Bourses resilient to turbulence

Dubai: In the near term the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) have held up pretty well considering events unfolding in world financial markets and economies. Below we take a look at each index and the important price patterns and levels to watch to help plan for the future and manage risk, providing insight without the "story" that goes along with it, that we're so fond of.

Dubai

The DFMGI declined 15.08 or 0.86 per cent last week to close at 1,739.88. Volume was relatively low with declining issues beating by a wide margin of 27 to 7.

In the short term, the DFMGI has been in a correction for the past month having formed a small downward sloping parallel channel. This channel is identified with two trend lines that form the support and resistance (at an angle and therefore is dynamic relative to the line) of the retracement in price.

It's not clear which direction the DFMGI may be headed next but this channel provides some guidance as to when the retracement is complete and the index ready for another move higher — if it's going to go higher. In other words, once price moves up out of the channel, the chances of a more sustained rally are indicated.

The first sign of strengthening would be a move through the downtrend line (resistance) forming the top of the channel with further confirmation coming on a move above near term resistance of 1,790.63.

So far, this one month correction is indicating normal profit taking in a larger short term uptrend. Therefore, the uptrend is likely to continue unless proven otherwise. In this case that means that as long as the DFMGI stays above the lower uptrend line of the accompanying chart, the odds are good that buyers will come back in and move it higher.

Last week, support was found at 1,692.24, Wednesday's low. Keep an eye on this level for near term support along with the lower downtrend line of the channel.

The above analysis is based on the short term. When looking at the larger picture the DFMGI is still showing weakness as it is in a long term downtrend, below its 200 period exponential moving average (ema), an indicator of the long term trend, and the 200ema has turned down (bearish).

Abu Dhabi

Last week, the ADI declined 37.96 or 1.35 per cent to close at 2,777.12. Volume was light with declining issues beating advancing more than two to one at 27 and 11, respectively.

Further downside is likely to be seen in the ADI before strong support is found.

Over the past month and a half the ADI has formed a classic head and shoulders top reversal pattern (H&S) on its price chart and declined from that pattern last week.

Also, the ADI is now clearly below its 200 ema, which can be an area of price support. The H&S top reversal pattern occurs at markets tops and confirms a change in trend from up to down.

Analysis of this pattern also provides for a minimum price objective calculated as 2,700.55, meaning that the current drop is likely to reach that level before it's done.

However, this does not mean there won't be bounces on the way down and it also doesn't mean that the index will definitely drop to that level, just that it's likely to.

There is additional significance given to this price objective by the fact that it is in a price support zone of 2,705 to 2,684, identified on the accompanying chart with a horizontal line. Prices in this zone have been support or resistance a number of times in the past and therefore may be support in the current scenario.

As of now the ADI remains short term bearish unless it moves above near term resistance of 2,830.43, the high of last week.

Stocks to Watch

A number of issues in the UAE are showing weakness relative to the market indices and have been trending down or have broken lower from consolidation areas. Therefore, entries are difficult to determine other than for the more aggressive traders and investors. Several listings discussed below have not broken lower and could therefore move higher once they break out of their recent ranges particularly during a bounce of the larger market.

Dubai

Emirates NBD has been moving sideways for over a month. It looks it may have more consolidation to go before it will trend again. A move through Dh3.15 would be a sign of buyers getting more aggressive but there may be a slightly lower resistance level indicated that can be used as a signal that could be formed in the coming days and weeks.

Abu Dhabi

Agthia Group has held up pretty well recently consolidating near highs. No clear price levels are seen yet that can be used as a signal of strengthening. But, it deserves to be watch closely in the coming days and weeks.

Etisalat has been consolidating in a tight range over the past month while the ADI has been declining, indicating the relative strength of this listing. It's not clear which way it may go from here until near term support (Dh10.50) or resistance (Dh10.75) is broken.

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

Disclaimer: Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liability for the results of any action taken on the basis of the above information.