Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 89.24 or 3.43 per cent to close at 2,509.81, the largest one-week decline in 19 weeks. There were eight advancing issues and 29 declining, while volume fell by more than half.
So far, the bottom of the current decline was reached two weeks ago at 2,478.70. That put the index 33.7 per cent below the February 2017 peak of 3,738.69, a three-year high. Also, if we measure the correction to date off the 2014 peak of 5,406.62, the drop has been as much as 54.2 per cent.
The start of the correction from the 2014 swing high now takes on greater meaning, as the DFMGI broke below the January 2016 swing low of 2,811.61 three weeks ago, and closed below it on a weekly basis. Therefore, the long-term downtrend that began off the 2014 highs has signalled a bearish continuation. Until then, the January 2016 low was considered to be the bottom of the downtrend off the 2015 highs.
Once a trend begins it has a tendency to continue for some period of time. The same can be said about a new leg or swing of a larger multi-leg trend. The 2014 high to the January 2016 low is one leg down of a downtrend. Since the index broke below the January 2016 low three weeks ago, a continuation of that downtrend has triggered. It can be anticipated to fall for some period of time overall given the larger bearish trend continuation pattern now present.
Nevertheless, in the short-term, the possibility of at least a short-term rally still exists. Two weeks ago a potentially bullish candlestick pattern formed at the low of the trend. A move above the 2,603.38 high of that week would provide bullish confirmation. That did not happen last week and instead we ended with an inside week, where the high-to-low range of last week was contained within the range from two weeks ago. This is a form of uncertainty or consolidation on a weekly basis.
On a daily basis, a potential double bottom trend reversal pattern has formed. Either way, both the weekly and daily patterns identify important support at the two-week low of 2,478.70, and resistance at the two-week high of 2,603.68. A decisive move above the two-week high will not only be a three-week high but also a bullish breakout trigger for a double bottom pattern. There has not been a move above a prior week’s high for the past five weeks.
If the DFMGI strengthens, then it first heads towards the 2,706 resistance zone (previously support). And then a little further up is an area of prior resistance at a high of 2,854.49. A daily close above the higher price level would start to turn the near-term outlook for the index more bullish.
On the downside, potential support areas are around 2,409, followed by a zone from 2,243 to 2,174.
The Abu Dhabi Securities Exchange General Index (ADI) was essentially flat last week, falling by only 1.92 or 0.04 per cent to end at 4,859.62. Market breadth was split, with 17 issues up and 17 down. Volume dipped somewhat below the prior week’s level.
For the past four weeks or so the ADI has been consolidating within a relatively narrow range in the area of resistance of a previous price consolidation zone. That zone was breached to the downside following a failed attempt to continue an advance into new trend highs five weeks ago. The trend got to a high of 5,079.97 before encountering resistance that dropped it hard the following week.
The four-week consolidation pattern has support at 4,762.60. If the index breaks below that price area it next heads towards a range from approximately 4,721 to 4,637, the top of a prior multi-month consolidation zone that goes down to a low of 4,174.71. Within that zone there is the most recent swing low of 4,414. If the ADI falls below that swing low then the intermediate-term outlook gets much more uncertain. Until then the odds favour an eventual continuation higher following a deeper pullback.
Resistance of the short-term consolidation zone is at the three-week high of 4,904.66. If the index gets above there then it hits a larger consolidation zone up to the trend high of 5,079.97.
Stocks to watch
National Central Cooling was the fourth best performing stock in the Dubai market last week, rising 0.08 or 4.9 per cent to end at 1.70. What has put it on the radar is its overall chart pattern and particularly the sharp rise in volume seen last week. For the week, volume popped to a 21-week high. This while price remains inside a consolidation zone. Sometimes an unusual increase in volume can be an early sign for a high momentum move in price.
Last week’s high of 1.70 puts National Central Cooling right up against 15-week resistance of 1.72, and the long-term downtrend line. A decisive rally with a daily close above 1.72 will trigger a breakout of the consolidation phase and of the line. Subsequently, if the stock can get a daily close above the swing high of 1.88 from July a bullish trend reversal will be signalled.
Bruce Powers, CMT, is a technical analyst and global market strategist.