The pull back in UAE markets is showing signs of completion

Dubai: Last week the Dubai Financial Market General Index (DFMGI) declined by 99.71 or 2.64 per cent to close at 3,674.29. Volume improved slightly over the prior week’s trading, although that was a shortened week given the holiday, while market breadth was mixed, with 12 advancing issues and 22 declining. So far, the decline off the most recent swing high of 4,008.38 has been 16.2 per cent.

Although last week’s low exceeded the low from three weeks ago, by the end of the week strength came back into the market, with the index closing in the top half of the week’s high to low range. Support was found at 3,357.96, which is now the key level to watch on the downside. Also, the index completed a 61.8 per cent Fibonacci retracement of the most recent rally at 3,380.58. Together, these two factors increase the odds that the pull back is done for now and the DFMGI is getting ready to proceed higher, continuing the rally that began in mid-December 2014.

The December 2014 low was 2,992.53, and there’s only been one leg up since then. Last week should be the beginning of the second leg higher, as long as there is not a drop below last week’s low. If correct, then the first resistance area to contend with is around the most recent swing high of 4,008.38.

A move above that price level will confirm a continuation of the short-term uptrend. The index would then be heading into a potential resistance zone starting from around 4,231 and up to 4,728. Other price areas to watch are 4,064.40, the 55-day exponential moving average (ema), 4,291.57, the 21-day ema, and 4,373.8, the completion of an ABCD pattern or measured move. The measured move target is where the second leg up in the short-term uptrend matches the price appreciation of the first leg up, reflecting symmetry in price swings.

If there is a drop below last week’s low, then first watch for support around 3,143.36, the 200-week ema, and then 2,992.53, support that ended a 44.7 per cent correction in mid-December 2013.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell 50.17 or 1.11 per cent last week to close at 4,478.76. Volume declined to a five week low, while a majority of issues declined. There were 17 advancing stocks and 22 declining.

Support was found at 4,295.57 last week, with the index rallying from there and closing in the top quarter of the week’s range, a short-term bullish sign. At that bottom, the ADI had corrected 6.7 per cent from the most recent peak of 4,605.72 reached two weeks ago, and had retraced 43 per cent of the most recent rally that occurred off the mid-January swing low of 3,876.44.

The next bullish sign will be when the ADI exceeds the 4,605.72 peak, thereby confirming a completion of the current pull back. If that occurs then next watch for resistance in a range from approximately 4,688 to 5,004. Those price levels mark the low and high range of a six-week consolidation phase that occurred during October and November of last year. In addition, also keep an eye on the 55-day ema, which now at 4,635.55, and the 200-day ema which is at 4,734. Each is an area which could see some resistance.

If the ADI continues to weaken, and drops below last week’s low, then support could be seen first around 4,241.1, the 50 per cent retracement of the most recent rally, and then around 4,155.1, the 61.8 per cent Fibonacci retracement level of the same uptrend.

Stocks to watch

Emirates Integrated Telecommunications (du) has been forming a potentially bullish flag pattern for the past several weeks, and has been pushing up against resistance of it 55-day ema (now at 5.11) during that time. Therefore, a decisive breakout of the flag will also trigger a bullish breakout above that moving average.

This flag pattern is considered bullish as it formed subsequent to a 32.4 per cent rally that ended three weeks ago at 5.24, also referred to as the pole portion of a flag pattern. That peak is the top price of the flag.

A flag pattern is a downward sloping consolidation pattern that forms after a decisive rally, it has relatively low volatility, and can be contained by two descending parallel lines. Last week Du fell briefly below the bottom support of the flag, but quickly recovered to close near the high of the day. This shows that the buyers remained in charge.

A bullish breakout occurs above 5.24 and is confirmed on a daily close above that price level. However, a more aggressive signal for a breakout first occurs above 5.15, then again above 5.20. Last week Du was essentially flat, falling by only 0.02 or 0.14 per cent to close at 5.02.

It’s not clear that the flag consolidation phase is complete until there is an upside breakout. Until then Du could consolidate further. If last week’s low of 4.70 is exceeded, the odds for a failure of the flag is likely.

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