UAE markets not making it easy for investors

The Dubai Financial Market General Index (DFMGI) fell by 36.39 or 1.3 per cent last week to end at 2,755.32. There were more than twice as many declining stocks at 27, as advancing at 12. As the index continued lower volume rose to a 16-week high.

Overall, the bears clearly remain in charge. In addition to the weak performance the DFMGI closed the week at its lowest level since the week of January 16, 2017. That was the low week for the bear market that started in May 2014. In addition, the attempt two weeks ago to rise above the most recent swing high of 2,852.27 failed.

At the moment, until proven otherwise, the odds favour a continuation of the bear market into new trend lows. A drop below the most recent trend low of 2,727.83 will trigger a continuation of the bear trend. Nevertheless, a daily close below that price level would be needed to confirm the bearish continuation. The next lower target would then be around the 2016 swing lows 2,590.72.

Technically, if the index falls below the 2016 low on a daily closing basis, a continuation of the long-term downtrend will be signalled. A bear trend has a series of lower swing highs and lower swing lows. We already have that pattern in the DFMGI since 2014. A drop below the 2016 will trigger a new swing low and therefore a continuation of the bear trend.

On the other hand, if we see a daily close above last week’s high of 2,854.49 the above bearish scenario may be avoided. The next obstacle would then be potential resistance around the threeweek high of 2,986.36.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 39.35 or 0.79 per cent to close at 4,966.77. Most of the issues participate downside as there were 19 declining issues and only five advancing. Volume popped to a four-week high.

It’s a bit of concern, given the position of the ADX in its price structure, that only five stocks were positive even though last week’s performance was not a significant move. The index has been unable to continue to new trend highs for the past six weeks. The longer it takes to get going to new trend highs, the greater the chance that a significant pullback comes.

The two price levels to watch now are the top of an eight-week consolidation range at 5,039.83, and the bottom of the range at 4,859. A decisive move through either price level should lead to further movement in the respective direction. So far, the situation looks to favour an upside breakout given that the uptrend from the May low is still in place.

A drop through the bottom of the seven-week range has the ADX next heading toward a potential support zone around the August monthly low of 4,797.20. The more likely target though is a possible support zone around the 2016 and 2017 highs from around 4,745 to 4,637. For some perspective, the 38.2 per cent Fibonacci retracement of the most current uptrend is at 4,725.31, and the 50 per cent retracement is at 4,631.07.

Stocks to watch

Islamic Arab Insurance was the winner in Dubai last week, advancing by 0.03 or 11.7 per cent to end at 0.305. The stock broke out of a bullish pennant trend continuation pattern as volume spiked to a four-week weekly high and closed at its highest level since November 2015.

This is potentially significant as the pennant consolidation phase followed a 54 per cent advance in two weeks. Next, we need to see new confirmation of strength with a daily close further above the most recent peak of 0.66 from five weeks ago.

Also important within Islamic Arab Insurance’s trend pattern is the presence of a multi-year consolidation range near the lower end of the last decade’s price range. That range has a record low of 0.301 for the stock. The top of the range is what’s next on the table as it is just above current price levels at 0.675 to 0.68.

Although the pennant is very bullish in this situation, any pattern can fail. In this case, a failure is first intimated on a move below last week’s low of 0.59 and confirmed on a daily close below the four-week low of 0.581.

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