Realty merger sparks selloff in UAE

Dubai: Keep a closer eye on the US markets this week as possible reversal patterns are developing on a couple of major indices and strong selling was seen on Thursday, the last trading day before a long holiday weekend.

Problems with cash in California - the tenth largest economy in the world - and unemployment levels rising nationwide, along with many other concerns, could impact sentiment worldwide, including the GCC.

The Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) sold off early in the week on Sunday in reaction to the consolidation proposal by Emaar and several Dubai Holding real estate development companies, and spent the rest of the week in reaction with buyers trickling in.

After the selloff on Sunday in reaction to the news on Emaar's proposed consolidation with Dubai Holding companies, the DFMGI found support on Tuesday at 1,712.06 and had a bounce from there during the remainder of the week on low volume.

Regardless, the DFMGI was unable to close above the previous week's close and was down 23.84, or 2.0 per cent for the week, to close at 1,821.19. Advancing issues were almost equal to declining, at 12 and 13, respectively.

Unlike the ADI, the DFMGI is still above its uptrend line with short-term support now at last week's low of 1,712.06. Below that, the next level of support is the uptrend line.

The index is still below its 100 period exponential moving average (lower curved line in accompanying chart) medium-term trend indicator which can also be seen as possible resistance, now around 1,870. After that, resistance could be found at the 1,919 price zone.

The upper curved line in the accompanying chart is the 200 period exponential moving average, which is a long-term trend indicator. It is still pointing down. Good for knowing the larger picture, but shouldn't make much difference for the coming week since the market is still well below it.

Aramex the biggest mover of the week, up Dh0.32, or 29.4 per cent, on big volume. The company announced expansion of the percentage of shares allowed to be owned by foreigners, now up to 49 per cent. The stock broke out from its base very strongly on Wednesday. However, it closed the week with a bearish tone on Thursday.

Shuaa Capital, the second largest gainer, closed up Dh0.16, or 10.9 per cent, for the week to close at Dh1.64. Most of the week the trend was down and further choppiness wouldn't be surprising in the short term. Al Salam Bank Sudan found support at Dh2.30, its uptrend line, and held that level for the week closing higher by Dh0.18, or 7.2 per cent, to close at Dh2.67.

For a second week, the ADI closed below its uptrend line after spending much of the week rallying off the bottom at 2,554.92, but on low volume. The index did however close above last week's close. The ADI was up 43.74, or 1.7 per cent to close at 2,671.29 with advancing issues beating declining issues, 24 to 18, respectively.

The next resistance level is at 2,705.02, the high in April 2009. If the ADI breaks through that level then it would have also broken through its uptrend line, which can also be seen as short-term resistance.

If the ADI stays below the area of 2,705, the odds of a further move down increases with the low of last week, 2,554.92, being short-term support.

The biggest gainer, Abu Dhabi National Hotels, closed strong for the week at a high not seen since October 2008. However, this stock trades with relatively low volume. Abu Dhabi Aviation Co continued its uptrend and improved Dh0.39, or 14.4 per cent, to close at Dh3.10.

DFM: Islamic Arab Insurance held up pretty well last week after finding support at Dh1.04 and bouncing from there. Although it could get choppy initially, it very well could setup for further moves this week. Takaful House also held up pretty well, finding support on Sunday at Dh2.08, a normal retracement of approximately 50 per cent of its uptrend. It's seen a bit of consolidation since then but if it can get through short-term resistance around Dh2.38, it could see a continuation move to the upside.

A bit more aggressive profit-taking can be seen in TAKAFULEM having pulled all the way back to its support area of Dh1.48-Dh1.49, finding support at Dh1.48 early last week. It bounced nicely off that bottom but needs to settle down a bit before a safe entry can be found.

Similar behaviour can also be found in Dubai Financial Market Co, having pulled back to its previous long support area and finding support at Dh1.45 early in the week. It then bounced nicely and, once it settles down a bit, could be continuing on its uptrend.

Arabtec Holding broke its uptrend line support level and is now hovering around it. Watch for a move above Dh2.82 as a strengthening signal. National Central Cooling came down and held its uptrend line and support level around Dh0.81 and is sitting there. It has had minor consolidation since but if it holds low of last week at Dh0.81, could see moves higher.

Emaar Properties has pulled back to a support zone but it is unclear what happens next.

Union Properties also pulled back to support zone but looks a little more stable. If it can hold the low of last week, Dh0.85, then it could see a move up. It's now sitting near support of its uptrend line.

ADX: One of the strongest stocks in the UAE technically, First Gulf Bank held up very well last week having maintained a solid uptrend with a good rally off the bottom. Keep an eye on it for the next setup for a buying opportunity once it settles down a bit.

Although Methaq Takaful Insurance broke down from its bullish consolidation pattern earlier in the week it quickly recovered and remains a stock to watch closely for a good entry level.

Emirates Telecommunications is sitting near strong support around Dh10.00. If it can move through last week's high of Dh10.20, it would be seen as a bullish sign.

- The writer is Senior Vice-President of Arab Capital Markets Resource Centre, in Dubai.

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.