26/03/2017 03:58 AST
Last week the Dubai Financial Market General Index (DFMGI) dropped by 59.90 or 1.7 per cent to close at 3.461.43, its lowest weekly closing price in 16-weeks. Most stocks fell as there were only six advancing issues against 21 declining. Volume fell during the decline to a five-month low.
Maybe such low volume as the DFMGI falls to a 16-week low is a sign that underlying selling pressure is starting to abate. However, we have not yet reached oversold on the 14-day Realtive Strength Index momentum oscillator (RSI). That would provide another indication that downward momentum is diminishing. Further, the index has closed below the 200-day exponential moving average (ema) trend indicator on nine of the past 10 days and has also closed below the uptrend line on a weekly basis as of last week. Each of these indications increases the probability that the index will continue to see selling pressure for a little while longer.
The index has been falling for the past six weeks including two weeks ago when performance was flat. Last week’s low of 3.456.92 was lower than the prior week and gives the current short-term support area. A daily close below that level will trigger a continuation of the short-term bearish trend.
Since hitting the 2017 peak at 3,738.69 in early-February the DFMGI has been retracing the prior rally as it falls into the price area represented by a multi-month rectangle consolidation pattern formed during eight-months in 2016. Now that the uptrend line and 200-day ema has been broken to the downside there is a chance the index will again test support around the bottom of that rectangle.
Prior support of the rectangle is in a range from 3,208.81 (June 2016 swing low), to 3,197.32 (May swing low), and 3,195.49 (November swing low). Nonetheless, there is a higher potential support zone driven by prior multiple weekly support and resistance levels. That support zone is roughly from 3,377 to 3,344. At the same time last week’s low is also close to a near bye potential support area around 3,434/30.
Alternatively, signs of strength is first indicated on a move above the two-week high of 2,523.30. Since last week’s high of 3,522.26 was almost a match, an upside breakout is a stronger signal than if resistance is marked by only a one-week high. If exceeded to the upside the next higher resistance zone would be around the three-week high of 3,583.79.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) was up 70.35 or 1.59 per cent last week to end at 4,495.28, its strongest performance in five weeks. Market breadth was almost a match as there were 21 advancing issues and 20 declining, while volume fell to a thirteen-week low.
Last week’s high (4,512.82) exceeded the high of the prior week’s range and the low (4,402.08) was higher than the prior weeks’ low. Further, the week’s close was at a three-week high. Therefore, on a weekly basis the ADI has begun to form an uptrend. Of course the developing uptrend can also be seen on the daily chart but a signal on the weekly chart carries more weight.
On a daily basis the ADI closed within the daily price gap that was noted in this column over the past couple of weeks. The gap starts at 4,589 and goes down to 4,499.93. Given last week’s move into the gap it is likely the gap will fill with the ADI eventually reaching at least 4,589. That’s right within a zone of resistance that goes up to a series of six-week highs with a peak at 4,611.
If the ADI does continue to strengthen in the short-term it will be heading up into a zone of resistance that turned the index down several times since December. The next peak that needs to be exceeded for signs of sustainable strength is around 4,668.77. Until then the risk of future selling pressure strong enough to stall or turn an advance remains.
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