21/06/2015 01:43 AST
The Dubai Financial Market General Index (DFMGI) ended essentially sideways last week, closing down 8.95 or 0.22 per cent at 4,063.88. There were 17 advancing issues and 18 declining, while volume dropped from the prior week. The activity for the week occurred within a narrow range, the narrowest since February, and the index ended near the low of the week, which was at 4,056.96.
Over the past eight weeks the DFMGI has defined a consolidation range, with resistance at 4,253.28 (April peak), and support at 3,912.85 (May swing low). Until there is a decisive move through one of those price levels, signalling the next direction, the index will be within consolidation. Investors should be prepared for either scenario to unfold as a technical argument can be made for a move in either direction.
To date the correction off the April swing high (to May low) has been 8 per cent, essentially completing a 38.2 per cent Fibonacci retracement of the prior uptrend (close enough), measured from the March low of 3,232.79. The 38.2 per cent retracement completes at 3,863.45. This is a minimal retracement of the prior uptrend that can be expected, reflecting underlying strength. At the same time, there is no confirmation that the pullback is complete until we see a daily close above the April peak of 4,253.28.
That peak or resistance was seen in the area of both previous resistance and support in the past, thus supporting an argument for a deeper pullback before the market is ready to bust through that price area, if it is to do so. There would then be two potential resistance areas to watch, one around 4,385, and then a price zone of 4,657 to 4,728.
If we see a decline to below the May low of 3,912.85, the next areas to watch for support are 3,743.04 (50 per cent retracement), 3,622.62 (61.8 per cent Fibonacci retracement), and 3,613, previous weekly support and resistance.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) crept higher by 16.73 or 0.37 per cent to end at 4,572.02. Market breadth was close to even, with 16 advancing issues and 19 declining, while weekly volume dropped to an 8-month low.
For the past several weeks the ADI has been consolidating between a high of 4,609.21 and a low of 4,511.63. Although a breakout above the high price does not signal a continuation of a trend, a drop through the low price does. This would be a continuation of the downtrend that began from the April peak of 4,723.42, with the next lower target being around 4,488, the 50 per cent retracement of the March uptrend. Further down is the 61.8 per cent Fibonacci retracement level at 4,454.50, prior support at 4,296, and then 4,252.
On the upside, a rally above the three-week high of 4,609.21, heads the index up into potential resistance of the downtrend line and 200-day exponential moving average (ema), around 4,622.
A daily close is needed above the most recent swing high of 4,675.63 for a clear sign that the ADI is turning more bullish and could continue higher with a sustainable rally.
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