Dubai: The Dubai Financial Market General Index (DFMGI) fell hard again last week, dropping by 107.17 or 3.66 per cent to close at 2,821.00. Volume spiked to a 24-week high as the index reached a new trend low and closed weak, in the lower quarter of the week’s range. There were only six advancing issues against 35 declining.
Last week’s close was the lowest weekly close since the lowest week of the bear market that bottomed in January 2016. Arguably, last week’s performance puts the index within striking distance of that low and increases the risk that it could be further tested with still lower prices (below last week’s low). Further weighing on investor sentiment is the monthly close for June. June ended at the lowest monthly close since September 2013, by itself a long-term bearish sign.
It’s important to keep in mind that even though the DFMGI had come up off the January 2016 low for over two years, the long-term trend (starting from 2014 highs) remains down. This doesn’t mean that the 2016 low of 2,590.72 will be broken to the downside, but it could be. That price level is now only 8.2 per cent away.
At the same time, the index did stop in the area of a support zone previously identified from around 2,851 (prior monthly low) to approximately 2,826 (several Fibonacci support levels). If that price zone is to play a part though, the DFMGI should react relatively quickly in response. So far, it has failed to do so.
The DFMGI has been in an almost consistent fall for eleven days and therefore has a chance of running out of steam as it becomes exhausted on the downside. A daily close above last Thursday’s high of 2,804 will provide a sign that the index is reacting to the support zone and maybe reversing the slide, at least in the short-term.
If we see a daily close below last week’s low then the downtrend is continuing. At that point the next area where it looks like support could be found is around prior monthly support of 2,755 from 2013.
Last week the Abu Dhabi Securities Exchange General Index (ADI) was up by 24.77 or 0.55 per cent to end at 4,560.03. There were 12 advancing issues and 16 declining, while volume exceeded the previous three weeks.
Volatility dropped significantly last week as the index formed a narrow range with a high of 4,578.47 and a low of 4,516.06. Since the full price range is contained within the prior week’s wide range it is considered to be an inside week. This is a form of consolidation that can be seen on the weekly timescale. We can then use the high and low as a signal level with the assumption being that if the ADI breaks out above last week’s high then it is likely to go higher, and if instead it drops below the low it is likely to go lower.
Nevertheless, the ADI continues to form a broadening consolidation pattern where the overall high to low range over multiple weeks is expanding rather than tightening as seen in some other consolidation patterns such as triangles and rectangles. Because the formation is broadening the high and low price levels of importance become a bit less concise.
As of now the top of the formation is at the three-week high of 4,745.23 and support is at the seven-week low of 4,414.00. However, given the shape of the consolidation pattern a breakout above the top or below the bottom does not provide confidence that price will keep going in that direction. It may just indicate an expansion of the consolidation pattern instead.
At the same time a daily close below the bottom of the pattern will also trigger a breakdown below the long-term uptrend line. Since this is a long-term line a daily close below it could well lead to further selling. Caution is warranted though as trend lines by themselves are not terribly reliable and further bearish confirmation would be needed.
Stocks to watch
Union Properties fell sharply earlier last week before reversing and ending at the high of the week. This behaviour was accompanied with the highest weekly volume in 16 weeks. For the week Union ended higher by 2.47 per cent to close at 0.787.
The stock reached a 19-month low of 0.661 on Wednesday which put it down over 13 per cent for the week. This was followed by a strong close at the high of the day and a sharp rally into Thursday’s close. Daily volume was strong on these two up days. By the end of the week a reversal weekly candle was completed.
Two weeks ago Union Properties broke down from a multi-year consolidation range as it fell below support of 0.772. The fact that it could further sell-off and then quickly recover is a positive for its prospects in the coming weeks or months.
A daily close above last week’s high of 0.787 provides the next sign of strength, followed by a daily close above the two-week high of 0.80, and then 0.821.
Bruce Powers, CMT, is a technical analyst and global market strategist.