Dubai: The Dubai Financial Market General Index (DFMGI) fell 46.89 or 1.33 per cent last week to close at 3,472.38, as it continued to retrace off the 3,561.91 peak from three weeks ago. There were 10 advancing issues and 26 declining, while volume dipped to a four-week low.
Support was seen around the week’s low of 3,430.15 on Wednesday, with the index firming on Thursday and subsequently exceeding Wednesday’s high and closing above it. Thursday had the first daily close above a prior day’s high in seven days. Volume was also strong on Thursday, reaching a 10-day high.
In addition, although not an exact hit, last week’s low essentially completed a 38.2 per cent Fibonacci retracement of the rally that began off the June swing low. The 38.2 per cent retracement is at 3,425.61, which is close enough given the bullish reaction seen on Thursday. Together, this behaviour is short-term bullish and is the first sign that the current retracement might have reached a bottom. However, there is no way to no for sure until we see further strength. In general, a 38.2 per cent retracement is the minimum retracement of a prior trend that would be anticipated before a market continues to advance, if it is to do so.
If last week’s low does not hold, lower price areas to watch for support include the 200-day exponential moving average (EMA), which is now at 3,397.84, followed by a price zone of 3,378 to approximately 3,351. That price zone was the top resistance area of a two-month consolidation pattern that ended four weeks ago when the DFMGI broke out of the pattern. As typically happens in markets, prior resistance can become support and vice versa.
A decline to that lower price zone would also put the index in the area of support of the uptrend line drawn from the 2016 low in January. This further increases significance of that support zone as the DFMGI stands a better chance of triggering a continuation of the seven-month uptrend if it stays above the line.
A bullish continuation of that trend will only occur on a rally above, and subsequent daily close above, the 2016 high of 3,604.70. Before that the DFMGI needs to exceed the three-week high of 3,561.91. The chance of that occuring starts to increase on an advance above last week’s high of 3,519.27.
A breakout above the 2016 high would be significant as it would be an important milestone in the bullish development of the seven-month uptrend and completion of the multi-year downtrend that followed the top in 2014. Although there are a number of bullish signs that the 2016 high might be exceeded, including a move above the long-term downtrend line four weeks for the second time, the possibility exists that the three-week peak and 2016 high will continue as resistance and hold a further advance for now.
The Abu Dhabi Securities Exchange General Index (ADI) dropped by 67.02 or 1.46 per cent last week to end at 4,526.56, its weakest performance in 11 weeks. Most issues fell, with 25 declining and only five advancing, while volume weakened to a four-week low.
The ADI fell to a five-week low of 4,486.04 on Thursday, which was at support of the 55-day EMA (4,487.37), and subsequently bounced to exceed the prior day’s high. For the prior four weeks or so the index has been able to stay above its long-term downtrend line, but has now fallen back below it. This indicates that, so far, resistance is being seen around the line. Given the characteristics of last week’s fall, where most of the decline occurred on Tuesday, the ADI’s behaviour around the trend line, and that there is a three-week consolidation wedge of potential resistance above last week’s close, selling pressure could dominate a while longer. Potential support area include 4,446 to 4,425, followed by 4,390.
The two-week high of 4,621.50 would need to be broken to the upside for the next bullish signal, followed by a rally above the 2016 high of 4,637.24. A move above the 2016 high is significant as it triggers a continuation of the seven-month bull trend, and puts the ADI clearly above the long-term downtrend line.
Stocks to watch
Takaful Emarat was the second best performer in Dubai last week, rising 2.04 per cent to close at 3.00. The stock has so far been forming a bullish flag pattern the past couple of weeks during a pullback from an eight-year high of 3.59 hit three weeks ago. That high ended a 78.6 per cent advance in one-week. The flag pattern could evolve into a different pattern but regardless Takaful deserves to be watched given the strength seen late-last month.
Aldar Properties may be close to completing a retracement following a breakout of a symmetrical triangle consolidation pattern three weeks ago that led to a new 2016 high of 2.99. Support was seen at 2.73 last week, right around the 55-day EMA and near the top descending line of the triangle. Aldar ended the week down 3.13 per cent to 2.79. It remains well above both its 200-day EMA and long-term downtrend line, after moving above each in mid-February.
Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.