Bearish global markets leave UAE investors indecisive

Many global equity markets along with crude, gold, copper and bonds took a turn for the worst last week as these markets sold off strong. There is a chance that UAE shares may follow global market weaker. UAE investors will now be on high alert as these markets are within resistance zones and there are signs they’ve gone too far too fast.

Dubai

The Dubai Financial Market General Index (DFMGI) dropped by 38.99 or 1.62 per cent last week to close at 2,360.59. Volume declined to the lowest level in eight weeks while market breadth was bearish with 20 declining and only eight advancing issues.

To date the DFMGI has seen a downside correction of 7.1 per cent off the recent high of 2,500.56. This follows a 37.4 per cent rally from the most recent swing low of 1,819.46, which is where the index found support at the beginning of April, and a maximum gain of 55.2 per cent in 2013. Dubai remains one of the top performing equity markets globally so far this year.

The index continues to show signs of indecision as it hovers near the top of the uptrend. It remains vulnerable to a further correction, which could take the form of a relatively sideways choppy period or a drop to lower prices. There has been no confirmation of the short-term downtrend continuing on the weekly chart as of yet.

A drop below 2,323.50 would indicate a continuation of that downtrend with the index then targeting weekly support around 2,265.81, followed by 2,037.92. The lower level would complete a 38.2 per cent Fibonacci retracement of the uptrend begun from the December 2012 swing low. It has a good chance of being reached if further weakening is seen. More significant support then starts around 1,959.

On the upside a daily close above last week’s high of 2,408.27 would signal short-term strengthening. A decisive rally above the 2,500.56 peak would be needed as a sign that the uptrend is continuing.

Abu Dhabi

The technical picture for the Abu Dhabi Securities Exchange General Index (ADI) in the short-term is stronger than the DFMGI as last week’s high of 3,678.08 surpassed the prior peak of 3,672.61. But the ADI was unable to maintain its upward momentum and closed below the prior peak and lower for the week. Last week the ADI declined by 29.03 or 0.79 per cent to close at 3,632.36. Volume fell to the lowest level of the past two months while declining issues at 28 beat advancing of 16.

Near-term weekly support is at last week’s low of 3,612, and is followed by weekly support around 3,531.56. A decline below the lower level increases the odds for a deeper correction. The ADI would then target a support zone around 3,415.67. However, given the degree of the prior advance (up 25.3 per cent from the March low and a maximum of 40.1 per cent for the year), if further weakening is indicated there is a good chance the ADI would eventually fall to at least the 38.2 per cent Fibonacci retracement zone around 3,259.60.

A decisive rally above last week’s high, and a daily close above, would be needed for signs of strength that might indicate the ADI a chance to move higher in the near-term. The index remains within a potentially significant resistance zone from approximately 3,626 to 3,723 with a daily close above the top of the zone needed for confirmation of strength.

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