UAE equities to battle uncertainty

Dubai : Will declines across the board in world equity markets and commodities be the trigger to set off more selling in the UAE, or will the announcement of new oil found in Dubai help save the day? We should know fairly quickly once the market opens today.

Uncertainty continues to prevail as investors look for further details on the Dubai World restructuring and additional year-end earnings reports.

Meanwhile, world markets once again fall with momentum seemingly spooked by sovereign debt concerns.

This worldwide bearish sentiment is likely to continue to weigh on the performance of both the Dubai Financial Market General Index (DFMGI) and the Abu Dhabi Securities Exchange General Index (ADI).

Dubai

The DFMGI bounced last week coming off a three week decline, improving 63.78, or 3.99 per cent to close at 1,663.21. Volume levels were relatively low with advancing issues twice declining at 21 to 10, respectively.

It closed the week sitting right up against the lower downtrend line resistance. If the DFMGI climbs above the high of the previous week, 1,673.78, the chances improve that it will go further. At that point it will have also broken through the lower trend line (see accompanying chart).

A more important resistance zone is from 1,758 to 1,765. This zone is identified by the market as support and resistance in the past, is a 50 per cent retracement of the downtrend started in mid-December (common resistance level in a trend retracement), and is near the higher downtrend line (resistance).

The next important resistance level to watch after that is 1,877.37, which will be relatively close to the larger uptrend line (resistance).

So far the DFMGI is in a reaction rally in a larger downtrend. All indications still point for a further decline in the medium term.

Until the index can get above 1,877.37 and stay above it, the downtrend is still in place. In the short term, today's action will likely define the direction for the week.

Near-term support is at 1,642.82, Thursday's low. A move through that level is the first sign the market may continue to head down in the near term. Important support is at 1,540.27, followed by 1,461.75.

If the DFMGI breaks the 1,540 level then the odds increase significantly it will move through the 1,461 level, thereby increasing the chances it will break through the low set a year ago.

Abu Dhabi

Last week the ADI was down 77.27 or 2.94 per cent over the previous week closing at 2,705.44. Volume was lower than each of the previous three weeks of down moves.

A sign of strength would be the opposite, higher volume on the up weeks rather than the down weeks. Advancing issues beat declining by three to one, at 30 and 10, respectively.

The ADI also closed up against its downtrend line resistance. The first sign of strengthening and a continuation of the bounce from last week would be a move through Wednesday's high of 2,723.96.

More important resistance after that is at 2,785.59 followed by 2,907.55.

Near term support is at 2,703, Thursday's low.

A move through that level is the first sign that the market is heading back down. The next support level after that and a more important level is 2,586.22.

If the index moves through that level then the low from the sell-off in December at 2,429.97 becomes a likely target and also the likelihood it will head lower in the medium term increases.

Stocks to Watch

Once again the UAE markets are in a precarious position. Even if there is a continuation of the upward move it will not likely last long. Keep that possibility in mind when looking to enter or exit. Continue to be cautious and protect capital rather than looking for big winners.

DFM

Al Salam Bank-Bahrain has been consolidating in a symmetrical triangle for the past couple months. A move out of the pattern should happen this week. Resistance is at Dh0.93 and support at Dh0.87.

Aramex is sitting right at resistance of Dh1.68 and has been forming a sideways consolidation pattern for almost two months. It's in a relatively strong position on its chart than many listings. Watch for a break through Dh1.68 for a signal of strengthening.

ADX

Abu Dhabi Commercial Bank had quite a rally over the past couple weeks from a low of Dh1.24 to a high of Dh1.86, or 50 per cent.

It's now showing signs of retracing to the downside.

Abu Dhabi National Energy Company continues to form a bearish descending triangle consolidation pattern.

If it breaks through Dh1.16 then the odds of going below recent lows greatly increases.

A move through resistance at Dh1.25 is a sign of strengthening and opens the possibility it will move higher.

 Bruce Powers is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etftrends.net

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.