Further retracement looks likely in short-term on UAE markets

UAE markets were split again last week, with Abu Dhabi advancing while Dubai declined. This has been a trend for much of this year. Both markets will benefit if Abu Dhabi can stay strong long enough for Dubai to turn back up with conviction.

Dubai

The Dubai Financial Market General Index (DFMGI) has been under pressure since late last year and it remains prone to further selling. Last week the index dropped by 53.83 or 1.81 per cent to end at 2,920.11, thereby putting an end to a five-week winning streak.

Market breadth was on the bearish side with only nine advancing issues against 27 declining, while volume increased slightly to a three-week high.

Even though the index recently rose by as much as 6.5 per cent off the 2,805.44 swing bottom from seven weeks ago, the overall price pattern remains bearish.

A pattern of lower swing lows and lower swing highs is well in place starting from the October 2017 peak. Last week’s range represents a reversal of a five-week uptrend as the high of 2,983.67 did not exceed the previous week’s high of 2,986.36. On the downside the week’s low of 2,913.39 fell below the previous week’s low and essentially found support at the three week low of 2,911.81.

At the same time, there is reason to believe that the 2,805.44 trend low and 2018 low may hold as the area is marked by both prior weekly support and resistance, and contains a couple Fibonacci price levels where support could be found. In addition, the minimum target from a large head and shoulders topping pattern, that formed over the past couple of years, was reached at 2,815.30. That pattern broke down in early-February.

Certainly, last week’s performance increases the chance for a test of support and possibly some consolidation.

This could set the stage for a more robust bottom formation that could then lead to a reversal higher. However, at this point we’ll have to wait and see.

Nevertheless, a drop below the 2018 low would signal a bearish continuation of the General Index 1-week change 1-week % change Advanced Declined long-term downtrend with the next target near the January 2016 lows of 2,590.72. Alternatively, a daily close above the twoweek low of 2,986.36 would give a bullish signal with the DFMGI then targeting the nine-week high price of 3,109.30.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was up 60.61 or 1.26 per cent last week to close at 4,872.03. There were 13 advancing issues and 17 declining, while volume reached a three-week low.

As of last week’s 4,952.77 high the ADI was up as much as 2.9 per cent for the week before pulling back to close below the half way point of the week’s high to low range. That can be considered a weak close especially since last week’s high continued a seven-week advance and was a new trend high. It reflects a slowdown in upward momentum after the ADI exceeded the July 2015 peak of 4,902.09 and went on to test a potential resistance zone around the November 2014 swing high of 5,004.10. At the same time it is a new weekly closing high for the uptrend that began off the January 2016 lows. Further, the 14-day Relative Strength Index (RSI), which measures the strength of momentum turned down from being the most overbought since January, providing another sign of short-term weakness.

All of this indicates that a deeper pullback from last week’s high is likely or at least some consolidation of the gains that have occurred over the past seven weeks or so. A normal retracement from last week’s high could see the ADI fall to at least the three-week low around 4,738, followed by potential support around the four-week low of 4,673. The lower price zone would have also completed a 50 per cent retracement of the uptrend starting from the mid-May swing low.

Stocks to watch

Dana Gas was the fourth best performer in the Abu Dhabi exchange last week, rising 0.06 or 5.6 per cent to close at 1.14. This is the strongest weekly closing price since the record high of 1.20 was reached in early-2009, and points to the likelihood 3600.00 3500.00 3400.00 of further strength in the coming weeks. It’s now only a little more than five per cent away from the 2009 high.

Next, the stock is targeting the 1.15 peak reached 14 weeks ago and should easily surpass it. Once that occurs Dana then targets the 1.20 price zone. If it keeps going, and the expectation is that it will, it first heading towards approximately 1.25 and then 1.30. These price targets are derived from Fibonacci ratio analysis and identify potential projections and extensions of prior swings. Fibonacci analysis is one of the few techniques that can be used to identify potential resistance or targets once price heads into new territory not seen before.

Regardless of the above bullish scenario, if instead weakness comes it will first be seen on a drop below last week’s low support of 1.08. That’s also a two-week low as support was seen at the same price the week before last. Ideally a breakout above last week’s high comes quickly this week and with enthusiasm and decisiveness.

■ Bruce Powers, CMT, is a technical analyst and global market strategist.