23/04/2017 06:21 AST
Last week the Dubai Financial Market General Index (DFMGI) dropped by 39.52 or 1.13 per cent to close at 3,469.82. There were eight advancing issues and 31 declining, while volume exceeded the prior week’s level.
The DFMGI remains in a precarious position as this is the second week in a row that it has closed below the long-term uptrend line on a weekly basis, and it has again ended the week below the 200-day exponential moving average (ema). Each of those trend indicators tells us something about the strength or weakness of the long-term uptrend. The DFMGI has now closed below the trend line in four out of the past five weeks and below the 200-day ema three out of the past five weeks. It is a sign of weakness that the index is closing below both indicators. At the same time the price area of the trend line is still supportive. A move out of the six-week range should tell us the next direction.
Support is around the recent swing low of 3,435.14. That price area was tested last week and held as last week’s low was 3,445.86. If support continues to hold around those lows we may have the beginning of a double bottom reversal pattern forming.
A breakout of this pattern occurs on a daily close above 3,573.25, the top or resistance of the six-week range. But the next sign of strength will occur on a daily close above last week’s high of 3,515.82. At that point the chance for a bullish breakout of the double bottom increases. The next resistance zone would then be around 3,604 to 3,624.
If the bottom of the range is busted instead then further selling should follow. The next support zone would then be around 3,378 to 3,351, based on prior weekly price levels. That price zone is followed by the more critical 3,197 to 3,195 support zone, the bottom of a one-year consolidation.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) was flat last week, up only 3.49 or 0.08 per cent to end at 4,521.53. Market breadth was slightly bearish with 22 declining issues against 16 advancing, while volume dropped to a four-week low.
Support was seen last week at 4,481.55, which is right at the 200-day ema. Three weeks ago the ADI broke out above the 200-day ema and moved decisively higher until hitting resistance at 4,655.81. That led to a retracement which may have found a bottom last week. The fact that support was seen at the 200-day ema provides some confidence that it will hold and be followed up with additional strength.
Nevertheless, the ADI remains contained within a three-month descending consolidation channel. Nothing too volatile is likely to happen until it moves out of that channel. Given the current relationship between the two pertinent trend lines a bullish or bearish breakout should occur within the next four weeks, at the most. There is downtrend line across the top of the descending channel and a long-term uptrend line starting from the January 2016 low. When extended they cross each other in approximately seven weeks. A breakout move through one of the lines should occur before price gets to the crossing.
While a move above last week’s high of 4,551.80 will give the next short-term bullish signal, a breakout of the channel is not indicated until there is a daily close above the three-week high of 3,613.13. The ADI then heads towards the 4,668.77 swing high from February, followed by the 2017 high of 4,715.05. Once there is a daily close above the three-week high the odds improve for an eventual move above the 2017 high.
On the downside, a daily close below last week’s low gives a bearish signal. The next support zone will then start around 4,441 and goes down to the 4,355.26 swing low from six-weeks ago.
Stocks to watch
Union Properties was up 3.10 per cent last week to end at 1.03. On Thursday the stock broke out of a 10-week consolidation range that has formed at support of the 200-day ema. That range is the
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