28/08/2017 06:11 AST
The Dubai Financial Market General Index (DFMGI) was up 23.29 or 0.65 per cent last week to close at 3,624.49. That’s the first positive week in three. There were 23 advancing issues and 10 declining, while volume increased slightly.
It’s been seven trading days since the DFMGI hit a low of 3,560.04, found support and bounced. That low completed an initial retracement off the 3,681.11 peak from three weeks ago. The bounce is either a continuation of the 11-week uptrend that starts from the early-June swing low, in which case a rally above last week’s high of 3,639.01 can be anticipated, or a counter-trend rally of the first leg down off the peak.
Last week’s high did not exceed the prior week’s high of 3,647.27 and the low of 3,594.25 was above the previous week’s low of 3,560.04. We therefore have an inside week where the range of last week is contained within the range of the prior week. This means we can use last week’s high and low as a signal as a daily close above the high of the week is likely to lead to a continuation of the seven-day rally, and a drop below last week’s low reflects weakness that could eventually put the index below the recent 3,560.04 swing low.
If a bullish signal is given, then the DFMGI heads towards the two-week high and there’s a good chance that high will be exceeded. The next higher potential resistance zone would then be around the four-week high of 3,681.11.
On the downside, a drop below last week’s low has the index next heading towards the most recent swing low, and there’s a good chance that price will continue to fall from there. If that happens, the index will be in the second leg down of a correction or retracement of the prior rally. This would not be much of a surprise given that the retracement to date, as of the recent swing low, is only about 31 per cent of the previous advance when measured from the June low. A deeper retracement would not be unusual.
We can calculate a measured move price pattern to try and determine a potential lower target if the 3,560.04 support is breached. With a measured move we’re anticipating that the second move or leg down may match the price depreciation of the first leg down at a minimum. That will occur at 3,517.90. This is awefully close to the 38.2 per cent Fibonacci retracement level at 3,520.24. Given their proximity to each other we should look at 3,520.24 to 3,517.90 as a minimum target range, if we do get a bearish breakdown signal.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) was flat last week, rising only 1.15 or 0.03 per cent to end at 4,493.81. This is a reflection of investor uncertainty and is a form of consolidation. In addition, market breadth was also close to even with 14 advancing issues and 17 declining. Volume dropped by almost half of what it was the prior week.
We can also see uncertainty reflected in the eight-day relatively tight trading range that has developed recently. It follows a six-day drop off the most recent peak of 4,608.92. What follows low volatility is usually high or higher volatility. Price consolidation is a low volatility environment. This means that a breakout, either up or down, from a consolidation pattern has a good chance of seeing price momentum increase.
The high or resistance of the current short-term range is 4,506.76, while the low or support is around 4,451.20. However, the low end of the range is angled up. Therefore, the first sign that a breakdown may be about to occur is on a drop below 4,465.05. That would first trigger a continuation of the short-term bearish trend, which would be confirmed on a drop through the lower price level.
The primary target would then be another test of the 2017 lows from roughly 4,359 to 4,355. That price zone has been tested twice so far and each time price was rejecting leading to a significant bounce. The same thing may happen again, or support does
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