Local bourse moves likely to play out in opposite directions

he Dubai Financial Market General Index (DFMGI) dropped by 56.39 or 1.63 per cent last week to close at 3,412.26. Market breadth was clearly bearish with 27 declining issues and only eight advancing, while volume dipped to a four-week low.

This was the second decisive down week in a row for the DFMGI and it follows a three-week 6.5 per cent rally off the late-December low. The top of that rally was 3,542.90 and it was hit three weeks ago. Since then the index has fallen as much as 4.2 per cent as of last week’s 3,392.76 low. Lower prices have been seen on 11 of the past 13 days.

It’s not clear yet whether the retracement has come to an end but there is reason to believe it may be close. First, when assessing the price patterns of the past few months it looks like the December swing low is an important intermediate-term bottom and an attempt at higher prices from here is likely. So far there has been only one leg up off that bottom (6.5 per cent rally). Once the current pullback is complete, strength should return with the DFMGI at least making an attempt to move above the recent 3,542.90 swing high, with a good chance it goes higher.

Last week’s decline completed a 61.8 per cent Fibonacci retracement of the 6.5 per cent rally at 3,408.67. Nevertheless, in case the index dips lower, more significant support is close below around 3,371. At the same time, a drop below the recent swing low would be bearish in that it would signal a breakdown of a large symmetrical triangle consolidation pattern, and consequently a break below an uptrend line.

A move above last week’s high of 3,471.89 gives the first sign of strength, with the index then targeting the most recent swing high. Above the swing high is a range of potential resistance going up to the double-top high of around 3,680 to 3,684.19. If the DFMGI can close above the high price level a bullish trend continuation signal will be generated with the intermediate-uptrend that starts from the June 2018 swing low.

The Abu Dhabi Securities Exchange General Index (ADI) fell by 31.21 or 0.67 per cent to end at 4,612.33. There were nine General Index 1-week change 1-week % change Advanced Declined advancing issues and 21 declining, while volume was flat with the previous week.

Following seven consecutive weeks of gains the ADI dipped below the prior week’s low of 4,604.94 for the first time in at least a month.

Abu Dhabi

Last week’s low was 4,595.86. In addition, another sign that upward momentum is starting to weaken at least for the short-term, was the lower weekly high that occurred. In other words, last week’s high of 4,645.30 was lower than the ninemonth high from two weeks ago. We now have the building blocks for a deeper pullback, i.e. lower weekly high and lower weekly low. A deeper pullback is perfectly healthy and normal following an aggressive seven-week 9.6 per cent advance.

Nevertheless, the behaviour of the index during the advance provides a greater possibility that the 2017 peak of 4,715.05 will eventually be tested and maybe exceeded. First, seven consecutive weeks of positive performance is bullish behaviour, and that has not happened since the first quarter of 2014. Then we have the decisive advance above the downtrend line and subsequent rise away from the line. And finally, there were a couple prior swing highs that were exceeded to the upside on a weekly closing basis.

Therefore, a move lower should be watched carefully for support to be found and strength to again return. The first price support area looks to be around the prior swing high from October at 4,531.65. Then we have potential support around the downtrend line where the price represented by the line will vary depending on when it is reached. Yet, the 38.2 per cent Fibonacci retracement area can be used as a proxy for the price zone represented by the line and that is at 4,495.78.

Stocks to watch

Arabtec Holdings was up 2.63 per cent to close at 2.73, the third best performer in the Dubai market last week. The stock broke out of a double bottom trend reversal pattern on high volume near the beginning of the year as it rallied above 2.50 and kept going. Resistance was subsequently seen at 2.78 one week later, leading to a pullback to support of 2.59 (three-week low).

Last week early signs of strength returned with Arabtec breaking above the prior week’s high of 2.72 and closing above it on a weekly basis. The breakout day last Thursday was accompanied by a spike in volume to a 16-day high. Further, on a daily chart another double bottom pattern has formed with last week’s close triggering a breakout of this second double bottom. Although there’s still a ways to go, these are early signs that Arabtec may be getting close to advancing higher.

A breakout above last week’s high provides the next sign of strength with a bullish trend continuation triggered on a move above 2.78. Such a move would also confirm a breakout of a downtrend line that around the April 2017 peaks.

Bruce Powers, CMT, is a technical analyst and global market strategist. Sensex (IN)