Last week the Dubai Financial Market General Index (DFMGI) fell by 27.79 or 0.76 per cent to end at 3,647.33, its first decline in six weeks. There were only nine advancing issues while 26 declined, and volume dropped to a six-week low.
The DFMGI attempted to go higher just briefly last Sunday as it rallied above the prior week’s high of 3,68044 before quickly finding resistance at 3,681.11 and turning down. Subsequently, the index dropped into Wednesday before showing a little strength on Thursday. The low of the week, Thursday’s low, was at 3,623.08.
So far we’re seeing just a mild pullback and this is healthy for the uptrend, especially since it follows a four-week 8.0 per cent plus advance. The key price levels to watch next are last week’s high and low. A drop through the bottom will likely lead to a deeper pullback, and a daily close above last week’s high signals a continuation of the uptrend.
Below last week’s low we have three potential weekly support levels one right after the other, first at 3,597.26, then 3,568.53, and finally 3,537.35. Still lower is the 38.2 per cent Fibonacci retracement off last week’s high at 3,520.24. Fibonacci ratio analysis mathematically identifies potential support and resistance levels by measuring the prior swing. In this case the prior swing is the uptrend begun from the June low. According to Fibonacci analysis, once a retracement of a rally begins there is a tendency to retrace at least 38.2 per cent of the prior move.
A daily close above last week’s high signals strengthening with the DFMGI next targeting the 2017 high around 3,738.69. If that high is exceeded a long-term bullish trend continuation signal will be generated with the index next targeting a price zone from approximately 3,912 to 4,253.
The Abu Dhabi Securities Exchange General Index (ADI) dropped by 45.10 or 0.98 per cent to close at 4,550.93. There were 15 advancing issues and 18 declining, while volume fell to a six-week low.
Over the past few weeks the general outlook for the index had started to improve. It had moved above its downtrend line and closed above it last week, reached an eleven-week high, and had closed above the long-term uptrend line on a weekly basis. However, the potentially bullish implication of this price behaviour requires further confirmation of strength to build confidence.
Last week’s behaviour does not confirm strength so far as the ADI closed back below both trend lines on a weekly basis, the week’s high did not exceed the prior week’s high, and the week’s low fell below the prior week’s low and closed below it on a weekly basis, although by only a few fills.
What this means is that for the past month the ADI has been consolidating around resistance of the downtrend line. That consolidation pattern may extend for a while longer. At some point the attempt to go higher will either fail, leading to further weakness down into the eight-month consolidation pattern that has formed, or it will successfully breakout to the upside. Resistance of the four-week consolidation pattern is at 4,608.92 and support is at 4,503.52.
An upside breakout should see the index first hit the 2017 high at 4,715.05, while the next higher target zone will then be around the 2015 peak at 4,902.09. Lower support is around 4,481, followed by 4,436.
Stocks to watch
Union Properties was down 2.76 per cent last week to close at 0.88. What puts it on the radar is that it pulled back to a six-month support zone (0.85) for the third time. Price was rejected from the week’s low of 0.86 on Thursday to close in the top half of the day’s range and positive for the day. Thursday’s high-to-low range exceeded the range of the prior two days. This is short-term bullish behaviour which points to a possible reversal of the three-week downtrend, and this is occurring off a key support zone.
For the past six moths Union Properties has been consolidating. If last Thursday’s bounce leads to further upside then the top of the range should be reached, at a minimum. At the same time, the possibility of an eventual upside breakout from the range exists. The top of the range is from around 0.99 up to 1.04.
Shuaa Capital is another stock to watch for a possible move higher. Last week Shuaa fell 5.34 per cent to end at 1.24. Four weeks ago Shuaa broke out above its downtrend line following a seventeen-week decline. That breakout was followed by a retracement that might have bottomed last week as support of the trend line was tested (prior resistance at line becomes support) and has held so far at a low of 1.21.
The first sign of strength is on a daily close above the three-day high of 1.26. Further confirmation that buyers are coming back will be seen on a rally above last week’s high of 1.32, followed by a breakout above the three week high of 1.46. At that point a bullish trend continuation signal will be generated with the stock next targeting the 1.55 swing high from early-June.
Bruce Powers, CMT, is a technical analyst and global market strategist.