UAE shares may have reached the top for now

14/02/2016 05:51 AST

Recent gains are at risk as UAE markets respond to selling pressure at key resistance levels. Higher targets for the counter-trend rally have been reached and we can expect further profit taking to dominate. At the same time oil began to rebound at the end of the week, which could help keep bearish sentiment contained for now.

Dubai
The Dubai Financial Market General Index (DFMGI) dropped by 76.94 or 2.52 per cent last week to end at 2,981.48. Market breadth reflected the weakness, with 25 declining issues against 10 advancing, while volume fell to a seven-week low.

Resistance for the week was at 3,124.69, which may have put an end to the recent rally. At that peak the DFMGI had jumped 20.6 per cent off the January swing low of 2,590.72, and retraced approximately 89 per cent of the prior down swing. The peak occurred in a resistance zone that included a combination of the 200-week simple moving average (sma), now at 3,155.84, plus the long-term uptrend line and the intermediate-term downtrend line. Although the DFMGI was able to stay above the 55-day exponential moving average (ema) for most of the week, a sign of short-term strength, by Thursday the market capitulated, falling to a six-day low and clearly back below the moving average. Further, the index closed near the low for the week, which was at 2,963.72.

Of greater concern is the DFMGI’s behaviour of recognising previous long-term support as resistance. Back in the first half of January the DFMGI dropped below two important trend indicators that represented dynamic support at the time, the 200-week ema and the long-term uptrend line that starts from the January 2012 lows. Last week’s price action tested these lines as resistance. This is typical price behaviour that frequently leads to a continuation of the original direction, which is down.

Gulfnews