percentage move in the index in 16-weeks, making this reversal even more potentially significant (bearish). When sentiment flips from positive to negative so quickly any subsequent move in the original direction (up) carries added uncertainty as to whether it can follow-through. Last week’s weakness increases the odds for a test of the recent low of 2,420.07. And, of course the possibility exists that the ADI could fall below that level. If this happens then the next lower support area is then around the 2,337.69 price area.

Watch for any rally at this point to find resistance again around the 200ema, as happened two-weeks ago. The 200ema is now around the 2,509 area. Keep in mind that the price represented by any moving average changes as we move forward in time. The weekly high two-weeks ago was at 2,515.07. A move above there puts the next resistance level at 2,535.27 in sight, and will confirm a possible upward shift in the long-term view as the ADI will again be back above the 200ema.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai. He can be reached at bruce@etf-portfolios.com.