Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 43.90 or 1.32 per cent to end at 3,286.54. There were 28 declining issues against nine advancing, while volume dipped to a 22-week low.
The DFMGI has remained under pressure for the past five weeks. Each week has ended lower than it started except for one, last week. Nevertheless, last week was up only by 0.14 per cent. Is it time for some relief?
Sorry to disappoint, but there’s no sign yet that the decline has ended. In addition, a new bear trend continuation signal was generated last week as the index fell below the prior swing low of 3,264.36 from June of last year. However, the signal was not confirmed just yet as there has not been a daily close below that low.
It is looking more and more like the DFMGI could test the 2016 lows before the current decline is complete. Several times in 2016 the index fell to the 3,230 to 3,195.49 price support zone and subsequently turned up. Until proven otherwise, we would assume that support would be seen again within that price zone if not higher. At the same time we need to be prepared for the possibility that support would be broken and the downtrend continues to below that support zone.
If this happens then the next area to watch for support is not too much lower, around 3,164.70. That is the 50 per cent retracement level of the full uptrend coming off the January 2016 bottom. Further down is the next potential support zone around the 61.8 per cent Fibonacci retracement at 3,029.24. When looking for support Fibonacci ratio analysis can be used to mathematically calculate potential support levels by using the prior uptrend to derive price levels.
On the upside, a move above last week’s high of 3,335.94 provides the first short-term bullish indication as it will be the first time in six weeks that the week’s range has exceeded the high of the prior week, a bullish sign. Further evidence of strength then occurs on a daily close above last week’s high, followed by a move above the two-week high of 3,357.88. The three-week high of 3,411.37 provides a third and higher target.
The Abu Dhabi Securities Exchange General Index (ADI) was flat last week, up only 2.18 or 0.05 per cent to close at 4,579.60. Market breadth leant on the bullish side by just a little, with 18 advancing issues and 14 declining, while volume reached a three-week low.
For much of the past four weeks the ADI has been looking like it’s going to head down but hasn’t. Other than a sharp one-day drop three weeks ago, that was followed by a rapid recovery; the index has not fallen far from the 4,651.11 high reached five weeks ago. As of last week’s 4,558.47 low it was down 2.0 per cent and had fallen 3.44 per cent from the high at the three week low of 4,595.86. This type of behaviour points to underlying buying pressure. Of course, anything can happen, but the odds for a longer consolidation phase are improving.
Last week’s 4,594.64 high and low will give clues to the next direction. While a move above the high is short-term bullish a drop below the low points to a continuation of the four-week bearish trend. There has been a series of weekly lower highs and lower lows for the past several weeks so a move above last week’s high would change that pattern. Potential minor resistance would then be close by around the two-week and three-week highs of 4,615.06 and 4,616.64, respectively.
If instead of moving higher the low of last week is broken to the downside the ADI would next target the four-week low around 4,595.86, which matches the 38.2 per cent Fibonacci retracement level (4,495.78). The 38.2 per cent retracement level is generally considered to be a minimum retracement of a prior trend that can be anticipated using Fibonacci ratio analysis.
Stocks to watch
Emaar Properties should be worth a watch over the next two to three weeks at least. The stock was the fourth strongest performer in Dubai last week, up 1.61 per cent to close at 6.33, and on strong volume. Volume reached the highest level in 10 weeks.
Emaar triggered a bearish trend continuation signal last week as it fell below the prior week’s low of 6.22 before finding support at 5.99 and rallying into Thursday’s close. That bounce brought the index back above the 6.22 weekly low. Daily volume during the bounce off the low last Wednesday and Thursday was strong, reaching 48 day highs.
Last week’s price behaviour has created a bullish weekly candle pattern and it occurred around support of the 61.8 per cent Fibonacci retracement price level of 6.02. The retracement is of the uptrend that started from the January 2016 lows. In addition, prior monthly support from 2015 and 2016 is in the same price zone.
If last week’s high is broken to the upside a bullish signal will be generated from a price area that could easily turn into long-term support.
Upon a breakout above last week’s high Emaar would next be targeting the most recent daily swing high around 7.06.
Bruce Powers, CMT, is a technical analyst and global market strategist.