Last week the Dubai Financial Market General Index (DFMGI) fell by 50.89 or 1.51 per cent to close at 3,327.13. Most issues were down for the week as there were 23 declining and 13 advancing, while volume hit a three-week high.
The index has been under clear downward pressure for the past seven weeks, with the best week during that time up only .09 per cent. Last week’s negative performance was the worst in a month and puts the index at the lowest weekly closing price since mid-November — and at a new low for the fifteen-week downtrend. Downward momentum increased as the week’s low of 3,309.36 took a decisive drop below the prior week’s low, creating the biggest difference in the relationship between weekly lows of one week to the next in at least five weeks. As of last week’s low the DFMGI had fallen 11.5 per cent off the 2017 peak of 3,738.69.
Support might continue to be seen around last week’s low as the price depreciation of 11.5 per cent is between the two most recent corrections that have occurred since the DFMGI bottomed in January 2016. Those corrections completed down 11.3 per cent and 11.8 per cent. The current correction matches those declines at 3,318 and 3,298, respectively. Therefore, last week’s low is within this potential support zone.
If the index does reverse from this price support zone it will reflect symmetry between recent bearish price swings within the index. It’s not uncommon to see similarity between some price swings within a market. This doesn’t mean support will hold in that price zone, just that it could.
The next lower potential support zone would be around 3,269.7. At that point a declining measured move or ABCD pattern would complete. Again, it represents this idea of symmetry within price swings. The assumption being that there is a good chance that the second swing or leg down off the 2017 high may approximately match the price depreciation of the first leg down. After the first steady decline off the 2017 high the index retraced up for a week before hitting a swing high (3,573.25) and then turning back down again. Where it turned back down is the beginning of the second leg down.
The more critical support zone is around the lows of the consolidation range that has been developing in the DFMGI for the past thirteen months or so. That’s around 3,197.32 to 3,195.49.
On the upside, a rally above last week’s high of 3,407.42 gives the first sign of strength. But since it’s so close to the three-week high of 3,421.52, a breakout above the higher price level will be more convincing.
The Abu Dhabi Securities Exchange General Index (ADI) dropped by 64.46 or 1.41 per cent last week to end at 4,516.84, its poorest performance in six weeks. Bearish moves ruled almost across the board as there were 32 declining issues and only three advancing. Volume increased just slightly above the prior week and remained near seven-month lows.
Support was found last week at 4,484.40, right near the six-week low of 4,481.55 and the long-term uptrend line (starting from the January 2016 lows). Support represented by the trend line combined with prior weekly lows around 4,436, creates a potential support zone. If there is a daily close below the lower price level then that will also be a daily close below the uptrend line, which by itself is bearish. However, what happens after that will be more telling.
Until then a further bounce off last week’s low can be anticipated, at least up to the downtrend line. The downtrend line descends from the 2017 peak at 4,715.05. Which price is represented by the line will depend on when it is approached as it is at an angle. We know for sure it is below the most recent swing high of 4,627.77, and it looks to be around 4,616 or lower.
The more important support area is around the most recent swing low of 4,355.26. That low defines the price structure of the long-term uptrend. If the ADI closes below it on a daily basis the integrity of the current version of the uptrend is violated and therefore it is put at risk of eventual failure or reversal. Certainly, any remaining underlying upward momentum would be questioned.
Stocks to watch
Gulf Navigation broke out of a bullish head and shoulders bottom trend reversal pattern on Monday as it rallied above 1.45. Resistance was subsequently seen at 1.55, the high for the week. For the week Gulf Navigation was the second best performer in Dubai, up 6.43 per cent to close at 1.49.
The head and shoulders pattern formed around support of the 55-week exponential moving average (ema) over the past nine week. Based on its height the estimated minimum upside target is 1.66.
Following the 1.55 peak last week the stock started to pull back and it could continue to do so thereby presenting possibilities for entry at lower prices. Support of the 55-day ema is now at 1.44.
The bullish potential of the pattern remains intact unless there is a fall below the right shoulder of the pattern, which is at 1.32.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.