Dubai: The Dubai Financial Market General Index (DFMGI) dropped 208.53 or 5.37 per cent last week to close at 3,674.40, its largest decline in seven weeks. Volume fell to and eight-week low during the decline, while most stocks participated in the weakness, with 30 declining and only six advancing. Given last week’s price action it’s not clear whether the index will make an attempt to break out higher, move towards further consolidation within a range, or fall.

Last week’s low was at 3,628.07, which put the DFMGI slightly below the weekly low of 3,837.40 from three weeks ago. A decline below last week’s low would put the index at a four-week low, with the next target then being the five-week low of 3,357.96. That lower price level has some significance as a daily close below it would indicate a likely bearish reversal of the six-week uptrend, and a clear test of the December 2014 corrective low of 2,992.53. Slightly above that price level is potential support of the 200-week exponential moving average (ema), now at 3,163.

The high of a three-week range is at 3,959.66, with a move above there increasing the odds that the DFMGI is going still higher. At that point the index would then need to get over 4,008.38 resistance from the late-2014 peak. If it does that a continuation of the current six-week uptrend is signalled.

During most of the second half of 2014 the DFMGI was forming a large consolidation pattern, which turned into the top of a two-and-a-half year ascent (began three year ago, mid-January 2012). That consolidation phase ended in late-November 2014, when the index began another rapid decline into support of its 200-week ema. Subsequently a rally began, which saw resistance near the bottom part of this large consolidation pattern (4,008.38 peak). Although it’s unlikely that the DFMGI can get above that large potential resistance zone in the foreseeable future, it is still possible that the six-week advance can still go higher. Nevertheless, the price levels mentioned in previous paragraph first need to be exceeded. If that happens then next watch for resistance at the 55-week ema, now at 4,135.33, followed by 4,231, and then anywhere up into 4,728.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) declined by 70.1 or 1.55 per cent to close at 4,456.82. Volume rose only slightly above the prior week’s level, and therefore, was the second lowest volume week of the past 16 weeks. Most listings fell, as there were 24 declining and nine advancing.

The technical situation in the ADI has many similarities to the DFMGI. Nine weeks ago the ADI dropped out of the large multi month consolidation pattern and fell hard. Support was found around the 200-week ema, which was followed by a rally into the 4,605.72 peak from five weeks ago. That peak along with highs of the past four weeks identify resistance in the lower half of the large consolidation phase (was support, now resistance).

Even if the peak was exceeded to the upside the ADI would be pushing up further into the prior consolidation zone where resistance could be seen at a number of specific price levels. These include previous support at 4,688.36 (200-day ema resistance, now at 4,704), 4,790 (prior support), and then the top of a smaller consolidation phase starting from around 4,669, and up to 5,004.

If the ADI continues to fall from here, watch for a support zone around 4,416 to 4,402, derived from previous support and resistance on a weekly basis. Further down is the more significant price level of 4,295.57. A drop below that price level sends the index towards the December corrective low of 3,876.44.

Stocks to watch

Even as the larger market was weakening, Aramex was heading in the opposite direction — higher. Last week the stock gained 5.48 per cent to close at 3.27, with volume rising to a six-week high. In addition to the higher volume, of greater significance is that Aramex reached a 23-week high, and ended the week at a 22-week high.

During the December market correction Aramex fell 20.7 per cent off the 3.47 peak before finding support at 2.75 and rallying from there. The stock has stayed above its 55-week ema for the past several weeks, another bullish sign. Just based on the relationship with the 50-day ema, Aramex is clearly, on a relative basis, stronger than the market indices.

The question now is whether last week’s strength will be enough to move Aramex into new highs (above the April 2014 peak of 3.47) at some point in the foreseeable future. A decisive daily close above last week’s high of 3.28 is the next sign that this is likely. Such a move would be a continuation of this weeks rally and put the stock above its minor downtrend line. The more significant resistance level to exceed is at 3.40, and then the 2014 peak. If the 2014 peak is exceeded then Aramex next targets 3.67, the 127 per cent Fibonacci extension of the 2014 correction.

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