Dubai index slides lower while Abu Dhabi holds tight

ast week the Dubai Financial Market General Index (DFMGI) fell by 53.11 or 1.53 per cent to end at 3,416.71, the lowest weekly closing price since late-November. There were 13 advancing issues and 23 declining, while volume dropped to a four-week low. Keep in mind that last week was a short four days due to the holiday, which would impact volume levels.

The odds for a further decline have now increased. A bearish trend continuation signal was generated as the DFMGI dropped below the prior swing low of 3,434.14 from five weeks ago and closed below it on a weekly basis. This is the third week in a row that the index has fallen by more than one per cent. The index ended the week in a weak position within the lower quarter of the week’s range.

There are some support areas not too much lower, but given the weakness seen last week there’s also a chance the DFMGI will eventually fall to the lower end of the large consolidation range that has been developing for the past year. The low end support of that range is around 3,197 to 3,195.

A little above that support zone is a potential price target of 3,267.50. That’s the completion of a measured move, where the second leg down in the three-month downtrend matches the price decline of the first leg down. The first leg down started from the February high, and the second leg down started three weeks ago at the 3,571.10 swing high. Last week’s decline confirms the second leg down as the DFMGI broke below the prior swing low from five weeks ago.

Another bearish indication is that the index has been moving further below both its long-term trend line and 200-day exponential moving average (ema). This tells us that the upward momentum seen during the breakout to 52-week highs in January is continuing to wane. Last week’s decline puts the index deeper into the one-year consolidation range noted above and makes it less likely that a recovery is coming soon. The first potential support zone is then around 3,378 to 3,351.

Bearish implications will persist unless there is a daily close above the most General Index 1-week change 1-week % change Advanced Declined recent swing high of 3,571.06. However, minor bullish signals occur on a daily close above last week’s high of 3,488, and then on a move above the two-week high of 3,515.82. Since the DFMGI has fallen for each of the past three weeks it wouldn’t be unusual to have a counter-trend bounce before heading lower, if it is to head lower. We’ll have to watch how the index progresses in the coming days and weeks to get further insights into what might be coming next.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by only 8.72 or 0.19 per cent last week to close at 4,512.91. There were 15 advancing issues and 12 declining, while volume dipped to a five-week low.

For the past two weeks volatility has dropped in the ADI as indicated by the narrow open to close range for the week. This reflects uncertainty from investors. Nevertheless, what follows low volatility or growing uncertainty is higher volatility. Although it could take a few more weeks given where the ADI is within its larger price structure, the odds for an eventual breakout are increasing.

There’s no way to know which direction yet until there is a decisive move through one of the trend lines that defines the parameters of the price action of the past four months. One line is coming down from the January peak and defines dynamic resistance of the four-month range, and the other is the long-term uptrend line that starts at the January 2016 low. Near-term price parameters are last week’s high resistance at 4,588.78 and the two-week low support around 4,508.53.

Stocks to watch

Watch out for a potentially good size move to the downside for Emirates Telecommunication (etisalat). The stock has been consolidating for over a year and has formed a bearish head and shoulders top trend reversal pattern on its chart. Support of the pattern is from approximately 17.30 to 17.15. The first bearish signal is on a daily close below 17.30 with confirmation given on a drop below 17.15. At that point the decline is likely to pick up speed.

Based on the height of the pattern the potential minimum target following a breakdown would be around 14.25. If that price is reached then etisalat would also just about complete a 61.8 per cent Fibonacci retracement of the prior trend, which is at 14.11.

It is not uncommon for a stock that is retracing a prior trend, in this case the uptrend that began off the December 2014 low of 10.35, to eventually find support around a Fibonacci ratio price level. Given that the target from the head and shoulders pattern is close by, the 14.25 to 14.11 price zone can be used as a target.

A daily close above 19.00 (top of right shoulder) would negate the bearish head and shoulders pattern and turn the outlook for the stock to neutral or bullish.

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai. Sensex (IN)