27/03/2016 06:17 AST
The Dubai Financial Market General Index (DFMGI) dropped by 65.90 or 1.95 per cent last week to close at 3,318.73, the first decline in six weeks. There were 22 declining issues against 17 advancing, while volume fell to a five-week low.
The DFMGI was unable to break through resistance, which was at the three-week high of 3,420.71. Resistance also corresponds with the 200-day exponential moving average (ema), which is now at 3,403.
The index has attempted to move above that peak and the 200-day a couple times in the past two weeks and each time it was rejected. Since mid-August the DFMGI has remained below the 200-day ema. It is a formidable barrier to higher prices given that it represents the more significant long-term trend, and it has the potential to put an end to the nine-week rally.
For now we can anticipate a retracement lower followed by a new attempt to trend higher. This scenario is supported by the fact that we remain well above the intermediate-term downtrend line, which was broken in early-February, well above the 55-day ema, and have moved decisively above the prior swing high of 3,188.83 from late-December.
A deeper retracement is likely in the near-term as we have a peak followed by a lower swing high, thereby forming a potential double top trend reversal pattern. Support of the pattern is at 3,253.10, which is right at the 21-day ema. A break below the 21-day ema, which would put the index at a seven-day low, can therefore be used as an early signal for further weakening as it currently sits at 3,298.65. The bearish double top pattern will only trigger on a move below 3,253.10 and thus the pattern is not confirmed until that happens. If it does then the target derived from the pattern is 3,085.49. That move would also complete a 38.2 per cent Fibonacci retracement of the nine-week uptrend, which is at 3,103.70.
Since pattern breakouts don’t always reach their targets, the first price area to watch for support is the 55-day ema at 3,199, and down to 3,239. Following that, given previous price action, support could be found anywhere down to 2,963.72. That low is a swing low and therefore critical to the structure of the uptrend. A decisive drop below it seriously erodes the uptrend and diminishes the chance to break above the 200-day ema in the foreseeable future. Ideally, the DFMGI sees support at the 55-day ema and turns higher. Although, given the relatively rapid 32 per cent advance from the January low, a deeper retracement should not be surprising.
If by chance the DFMGI is able to breakout above the recent high and the 200-day ema, then the index would next be heading towards the 55-week ema around 3,489.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) fell by 146.82 or 3.28 per cent to close at 4,331.91, its largest decline in nine weeks. Market breadth was bearish, with 21 declining issues and 13 advancing, while volume dipped to an eight-week low.
The ADI followed through on the bearish behaviour that began to show signs over the prior two weeks, dipping below the prior week’s low to a three-week low, before closing in the lower quarter of the week’s range. On a daily basis, the index closed at its lowest level in seventeen days, and back below the 200-day ema. We now have the beginning of a downtrend on both a daily and weekly basis, with odds favouring a deeper retracement.
For the week, the ADI found support at 4,294.88. If that low is exceeded to the downside, the next area to watch for support is in a zone from around 4,276 (55-day ema) 4,249.56 (previous minor support). The 38.2 per cent Fibonacci retracement is within that zone at 4,260.70. It’s common to retrace at least 38.2 per cent of the previous rally. Further down is the 50 per cent retracement at 4,159.6, along with previous resistance (now support) starting at 4,147.
A decisive daily close abov
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