29/11/2015 07:43 AST
The Dubai Financial Market General Index (DFMGI) dropped by 69.19 or 2.11 per cent last week to close at 3,204.11. Most issues fell, with 26 declining and only six advancing, while volume dropped to a five-week low. This performance was not remendously encouraging given the reversal week prior, but there are still reasons to be optimistic in the near-term.
The 3,127.96 low from two weeks ago remains the key price level to watch as it completed a five-week decline and that week ended positive for the first time in six. Last week’s high exceeded the prior weeks high and there was a daily close above it (indication of underlying strength). There has been one leg up so far off that bottom to a high of 3,301.14 (last week’s high), and then a retracement down to last week’s low of 3,170.23. That retracement essentially completed a 76.4 per cent Fibonacci retracement (3,168.90) of the first leg up, also pointing to a possible completion of the pullback last week.
Although not assured, the odds are good that last week’s low will hold. A bullish reversal day occurred on Wednesday as the index closed just above where it opened, recovering from a decline earlier in the day. Subsequently, on Thursday the DFMGI jumped above the prior day’s high, although it did not close above it, which would have been a stronger bullish indication.
Regardless, another leg up can be anticipated unless there is a drop below the two week low of 3,127.35. If that occurs, next watch for support around the 200-week simple moving average, which is now at 3,079.13, followed by the December 2014 low around 2,992.53. The lower price area has significance as the long-term uptrend line starting from the December2012 low converges around the same price area for the next couple of months.
There is more than one way to derive potential targets for a second leg up, this is just one, called a measured move or ABCD projection. As of now, the second leg up would start from last week’s low. By taking the price distance of the first leg up we can arrive at two potential targets for a second leg. The appreciation of the first leg was 173.47. When adding that distance to last week’s low we get 3,343.7, the first target. For the second target, we extend the appreciation of the first leg by 127 per cent (Fibonacci ratio), to arrive at 3,391.
Daily Chart — Red line = 55 day ema, blue line = 200 day ema
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) declined by 40.20 or 0.94 per cent to close at 4,219.86. Market breadth was almost equal, with 16 advancing issues and 15 declining, while volume fell to a two-week low.
Two weeks ago the ADI found support at 4,085.17 and bounced, ending the week higher than where it began, a positive development. That low may have completed a precipitous decline that began four weeks earlier. It occurred close to the August spike low support at 4,069.11 and in the general area of the 200-week exponential moving average (ema) (now at 4,135.75), a long-term trend indicator. Those price areas are now important support zones going forward. Next, we look for evidence of further strengthening, and identify where resistance could be encountered on the way up.
Although the ADI closed lower for the week, last week’s high of 4,272.84 exceeded the high of the prior two weeks (4,262.80), but didn’t close above it yet on a daily basis. Note that the high was right at the 21-day ema resistance. A daily close above last week’s high will provide the next indication of strength, increasing the chance for further upside.
The next resistance zone would then be around the four-week high of 4,338, which would also complete a 50 per cent retracement of the prior near-term downtrend. This would be followed by the 61.8 per cent Fibonacci retracement at 4,398.54, and then weekly resistance from around 4,462 to 4,489.
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