UAE bourses: Chance of a bounce improves

Dubai: Last week the Dubai Financial Market General Index (DFMGI) advanced by 39.85 or 1.26 per cent to close at 3,197.30, the first positive week in four. There were only nine advancing issues against 31 declining, while volume fell slightly below the prior week’s level.

The descent continued into its eighth week last week as the index fell below the prior week’s low of 3,157.45, thereby continuing to form a series of lower weekly highs and lower weekly lows. A rally above last week’s high of 3,206.68 and subsequent daily close above it will give a first signal that the downtrend pattern may be starting to change.

Last Thursday ended at a seven-day closing high, which is a sign of short-term strength. Weekly highs can be watched on the way up for signs of resistance. The two-week high is at 3,220.41, and is followed by the three-week high at 3,314.22.

Since hitting a peak of 3,684.19 in October 2017 the DFMGI has fallen as much as 14.8 per cent as of last week’s 3,139.64 low, putting it clearly below a large multi-year consolidation pattern. Two week’s ago the index broke down from that pattern which increases the chance for further selling over the coming months. However, that will also be determined by the characteristics of the next rally.

The next lower price zone to watch for support around 3,047 to 2992.63.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was up by 15.64 or 0.35 per cent to end at 15.64. Market breadth however leant on the bearish side with 14 advancing issues against 19 declining, while volume fell slightly for the week.

During last week the ADI consolidated in a relatively narrow range that has progressed for seven days. The consolidation follows a sharp drop off a lower swing high two weeks ago. Last week’s low of 4,500.70 led to a sharp intraday bounce off the 4,499.17 to 4,491.06 support zone of the pattern. Across the top of the pattern is the two-week high of 4,629.21, followed by the peak from the 9.6 per cent December to January rally at 4,651.11.

Overall, the ADI is holding up well as it has pulled back and consolidated off that high. To date the retracement has completed a 38.2 per cent Fibonacci retracement, where clear support is being seen. That’s a normal retracement and reflects underlying strength. So far all signs point to an eventual continuation of the uptrend.

A drop below the 4,491.06 low puts the recovery at risk of being extended in time as the ADI would then be targeting the 50 per cent retracement price area around 4,447.73. If it keeps falling from there the 61.8 per cent retracement around 4,399.76 would be next. Fibonacci ratio analysis is one way to mathematically calculate where support or resistance may be seen during a retracement of the prior trend, which in this case was up. The 61.8 per cent price zone should be given extra attention if the ADI does eventually fall that far as that price zone has been support and resistance before over the past six months.

Stocks to watch

Five months ago Emaar Properties broke down from an ascending trend channel that had gone on for more than a year, as it fell below the long-term uptrend line and then the price swing low and month low at 6.96. That began an acceleration of the decline that started off the 8.95 September peak, and it continues to this day.

Again last week a new bear trend continuation signal was generated as Emaar fell below the prior trend low of 5.99 and closed below it on a weekly basis. Last week’s low was 5.77 and at that point Emaar had fallen 35.5% off its September high. For the week Emaar was down 0.04 or 0.67 per cent to close at 5.96. Even though Emaar was up slightly for the week it closed below the prior trend low on a weekly basis, which is bearish by itself.

It has been a relatively steady decline for Emaar since October. Other than currently showing very oversold conditions on the 14-day Relative Strength Index (RSI) momentum oscillator, there is nothing yet concrete indicating it is done going down. Given Emaar’s significant influence on market outlook continued bearish behaviour in the stock is likely to keep negative sentiment prominent in the Dubai market.

Nevertheless, in the short-term, a rally above last week’s high of 6.12 could lead to higher prices within the context of a larger descending trend. If that occurs then next watch the two-week high price zone around 6.27, followed by the three-week high of 6.40, for short-term resistance. If the stock can exceed the 6.40 price level then it has a chance to test the resistance area of the most recent swing high zone, which is around 7.05.

When looking lower, where might we see signs of support that have the potential to turn the decline? The first price level to watch is not much lower at 5.70. That’s where support was seen during the 2015 decline and it was followed by a seven week rally. Thereafter, there is a potential monthly support zone around the prior monthly lows of 4.97 to 4.88.

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

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