Dubai falls hard, while Abu Dhabi slides lower

Dubai: The Dubai Financial Market General Index (DFMGI) fell hard last week, closing down 185.61 or 5.38 per cent to end at 3,265.28. Volume grew to the highest level of the past 10 weeks, while most issues fell. There were 33 declining issues and only eight advancing.

As of last week’s low of 3,241.98, the DFMGI had fallen 13 per cent from the most recent peak of 3,725.97 reached five weeks ago, and was down 23.8 per cent from the 2015 high of 4,253.28. The descent stopped in the area of critical support from the March and August spike lows, which was 3,241.35 and 3,232.79, respectively. Such a weak close indicates that selling pressure continued to the end of the period, and therefore may continue going into this week.

Of further concern, is that the index has closed on a weekly basis below its 200-week exponential moving average (ema) (3,387.62) for the first time since April 2013. Since this moving average is based off the weekly chart it represents a potentially very significant support area for the long-term uptrend. Alternatively, a close below it is a bearish signal for that trend. What happens next will therefore be critical for what might be coming in the following months, as the prior March and August declines turned the DFMGI higher at or from just below the 200-week ema.

It’s important to remember that since the 2014 peak of 5,406.62 the DFMGI has been in a downtrend. The latest advancement of that trend was during the August sell-off, when a breakdown of a large bearish flag pattern (ascending parallel channel) was triggered. At that point the odds increased for an eventual drop below the December 2014 low of 2,992.53. Now the critical price area to watch is the March spike low of 3,232.79, as a drop below it will give the next bearish signal for the downtrend. At that point the DFMGI would then be heading for the 2,992.53 area from December 2014. A daily close below there would provide a more significant bearish confirmation.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) weakened by 62.64 or 1.47 per cent to close at 4,200.16. There were 26 declining issues and only seven advancing, while volume dipped slightly below the prior week’s level.

The ADI has declined as much as 9.2 per cent from its most recent peak of 4,592.24 hit four weeks ago, as of last week’s low of 4,169.16, and was down 15.0 per cent from its July 2015 high. Most of last week’s decline occurred on Sunday, with the ADI staying within a range for the remainder of the week. This reflects a slowdown in downward momentum, but does not give an indication that the slide is done yet.

The next area to watch for support starts around the 200-week ema, which is now at 4,133.65, and goes down towards the August spike low, which is at 4,069.11. Together, this creates a potential support zone that has a good chance of at least holding the drop, and possibly turning the index higher.

If and when the 200-week ema is reached, it will be the third time in the past year that it has been tested as support. As with the DFMGI, this highlights the significance of this moving average for monitoring the health of the long-term uptrend going forward. The ADI has been in a downtrend (within a larger uptrend) since hitting the May 2014 high of 5,255.35. If there is a daily close below the August low, an early bearish signal for a continuation of the downtrend will be given, with the next support level then at the December 2014 low of 3,876.44.

Stocks to watch

Gulf Navigation was close to flat last week, falling by only 0.39 per cent to end at 0.505. If we step back a bit and look at the wider few, the stock has been progressing higher in a relatively well developed ascending channel since hitting a bottom in March at 0.207. Given the bearish volatility in the wider market since that time, this is an accomplishment, and reflects relative strength when compared to many other listings.

Year-to-date Gulf Navigation is the eighth best performer in the Dubai market, and its chart pattern is indicating that it remains relatively strong. It moved above its 55-week ema five weeks ago for the first time since late-April and remains above it (0.46). Even though Gulf Navigation dipped below that moving average briefly last week, it managed to close well above it. In addition, the 21-week ema (0.43) was tested last week as support, and it held, leading to a rally. Along with last week’s test, the market is pointing to the significance of the 21-week ema as dynamic support for the uptrend. For the past five weeks or so the 21-week ema has converged with the uptrend line. Meaning both indicators are identifying similar areas of support.

A break above last week’s high of 0.535 provides the next show of strength, with a rally above the 2015 high of 0.57 needed to confirm a continuation of the seven-month uptrend.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.