23/08/2015 06:05 AST
Last week the Dubai Financial Market General Index (DFMGI) got hammered, falling by 275.56 or 6.91 per cent to end at 3,709.84, a 19-week low. Although the drop occurred on lower volume, which has been declining slowly the past couple of weeks, this was the biggest weekly decline since the first part of December 2014. Weakness was widespread, with 35 issues declining and only two advancing.
The probability has now increased that the rally off the December 2014 low of 2,992.53 is done, and that the DFMGI could well drop below there before it goes above the 2015 peak of 4,253.28. That decline from the 2014 peak of 5,406.52 to the December low was 44.7 per cent, with the index finding support around the 200-week exponential moving average (ema). A key indicator for the potential of the long-term uptrend in the DFMGI remains the 200-week ema, which is now at 3,383.74. The index has been above the 200-week ema on a weekly closing basis since moving above it in late-April 2013.
As of last week’s low of 3,684.99 the DFMGI had corrected 13.4 per cent from its 2015 high, ending the week below the 100-week ema for the first time since late-March. It may not be done going down, but it has reached the early stages of a support zone, which goes down to around 3,627. And it is approaching extreme oversold levels based on the Relative Strength Indicator (RSI) 14-period momentum oscillator. The low end of the support zone is only a little more than two per cent lower, and is derived from prior support on a number of weeks, and includes dynamic support represented by an uptrend line, drawn from the 2015 low.
When looking at the chart for the past couple of years a clear bearish flag formation has formed since the December lows. The trend line mentioned above defines the lower portion of the pattern, with a decisive drop below it triggering the breakdown of the flag. A decline below 3,627 can be used as the first indication.
Nonetheless, it looks more likely that the flag will continue to develop for a little while longer before breaking down, if it is to do so. Therefore, next watch for a bounce off the support zone from last week’s low down to the 3,627 price level. Weekly resistance starts around 3,913 and goes up to last week’s high of 3,985.40.
If the 3,627 price level is broken to the downside with momentum then the next area to watch for support starts around 3,427 and down to the 200-week ema, followed by 3,233.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) fell 217.79 or 4.60 per cent last week to end at 4,512.48, its largest one-week decline since December 2014. Also, that’s the lowest weekly close since mid-March. It occurred on slightly lower volume, with most issues participating in the fall. There were 28 declining stock and seven advancing.
A large bearish wedge pattern triggered last week, leading to the pickup in downward momentum. This pattern was discussed last week and could easily lead to an eventual decline to at least 4,252.18, the beginning of the pattern. But, there’s no reason the ADI couldn’t go lower as the wedge is a trend continuation pattern, and an alternative and larger wedge pattern is also present. Its breakdown could lead to a continuation of the long-term downtrend that started from the 2014 peak, thus putting the 2014 low of 3,876.44 at risk of eventually being exceeded on the downside.
Last week’s low was 4,496.89, and at the beginning of a potential support zone that goes down to around 4,453. A bounce from that price zone may be seen. The next lower support areas are 4,343 to 4,252, and then the 200-week ema, which is now at 4,095.24.
Weekly resistance is at last week’s high of 4,731.94.
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