Dubai: After a very volatile week the Dubai Financial Market General Index (DFMGI) ended down 168.25 or 4.68 per cent to close at 3,426.7. That’s after dropping as much as 16.8 per cent before finding some support at 2,992.53, the week’s low. There were 11 advancing issues versus 27 declining, while volume spiked to a six-month high. After being up as much as 60.4 per cent for 2014 in May and maintaining its position as one of the top performing markets globally, the DFMGI is now positive by only 1.7 per cent. To date, the index has fallen as much as 44.7 per cent off its May peak.

Of course weakness in oil is largely blamed as the culprit for the sell off, yet the index has been setting up to fall further since it broke down from a bearish symmetrical triangle top consolidation chart pattern and dropped below its 55-week exponential moving average (ema), and its 200-day ema, several weeks ago. As the triangle developed overall volatility declined, setting the stage for a pickup in momentum. For the six weeks before the breakdown the DFMGI traded in a relatively narrow range as investor uncertainty increased as to the next direction. That direction was determined on a drop below 4,385, and then confirmed below 4,231.

The DFMGI was extremely oversold on a daily basis last Wednesday, based on the Relative Strength Index (RSI) momentum indicator, when it found support at 2,992.53. At that point the index was the most oversold since September 2008. That low was in the general area of the 200-week ema, a significant long-term trend indicator (3,124), which in this case can be used to find a high probability support zone, especially given that the index has not come close to it since moving above it in April 2013.

Given the subsequent extremely bullish reaction on Thursday, with the DFMGI up 12.98 per cent, a record one-day gain, the odds are good that this correction may be over for now. However, even if there is a drop below last week’s low, the index may not fall too much further, as there is potential support of some significance from 2,865 and 2,814. The first price level is the 61.8 per cent Fibonacci retracement of the full long-term uptrend starting from the January 2012 low, and the second level is a target using the symmetrical triangle top (for regular readers, this is a slightly more conservative measure than posted in previous columns).

Near-term resistance is at last week’s high of 3,595. A daily close above it gives the next short-term bullish signal. The DFMGI will then be heading into a resistance zone from approximately 3,731 to 3,922. If it gets above that zone then next watch for resistance starting around 4,109.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) ended close to even. The ADI dropped by only 3.12 or 0.07 per cent to close at 4,365.19. Earlier in the week it was down as much as 11.3 per cent before finding support at 3,876.44 and bouncing. That put the ADI 26.2 per cent off its peak hit in May, when it was up 18.4 per cent for 2014. For the year the ADI is now down 1.7 per cent. There were 13 advancing issues and 28 declining, while volume reached its second highest level of the past six months.

There was a complete reversal in sentiment from bullish to bearish last week as the ADI closed near the open and near the high of the weekly range after selling off. Similar to what was seen in the DFMGI the ADI found support at its 200-week ema (3,876.85), and within a potential support zone from a consolidation phase in the second half of 2013. This was the first time the index had gotten near support of its 200-week ema since moving above it in February 2013. At that point the ADI was the most oversold since 2008.

Three weeks ago the ADI dropped out of symmetrical triangle top formation with a target of around 4,003. Last week the target was completed.

If the ADI exceeds it’s high of 4,402.23, then next watch for resistance starting around 4,453 to 4,510, then up around 4,638.

Stocks to watch

Given the extreme volatility witnessed recently there are not many chart patterns that present quality entries. Stay patient while the markets settle down a bit.

Last week Arabtec formed a potential large double bottom reversal pattern. The first bottom was at 2.35 in July, then the second at 2.40 last week. Although the stock was down 14.02 per cent for the week, it advanced 15.0 per cent on Thursday, ending at 2.76. In order to keep risk at a minimum watch for another test of the two bottoms and subsequent strengthening. Resistance starts around 3.25.

Air Arabia gained 2.68 per cent last week to close at 1.53, following a move above the recent high of 1.57. Volume surged to a 31-week high. It’s one of the few listings that has remained near its recent highs during the sell off, reflecting relative strength. Last week’s high was 1.61, with the 2014 peak resistance zone from around 1.65 to 1.68.

 

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