UAE markets: Sellers remain in control

Dubai: Once again the Dubai Financial Market General Index (DFMGI) ends the week with a loss, at a new trend low, and near the low for the week. This was the fourth consecutive week that the index has closed lower. There’s only been two weeks in the past 12 that the DFMGI has seen positive weekly performance.

Last week the index was down 66.19 or 2.25 per cent to close at 2,881.80. Declining issues were twice advancing at 26 to 13, while volume dipped slightly below the previous week. As of last week’s 2,877.41 low the DFMGI was down 21.8 per cent from the October peak of 3,684.19.

The next target zone continues to be around 2,851 to 2,836. That’s a relatively narrow price zone derived from prior monthly price support from back in December 2015 and a Fibonacci retracement level. The 78.6 per cent Fibonacci retracement level is at 2,836.39 and is the next potential support level based on Fibonacci ratio analysis. The calculation uses the prior uptrend and the ratio to determine possible support levels. This price zone is only potential support until there is some apparent evidence that support is being seen in market activity. It could still be broken to the downside thereby putting the DFMGI in a position to possibly create a large double bottom pattern.

Looking back over the past four years or so there is a clear large downtrend price structure that has developed in the chart of the DFMGI. Whether that downtrend continues into new lows by breaking below the 2,590.72 swing low from January 2016 remains to be seen, but it is a possibility. There is no way to know just yet.

For now though the more likely outlook seems to be that support will be found before the January 2016 low is reached. One thing leading to this assessment is that the index has been falling since the October high and therefore is a ways into the downtrend. Selling momentum would have to be very aggressive for the index to continue to fall and then break through that potential January 2016 support zone. It is possible, but doesn’t seem likely at this point.

Near-term resistance of note is around 2,985.33. If the index can see a daily close above that level then maybe a further bounce is possible. Nevertheless, downward pressure dominates unless there is a daily close above 3,066.0.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 118.99 or 2.61 per cent last week to end at 4,437.83. There were 16 advancing issues and 19 declining, while volume reached a six-week high, but just barely.

Last week the ADI broke down from a bearish ascending wedge with conviction, ending the week at the low of the week, falling through three-month support at 4,486.78, as well as through support of the downtrend line that starts from the January 2017 swing high. This all points to the likelihood of further declines before some degree of support is seen. As of last week’s 4,437.83 low the ADI had fallen 5.99 per cent from the 4,721.62 peak reached four weeks ago.

To start, the next potential support zone of note is relatively close by from approximately 4,428 to 4,420, consisting of previous monthly support combined with a couple Fibonacci price support levels. Another possible monthly support zone follows around 4,398. If the index keeps falling from there then next watch to see if the 4,347 to 4,341 price zone can halt or turn the market. In the long-term the 4,244.50 swing low from December 2017 is the more significant price level. If it is broken to the downside the long-term uptrend pattern of higher swing lows is broken.

For the past 10 trading days the ADI has trended lower with a series of lower daily highs while most days also had lower daily lows. At this point, a daily close above last Thursday’s high of 4,501.50 would change that pattern and could lead to a higher bounce.

Stocks to Watch

So far Emirates NBD has held up pretty well as the wider market falls in that it is the top performing stock in the Dubai market this year. It’s up 25.0 per cent year-to-date and is the second best performer over a one-year period, up 23.49 per cent. Last week the stock was down 2.38 per cent to close at 10.25.

Emirates NBD spiked out of a long multi-month consolidation base in early-March before eventually hitting a high of 11.00 before the month was over. Subsequently, following a 9.0 per cent correction the stock tested the high by hitting 10.90 just three weeks ago. Together, those two highs create a potential double top trend reversal pattern. If support of the pattern at 10.00 is broken to the downside then the pattern has triggered and further downside is likely. The stock could then certainly return to the previous breakout area around 9.09 to 8.98.

It is also possible that Emirates NBD continues to trade within a consolidation zone and evolves into a different pattern without triggering the bearish breakdown of the double top. This is why a pattern needs a trigger before it is confirmed and can be acted upon.

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