UAE markets: Frustration in Dubai, while Abu Dhabi is optimistic

Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 34.05 or 1.20 per cent to end at 2,791.71. Market breadth was skewed towards the downside, with 23 declining issues and 16 advancing, while volume exceeded the prior week and was the third highest of the past 13 weeks.

There has been no clear bullish reversal signal yet and the index remains in a long-term downtrend. Last week’s high of 2,854.49 was an attempt to break above the most recent swing high of 2,853.76, which would have been the next short-term bullish signal, but the DFMGI failed to maintain the advance. Instead it sold off after hitting the high and ended weak, in the lower quarter of the week’s range.

Nevertheless, the past three weeks have created a series of higher weekly highs and higher weekly lows. This short-term bullish pattern can be used to tell us when the index is getting stronger or weaker, which could then lead to further moves in the respective direction.

A drop below last week’s low of 2,776.21 indicates a change in the pattern of the two-week advance and sets up the index for further weakness or sideways consolidation. If triggered the two-week low of 2,744.61 can then be watched for support followed by the three-week low of 2,727.83. That lower price level is the lowest price hit by the DFMGI since January 2016.

Last week’s short-term move above the most recent swing high and subsequent failure is why a daily close above or below a key price level for confirmation of a direction is more reliable as to whether a continuation in the respective direction will likely occur. Therefore, a daily close above last week’s high provides a bullish continuation of the two-week uptrend and confidence that the swing high has been cleared to the upside. At that point the DFMGI will next target the higher and more significant swing high resistance of 2,986.36.

An important target will be obtained if the index can close above the 2,986.36 as that will be the first true bullish reversal signal as it will violate the core structure of the downtrend’s series of lower swing highs and lower swing lows.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by 59.20 or 1.20 per cent last week to close at 5,007.12. That’s the highest weekly close since October 2014. There were 18 advancing issues and 14 declining, while volume reached an 18 week high.

High volume could be telling in this case as it is occurring within a six week consolidation pattern at the top of a bullish trend. A notable increase in relative volume inside consolidation can sometimes be a leading indicator for a coming breakout of consolidation. In this case a breakout is triggered on a decisive move above the trend high of 5,039.83.

The current long-term uptrend began off the January 2016 bottom. It has advanced as much as 35.06 per cent so far as of the most recent trend high. By looking at the price structure of the advance we can calculate a measured move to assist in determining the next major resistance area and target. Price by itself provides a target around the 2014 swing highs of 5,241 to 5,255.

A measured move looks at the price appreciation of the first leg up of the uptrend off the 2016 low, and then measures that price advance from the most recent significant swing low to find a potential target. The target is where the appreciation of the second leg up matches the first leg up. For our purposes we assume that the end of the first leg up is the 2017 peak of 4,714 and the start of the second leg up is at the 4,244.50 swing low from December 2017. After running the calculation, the measured move target is identified as 5,236.53, almost a perfect match with the 2014 high. We can assume then that a new trend breakout should at least reach the measured move to 2014 high targets at a minimum.

For support, last week’s low of 4,929.74 is important, followed by the bottom of the current consolidation around 4,859.21.

Stocks to watch

Is it possible that the devastating performance seen in Drake & Scull International over the past several years could be coming to an end? Not necessarily right away, but there are a developments that puts this stock on the watch list.

Drake & Scull is the worst performer in the Dubai market on several time frames, year-to-date, one-year, and three years. The stock was down 81.86 per cent, 76.02 per cent, and 84.47 per cent during those time frames, respectively. Last week it was top in Dubai, up 0.05 or 14.8 per cent to close at 0.41.

In addition to the strong performance, the week ended above the high of the prior week. This is a change in the weekly pattern of the past 20 weeks and it could be the beginning of further change. Also, although not a signal by itself, there is a bullish divergence in 14-day Relative Strength Index (RSI) momentum oscillator. There’s no pattern or set-up yet that can be used to justify getting involved but the stock deserves to be watched.

Bruce Powers, CMT, is a technical analyst and global market strategist.