Dubai: The Dubai Financial Market General Index (DFMGI) fell by 40.32 or 1.61 to end at 2,469.49. That’s the sixth week out of seven that the index has closer lower. There were 12 advancing issues and 26 declining, while volume fell to a three-week low.
Once again the DFMGI ended at a lower weekly close after falling to a new trend low for the long-term downtrend. Last week’s close was the lowest weekly closing price since the first week of September 2013 and it is a notice for further weakness.
Four weeks ago the index triggered a continuation of its long-term downtrend as it fell below the prior long-term swing low support of 2,590.72 from January 2016, and closed below it on a weekly basis. Since then the DFMGI has continued to fall reaching as low as 2,429.12 last week. That’s a 55.1 per cent correction off the May 2014 peak.
Given the long-term bear trend signal, the DFMGI can be expected to continue to decline into lower support areas over the coming months. This doesn’t mean there won’t be tradable rallies, but they will be counter to the prevailing dominant downtrend, and therefore best left to experienced market participants.
The first potential support zone may have been reached last week as it’s derived from the monthly peak resistance (now possible support) from early-October 2009 at 2,408.90. Last week’s low was close so we’ll have to watch price action going this week to see if there are any signs of a short-term reversal. We can identify a price zone of potential resistance when adding prior swing lows from 2013 to the 2009 price level. By doing that we get a potential area of support from around 2,409 to 2,300, and if extended, down to 2,174.
Following that price zone there is a jump down to the next price area to watch for support, starting around 1,959 and going down to approximately 1,778. If reached, the lower price area would put the index 67 per cent below its 2014 high.
A decisive breakout above last week’s high of 2,511.22 will signal a shift in short-term sentiment towards a bullish outlook. If exceeded to the upside, then the next key level to watch is the most recent daily swing high of 2,603.38 (three-week high). That high would have to be broken and a daily close seen above it before there is an indication that the DFMGI could bounce higher.
The situation in Abu Dhabi hasn’t changed much in a week, with the Abu Dhabi Securities Exchange General Index (ADI) maintaining its position within a relatively narrow consolidation range. For the week the ADI was down by 28.39 or 0.58 per cent to close at 4,831.23. Market breadth included 12 advancing issues and 23 declining, while volume rose slightly above the prior week’s level.
A narrow range consolidation pattern has been forming in the ADI for more than four weeks. It follows a decline off the peak of 5,079.97 in November (four-year high). That fall put the index below a three-month consolidation range that occurred near the high of a multi-year uptrend that began off the January 2016 bottom.
As of last week, there are a couple characteristics of the four-week consolidation pattern that points to further weakness. The pattern now takes the form of a descending triangle trend continuation formation where the weekly highs show a series of lower highs, and the lows of the pattern are consistent around 4,762.60 support. This is considered a trend continuation pattern, and in this case for the bear trend that began off the November high. However, it must trigger a breakout and that hasn’t occurred yet.
This pattern is forming following a breakdown below previous multi-month support of 4,836.08. Failure of the trend to continue higher following an initial thrust into new trend highs is bearish, at least for the near-term. Even though the index has not fallen further following the initial drop, it also has not rallied by much. Consolidation continues to form up against resistance of the multi-month consolidation top, reflecting a lack of conviction from buyers of shares and little panic from sellers. This balance will likely change soon.
Stocks to watch
Last week a key reversal week candlestick formed in the stock of Al Salam Bank. It was the top performer in the Dubai market, rising 0.09 or 11.5 per cent to close at 0.836.
Price earlier in the week fell below the prior week’s low (and a new trend low) to reach 0.72. Nonetheless, support was seen at that low and buyers stepped in aggressively, enough to push the stock up above the prior two-week highs of 0.8010 and to close above it on a weekly basis. Further, the week ended strong, in the top quarter of the week’s range. In other words, we had a one-week reversal from the bears being in charge to the bulls taking over. Al Salam Bank is therefore likely to see more upside.
Weakness can be used to accumulate over time with last week’s low being the key support zone that must hold. As long as the stock stays above that low the odds favour follow-through to the upside.
Bruce Powers, CMT, is a technical analyst and global market strategist.