Downtrend expected to reverse

Dubai: Last week, the Dubai Financial Market General Index (DFMGI) bounced by 4.09 or 0.28 per cent to close at 1,479.67. Market breadth was somewhat on the bullish side with 17 advancing and 10 declining issues.

Volume, which has been steadily declining since the early-March high, fell again below the prior week, reaching its lowest level since before the January rally. This is considered to be a bit of a bullish divergence as volume has gone down as price goes down. If the current decline is to accelerate to the downside, you would expect to see an increase in volume.

The DFMGI is very oversold, reaching indicator levels only seen three other times over the past three years. This type of oversold condition has led to decent rallies two out of the three previous times during this period. In addition, a Doji candlestick pattern has formed on the weekly chart of the DFMGI. This is a one period candlestick pattern where the closing price is at or close to the opening price. Many times it can be found at a top or bottom of a trend and signifies indecision between the bulls and bears. Prior to this candle forming, the bears had been in charge as the market has declined for six-weeks. It's a sign of a possible trend reversal. A decisive move above the weekly high of 1,505.75 would give the first bullish confirmation.

The DFMGI then targets weekly resistance around 1,515.02, followed by 1,582.09. A move above the higher level will see the index then target the bottom resistance area of the small symmetrical triangle consolidation pattern which formed near the recent rally highs. Previous support from that pattern is at 1,617.30, which could now see some resistance if the DFMGI gets up to that price area.

Support around the 61.8 per cent Fibonacci trend retracement level continues to hold, with a low of 1,455.74 being the price level to watch. A break below there gives another bearish continuation signal. However, downside momentum has clearly diminished so a further drop without a higher bounce first may not go too much lower. Lower potential support levels include 1,429.55, 1,413.76, and 1,397.71, which is where either support or resistance was found in the past.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) declined by only 3.17 or 0.13 per cent last week to close at 2,464.68. Volume picked up reaching its highest level in almost 10 weeks. But, since prices did not decline much, rather than supporting a bearish scenario, the higher volume may be an indication that the ADI has reached a support level that could hold and lead to at least a short-term rally. Supportive of that assumption is the slightly positive market breadth. There were 21 advancing issues versus 15 declining.

We'll have to wait and see how the ADI performs relative to near-term support and resistance levels to give us an indication whether a bounce is coming or further declines. Last week, the ADI completed a 50 per cent retracement (2,468) of the uptrend off the January low. Last week the index held that support area.

Weekly resistance is at 2,476.04 with a break above that price giving the first bullish signal. Then the ADI needs to show additional strength by getting above 2,480.81, followed by 2,501.02. The downtrend remains in place until the ADI closes above 2,520.62.

Last week's low of 2,461.50 is near-term support. A decisive move below that level signals weakening and increases the odds the ADI will reach the next support level of significance. Decisive means that downside momentum picks up below that price and the daily close is below it.

The next lower target would be around the 2,427 price zone, which includes the 61.8 per cent Fibonacci retracement level and the target for the double top trend reversal pattern formed during the first couple of weeks in March.

Two rally highs occurred in early-March, the first on March 5, and the second on March 15. Together these two rallies created a price pattern referred to as a double top. This is a trend reversal pattern which followed-through to the downside as might be expected. After the second rally the ADI began a 10-week slide lower. If the 2,427 support area is busted then next watch for support around 2,417 to 2,412.50.

Stocks to watch

The charts of many listings continue Hits Tele-com declined to support of its 200 daily exponential moving average (ema) last week. The 200ema is a measure of the long-term trend. This stock is one of the few currently trading above their 200ema, a sign of relative strength.

Also, Ras Al Khaimah Cement has been holding support of its 200ema for the past seven weeks. In addition a bullish symmetrical triangle trend continuation price pattern has formed over the past 12 weeks.

A bullish breakout is signalled on a daily close above Dh0.77. Alternatively, a bearish decline becomes more likely below Dh0.71.

Air Arabia has gotten very oversold and has been consolidating in a tight range after a sharp decline for the past month. A move through the top of the range, above Dh0.61, could lead to a bounce. Keep in mind, though, that this stock is technically week in the bigger picture.

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

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