UAE markets get hit, but last week’s price action is constructive

ast week the Dubai Financial Market General Index (DFMGI) fell by 57.13 or 1.65 per cent to close at 3,402.31, its weakest performance in 13 weeks. Most stocks sold off as there were 31 declining and only four advancing, while volume dropped to a six-week low.

Regardless of the decline, last week’s price action is constructive. Two weeks ago, the index broke out above both the downtrend line and 55-day exponential moving average (ema). By itself, this is bullish behaviour. Last week the line was tested as support during the pullback as the DFMGI got close to the line to 3,373.76 on Thursday where it found support and bounced. This is also bullish behaviour as the line previously represented resistance for the downtrend and now has been confirmed as support. The line and last week’s low can certainly be tested again over the coming weeks.

A rally above last week’s high of 3,465.38 gives the next bullish signal. That high and the prior week’s high hit resistance at the 200-day ema (now at 3,463.91). The DFMGI has been below the 200-day ema since approximately mid-April. Therefore, a rally above last week’s high will provide a short-term bullish signal for the continuation of the two-week uptrend, as well as for the longer term outlook based on a move back above the 200-day ema long-term trend indicator. The index would then be heading towards a relatively minor resistance zone around 3,15.82.

A more significant price zone is around the 11-week high and swing high of 3,573.25 from mid-April.

That’s the next major potential resistance zone as it is a key component of the price structure for the downtrend. A daily close above that swing high will give a new bullish signal as it further confirms the progression of the current uptrend. At that point the odds increase for a test of the 2017 high of 3,738.69, with the possibility that the 2017 high can be exceeded.

If the DFMGI drops below last week’s low then next watch for support around 3,358. However, the more significant General Index 1-week change 1-week % change Advanced Declined support area is around 3,264.39, the bottom of the most recent downtrend and the low for 2017.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 70.20 or 1.56 per cent last week to end at 4,431.57, its weakest performance in 10 weeks. There were 16 advancing issues and 19 declining, while volume dropped from the prior week.

The chart pattern developing in the ADI is a bit more ominous than DFMGI. Last week’s decline triggered a breakdown of a bearish flag pattern. This is a trend continuation pattern that triggered just below the long-term uptrend line. It indicates that the uptrend line has failed to maintain some support. Therefore, selling pressure could intensify before the decline is over.

Other bearish indications include the ADI reaching a 12-week low last week and a new low for the six-week downtrend. The bearish implications of last week’s performance will remain in force unless there is a daily close above the two-week high of 4,553.31, which is also a swing high on the daily chart.

A drop below last week’s low of 4,406.75 triggers a continuation of the downtrend with the ADI next heading towards potential support around the March swing low of 4,355.26. If it continues lower it will be heading towards the 200-day ema, which is now at 4,305.19.

Further, for most of this year the ADI has been progressing lower in a relatively wide ranging descending trend channel. The long-term downtrend line is also the lower trend line for the channel. As of last week the odds for an eventual test of support of that line has increased. If reached it would put the ADI below its 200-day ema.

Stocks to watch

Damac Properties was up 1.61 per cent last week to end at 3.04. The stock triggered a bullish trend continuation as it jumped above 2.99. It ended the Sensex (IN) 3870.00 week at a new high for 2017 and a twoyear high. Plus, it closed near the high for the week, which was 3.06. It should continue higher with the next potential resistance zone around 3.18, followed by its record high price zone around 3.67 to 3.87. Retracements towards 3.00 and the 2.99 breakout levels can be watched for new entries.

Aramex was flat last week ending at 5.11. Although it may not happen immediately the stock is poised to eventually breakout to the upside and continue to progress its long-term uptrend. Since hitting a 2017 high of 5.00 in earlyMarch the stock has been retracing prior gains and consolidating in a descending trend channel. So far the pattern has marked support at the 21-day ema.

At this point a bullish breakout it signalled on a decisive rally above the two-week high of 5.31. The odds then improve for a move above the 2017 high.

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net.