UAE markets hit resistance and pull back

Dubai: The Dubai Financial Market General Index (DFMGI) dropped 112.94 or 2.91 per cent last week to close at 3,774.00. This puts the index up 11 per cent for 2014. Volume was lower given the four-day trading week. Most issues were down, with 30 declining and five gaining.

Last week the DFMGI found resistance right near the psychological 4,000 whole number at 4,008.38, on Monday, with the index weakening thereafter. A pullback is normal at this point, especially when following a 34 per cent rally (recent swing low at 2,992.53 to last week’s high) over seven days. The retracement of the rally has been only about one-third so far, which is relatively mild.

If the index can hold above last week’s low of 3,661.94 then the pullback that started last week could be over and the DFMGI ready to continue higher in a second leg up. The first leg ended at last week’s high. At the same time a deeper short-term pullback lower would not be surprising and has a good chance of occurring.

A deeper pullback would provide a clearer retest of the recent 2,992.53 swing low from three weeks ago. The 61.2 per cent Fibonacci retracement of the rally is at 3,333.4, and a drop down to at least that price level would still fit within the parameters of a normal pullback within an uptrend.

At this point, an advance of a second leg up is not confirmed until the DFMGI gets above the most recent swing high of 4,008.4. The distance of the first leg up was 1,015.9 or 34 per cent. Once the current pullback has reached its final support level the target for the second leg up can be determined by adding the distance of the first leg to the pullback low. Assuming last week’s low is that low the target based on the price distance from leg one would be 4,677.8.

If instead the 61.8 per cent retracement is the low of the current pullback, the target would be 4,349.3. Each of those targets is within a potential resistance zone, derived from previous consolidation, that goes from 4,231 up to 4,728. A rally up to that price zone would also push the index up against resistance of the uptrend line, which was previously support. The DFMGI would need to see a daily close above the higher price level before turning the intermediate term outlook from bearish to bullish.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) ended near the prior week’s close, down only 7.62 or 0.17 per cent to close at 4,528.9. There were 17 advancing issues and 25 declining, while volume dropped below the prior two weeks, but remained healthy, coming in at the fourth highest level of the past six months. For 2014 the ADI advanced 5.6 per cent.

Early in the week the ADI rallied to 4,605.7, where it hit resistance that led to a mild pullback. The pullback could certainly continue as it’s only been several days so far, and the retracement is less than one-third of the recent advance off the corrective low of 3,876.4 from three weeks ago. A retracement to the 61.8 per cent Fibonacci level would see the ADI fall to 4,155. If the it drops below last week’s low of 4,416.5, the chance of a drop to at least 4,155 increases.

The next resistance zone above last week’s high starts around 4,688 and goes up to 5,004. That zone is derived from a previous consolidation phase that occurred during October and November of last year, and it lines up with potential resistance of the uptrend line.

Stocks to watch

Marka was up 0.04 or 5.6 per cent, ending the week at 1.32. It had advanced as much as 12 per cent in one day last Sunday, before finding resistance at 1.40 and pulling back.

On its first trading day in September Marka hit a high of 2.00. It then proceeded to drop as much as 49.5 per cent before finding support at 1.01 several weeks ago. As of last week’s 1.40 high the stock was up 38.6 per cent off that low, and it completed a minimum anticipated 38.2 per cent Fibonacci retracement at 1.39.

What makes Marka a stock to watch is that the 1.40 high put it at a 12-week daily closing high (above 1.36 consolidation zone). This provides the first sign that the stock may be getting ready to go higher, with a reversal of the downtrend looking more likely. Another daily close above 1.36 gives the next sign of strength, with confirmation on trade above 1.40.

Given that Marka has been trading for a short time there is not much price history to help determine where the key higher resistance levels might be. The only one clear on its chart is the 1.36 high. So instead, a combination of Fibonacci retracement and extension levels have been calculated, along with a simple ABCD harmonic pattern. In this case the potential resistance levels or targets are at 1.46 (127 per cent extension), 1.51 (50 per cent retracement), 1.56 (AB=CD leg), and 1.62 (61.8 per cent retracement).

If Marka drops below last week’s low of 1.17 the above potentially bullish scenario fails for the near future.

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