UAE markets churn in consolidation

Volume on the Dubai Financial Market spiked to the highest level since the first week in January, something that market experts consider extreme and which may also reflect growing bearish enthusiasm, but a potential breakout remains on horizon |

The Dubai Financial Market General Index (DFMGI) fell by 16.73 or 0.59 per cent last week to close at 2,809.87. Market breadth was close to even, with 17 advancing issues and 15 declining, while volume jumped.

Usually, volume is not too reliable of an indicator in the Dubai market. It may be the same for last week as well.

For the week, volume spiked to the highest level since the first week in January. That’s extreme and may reflect growing bearish enthusiasm.

The week was lower and pushing down against what has been support for a little over a month now. During that time, the index has moved within a relatively tight and narrow consolidation range from 2,853.76 to 2,795.87 (low of long-term 19-month downtrend).

Sometimes, a significant spike in volume while a market is within clear consolidation, can be a precursor to a breakout. It seems possible in this case given the characteristics of the downtrend and lack of upward momentum over the past month, as the DFMGI has remained near lows signifying relentless downward pressure. The most likely direction therefore would be down. However, we won’t know until a bearish trigger occurs or an upside breakout happens instead. A decisive drop below 2,795.87 signals a bearish breakdown.

There is a potentially bullish pattern that has been developing over the past several months or so and it may still play out. It’s called a three-drive pattern, where three swing lows occur sequentially and relatively close together in time. For the DFMGI, the first low was at 2,870.07 in early May, the second at 2,805.44 in late June, and the third remains in process.

If a move below the most recent low is triggered and a bullish three-drive pattern completes, the fall may be somewhat contained. For the pattern to evolve as it should, a low would be found around 2,756.23 (127 per cent Fibonacci extension of the most recent upswing). Failing that, an extended three-drive pattern may occur and it would find support around the 161.8 per cent Fibonacci extension of 2,693.63. On the upside, a short-term bullish breakout occurs on a rally above 2,853.76. The DFMG would then be targeting the weekly high of 2,922.40, followed by the latest swing high of 2,986.36.

Abu Dhabi on high

The Abu Dhabi Securities Exchange General Index (ADXGI) was up by 16.12 or 0.33 per cent last week to end at 4,934.44. Interestingly, most issues were down.

There were nine advancing stocks and 16 declining, while volume reached a 15week high. Consolidation continues for the ADI, as it remains within a three-week range with a high of 5,039.83 to a low of 4,869.41. It’s the highest of 2018 and an almost four-year high. So far, the consolidation is bullish as it’s hovering around previous resistance and now support, from July 2015. That resistance was first broken to the upside six weeks ago.

It is common for previous resistance to become support in the future if price is appreciating as we see with the ADI.

When previous resistance becomes support, it is one bullish sign. Regardless, we still need to watch the top and bottom of the range noted above to see where the index may be heading next. Either the developing uptrend will continue higher or further consolidation will occur, which may include a deeper retracement from the most recent swing high.

If a deeper retracement occurs, then it wouldn’t be surprising to see the 4,797 weekly support zone reached at a minimum. More significant potential support is where we previously saw resistance develop over a number of months in the past. That would be from approximately 4,745 to 4,652. If, on the other hand, a decisive rally happens above 5,039.83, the ADI faces a resistance zone up to the four-year high of 5,255.35. Nevertheless, it has taken some time to get back there, and given the upward momentum of the past 12 weeks, it would seem that it will try and break through at some point.

Stocks to watch

Deyaar Development broke out of a bullish double-bottom trend reversal pattern last week, as it jumped above 0.415 and closed above it on a weekly basis.

The weekly volume supported the bullish move as it reached a 24-week high. So far, the breakout topped at 0.46 as short-term profit taking set in, leading to a decline of 6.22 per cent on Thursday and slightly greater than 50 per cent retracement of the short-term uptrend. Thursday closed at the low of the day, so it wouldn’t be surprising for a 61.8 per cent Fibonacci retracement level of 0.417 to be reached as well as the prior swing high and top of the double bottom at 0.415.

Bottom support is near the lows of the prior five weeks, from around 0.39 to 0.381. A drop into that price zone or below it points to a failure of the bullish double bottom pattern. Upside targets following a lower pullback include last week’s high, followed by the most recent swing high around 0.485. That price area is the top of a 10-week consolidation range from April through June. A daily close above these points to further upside for the stock, with the next higher target zone around 0.50, followed by 0.539.