The Dubai Financial Market General Index (DFMGI) ended in positive territory last week, up 49.79 or 1.73 per cent to close at 2,931.59. This was only the first time in five weeks that the index ended higher and the third time in thirteen weeks. However, it is the strongest weekly performance since the first full trading week of the year at the beginning of January. Market breadth also turned positive last week with 21 advancing issues against 13 declining, while volume reached a 15-week high. Perhaps, this is a sign of what’s to come.
On a weekly basis, momentum as measured by the 14-week Relative Strength Index (RSI) oscillator is the most oversold since the January 2016 lows. This means that price has reached an extreme level on the downside and therefore could be getting close to reaching its maximum downside. By itself, not reliable, but we can now more aggressively watch for signs of strength to provide further indications that a bottom may be close at hand. Further, last week was the first time in thirteen weeks that the DFMGI did not break below the prior week’s low. This could be the early sign of a change in the pattern of lower weekly lows. Last week’s low was 2,878.51, while the two-week low and low for the current downtrend, was 2,870.07.
The next notable support zone appears to be around the 2,851.24 monthly support from December 2015 and the 78.6 per cent Fibonacci retracement level of the long-term uptrend at 2,836.30. So even if the two-week low is busted to the downside, the index shouldn’t fall much lower. The 78.6 ratio is the square root of 61.8, which is the inverse of the golden ratio of 1.618.
Market bottoms come in many forms, however, if we look at the behaviour of the DFMGI over the past four years since the 2014 peaks, most but not all bottom reversals have occurred relatively quickly, within a week or two. Possibly we will see similar behaviour again.
Next, watch for a daily close above last week’s high of 2,937.11 for an indication that strength is continuing to return, followed by a daily close above the two-week high of 2,985.33. The last key support zone around the prior two-year lows of 3,195 is now potential resistance of significance. That price area by itself provides plenty of upside for a decent bounce if it does come. At the same time there are lower potential resistance areas to watch, first around this month’s high of 3,051.93, then the 38.2 per cent Fibonacci zone at 3,127.09.
Last week the Abu Dhabi Securities Exchange General Index (ADI) dropped by 6.12 or 0.14 per cent to end at 4,431.71. There were 21 advancing issues and 14 declining while volume dipped to a 15-week low.
Overall, the ADI remains in a bullish intermediate-term posture in that it is above the long-term uptrend line and has not fallen below a higher swing low for the long-term uptrend price structure. That won’t happen unless there is a drop below the December swing low of 4,244.50
The ADI reached a new trend low of 4,414.00 as it dipped below the prior week’s low of 4,436.76, and closed weak, in the lower quarter of the week’s range and at a new weekly closing low for the four-week downtrend. Since hitting a peak of 4,721.62 five weeks ago the ADI has corrected as much 6.5 per cent. A 61.8 per cent Fibonacci retracement was completed last week at 4,426.26. That’s one reason last week’s low may hold for now and lead to at least a bounce if not a more significant recovery.
If the index keeps falling the next area to watch for possible support is around monthly support of 4,396 to 4,378. Otherwise, watch for a potential upside reversal on a move above last week’s high of 4,506.56. The two-week high of 4,591.38 then becomes the next target zone.
Stocks to watch
Volume spiked to an eighteen-month high in the Dubai Financial Market while price broke out above three-week highs to close at the high of the week. For the week the stock was up 5.65 per cent to close at 1.02. That’s right at the four and five-week highs. It may not take much to breach that price level and keep going higher. Note that Dubai Financial Market is showing relative strength compared to the DFMGI. This therefore could be bullish for the wider market.
Meanwhile, the 14-week RSI has turned back up above the 30.0 level after being well oversold, the most since November 2015. On a daily chart the 14-day RSI started trending higher almost a month ago.
A daily close above last week’s high confirms the bullish signs with Dubai Financial Market then quickly targeting the two-month high of 1.06, followed by 1.09.
The four-week low of 0.945 is key support. As long as this stock stays above that price zone it has a chance to continue to reverse higher. There is a long-term downtrend line drawn from the February 2017 peak. On a move above 1.03 the stock will be back above that line and thereby provide an additional bullish sign if it can stay above the line.
Bruce Powers, CMT, is a technical analyst and global market strategist.