25/03/2018 07:45 AST
Last week the Dubai Financial Market General Index (DFMGI) dropped by 47.77 or 1.49 per cent to close at 3,149.53. Most issues fell as there were only nine positive stocks for the week against 26 that declined. Volume meanwhile dipped to the lowest weekly level since August of last year.
For the past several weeks the DFMGI has been consolidating within a relatively narrow range around the area of the 50 retracement (3,164.50) of the long-term uptrend which topped out in January 2017. This could potentially be at least short-term bullish as many times support is seen around the 50 per cent retracement zone and is followed by a bounce if not more. However, even though we are seeing support as the index has essentially stopped going down, it has not been enough to turn the market up. This means that downward pressure remains and the risk of a bearish continuation of the five-month downtrend is real. There are several indications that would support such a bearish scenario.
First, and of significance, is that the recent lows and three-week consolidation have occurred below a two-year consolidation pattern. A breakdown from that pattern occurred three weeks ago as the DFMGI fell below long-term support at 3,195.49. Further, last week’s low of 3,134.12 was a new 25-month low, plus the week ended at a new 25-month weekly closing low.
If there is a decisive daily close below last week’s low then a short-term bearish trend continuation will be signalled and that has greater significance given the larger pattern breakdown. At that point the chance that the DFMGI will continue lower to its next more significant support zone increases. That price zone would likely be around the 61.8 per cent Fibonacci retracement price level of 3,029.09 and the December 2014 spike low of 2,992.53.
Alternatively, a short-term bullish scenario might unfold if the index can close above the three-week high of 3,220.41 on a daily basis and then show upside follow-through thereafter.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) was up 35.10 or 0.77 per cent last week to end at 4,577.84, its strongest performance in 10 weeks. There were 14 advancing issues and 21 declining, while volume reached a six-week high.
The ADI continues to distinguish itself from the Dubai market. It was able to further advance off the 4,499.17 low first reached two weeks ago as last week’s high of 4,579.45 exceeded the prior week’s high and last week’s low was above the previous week’s low. As an additional sign of strength, the index closed very strong, almost at the high for the week. Nevertheless, the ADI now has to contend with a potential resistance zone consisting of the two most recent swing highs, from around 4,629.21 to 4,651.11.
Let’s step back a little and look at the larger developing chart pattern in the ADI, which remains overall bullish, even though we might continue to see consolidation for a while longer. At the beginning of the year the ADI broke out above a long-term downtrend line and it has remained mostly above the line since then even as the line has been tested as support during recent weakness. Each time the ADI pulled back towards the line support was seen around the line or a little above it.
This market behaviour of a break through resistance (downtrend line) followed by a pullback to test what was resistance as support, is common and frequently occurs in the progression of an uptrend. Since we see this behaviour so far in the ADI it is reasonable to anticipate an eventual bullish trend continuation. However, confirmation of strength will be needed on an eventual daily close above the 4,651.11 swing high before there is a clear bullish signal. Until then the almost two-month consolidation phase will continue.
At the same time, a drop below the most recent swing low of 4,491.06 turns the outlook short-term bearish and puts the ADI back below the downtrend line noted above.
Stocks to watch
Eshraq Properties is at an interesting juncture that is worth watching. Last week the stock was up only 0.01 or 1.43 per cent to close at 0.71. It continues to consolidate as it has for the past six weeks and is doing so while testing support around 0.68. That price area has halted declining prices for the past five months. Price was rejected off that support zone once already back in August 2016 and it led to an 83.1 per cent rally into the January 2017 high of 1.30. Since then Eshraq has been trending down. If the 0.68 price level is busted to the downside then further declines become possible. But, it’s also possible that price will turn higher leading to a rally.
The first sign of strength that could lead to higher prices would be on move above last week’s high of 0.74. Strength would then be confirmed on a daily close above last week’s high. That price zone is followed by the two-week high of 0.76, and then the three-week high of 0.81. A breakout above 0.81 is when things start to turn noticeably more bullish as a breakout of a bottoming pattern will have occurred at that point.
Bruce Powers, CMT, is a technical analyst and global market strategist.
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