Gulf markets follow global trend

The UAE stock markets continued their descend last week as lower than expected earnings, concerns about the recovery overall, and corrections in international markets weighed on investor's minds.

Declines in the UAE exchanges accelerated last Thursday as international markets continued their descend. Major indices in the US, Asia and Europe are starting to break through long term trend support levels indicating that a more aggressive decline may be in the works than seen for awhile.

Support of the major trend lines are still further down on both the Dubai Financial Market General Index (DFMGI) and the Abu Dhabi Securities Exchange General Index (ADI). Many listed companies have already shown greater weakness than the market indices as they have moved down sharply through important price support levels.

Although the DFMGI and ADI may eventually fall through their trend lines, seen in the accompanying charts, the odds are good that at least initially support will be found there and a bounce will follow. The correction has now been in place for two weeks but is so far "normal" with the larger uptrend still in place.

As mentioned a couple of weeks ago in this column both the DFMGI and ADI had accelerated upwards at a rate that was not likely sustainable in the short term. Now the question is where might the markets stop going down and find investor support.

Dubai

So far the DFMGI has corrected 8.9 per cent from its recent high reached a couple weeks ago.

For the week, the DFMGI dropped 46.51 or 2.07 per cent, to close at 2,197.52, but with no obvious increase in volume. Although there could be a small bounce first, the DFMGI should find investor support in the area of its lower trend line and the 38.2 per cent Fibonacci retracement level, which is at 2,106.81 (4.1 per cent lower than last week's close). Weakness was seen throughout the market as the number of declining issues, 28, was over four times the seven advancing issues.

It's possible a short term bounce could be seen early in the coming week as the low on last Thursday was close to the highs (resistance) reached mid-June and late September. Many times previous price resistance levels will turn into price support levels and vice versa

Abu Dhabi

The ADI has now dropped 7.8 per cent from the high made two weeks ago. It closed at 3,023.1 last Thursday, near the low of the week, declining 96.46 or 3.09 per cent. Volume was not much different from the previous week which may be indicating the decline is not seeing strong selling as much as buyers just stepping away. Declining issues at 32 were only two times advancing of 16 indicating the selling was not as widespread as seen in Dubai.

Having fallen from its upper trend the ADI is heading towards its lower trend line. Also, in the same area is the 50 per cent Fibonacci retracement level at 2,912.42 (3.7 per cent from last week's close). Watch both the 2,912.42 and the lower trend line for support to be found.

A more minor support level might be seen at the higher price area of 2,968, where resistance was found in mid-June. A short term bounce is possible there.

It's very risky trying to buy stocks when the market is still falling and best to prepare and be patient for when an opportunity becomes more obvious.

On a technical basis Du has held the strongest out of all the listings in Dubai. However, by last Thursday a bearish one day formation had occurred indicating that it is not likely to go higher in the immediate period and has a high probability of seeing profit taking.

Takaful House broke down from a symmetrical triangle formation a couple of weeks ago and continues to fall closing near its upward trend line. If it breaks through there then based on its chart it wouldn't be surprising to eventually see it drop to the bottom of the formation near Dh1.86-Dh1.89.

Al Khazna Insurance has held up pretty well in the downturn with price still inside a small rectangle consolidation pattern. If it drops through the Dh1.18 support level the odds increase it will head further down. A move through the top resistance at Dh1.33 would be a sign it is breaking higher.

Union National Bank has held up well also. If it can get through Dh4 then a sign of continued strengthening would be indicated.

Abu Dhabi Aviation has been slowly trending down for the past several months with no signs yet of going higher. But, there is a clear downward trend line now identified to help see when buyers might be returning. A move past Dh2.95 would signal a break up through the trend line and a break through minor resistance. Otherwise, the trend is still down.

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

Disclaimer: Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liability for the results of any action taken on the basis of the above information.