Long-term out­look for Dubai takes an­other turn down

Gulf News - - Markets - Bruce Pow­ers

Re­gard­less of the short­ened three-day trad­ing week, the bear mar­ket con­tin­ued in Dubai with the Dubai Fi­nan­cial Mar­ket Gen­eral In­dex (DFMGI) fall­ing 88.39 or 3.31 per cent to end at 2,580.27. This is the sec­ond week in a row where the in­dex fell more than 3.0 per cent. There were only five pos­i­tive is­sues, while 30 de­clined. Weekly vol­ume fell given the shorter week. For the year, the in­dex has fallen 23.4 per cent, and it is down 31.2 per cent from its 2017 peak of 3,738.69.

Of greater sig­nif­i­cance than last week’s per­for­mance how­ever, is the fact that the DFMGI has not only closed be­low the prior long-term swing low sup­port of 2,590.72 from Jan­uary 2016, but it has closed be­low it on a weekly ba­sis. As the in­dex fell last week there was no sign of sup­port at the 2016 lows. This is con­trary to the clear sup­port seen in 2016 as the in­dex quickly turned higher back then and moved into a sus­tained rally. Tech­ni­cally, last week’s ac­tion is long-term bear­ish — a con­tin­u­a­tion of the de­cline that be­gan off the 2014 highs has been trig­gered.

There­fore, the pos­si­bil­ity of an ac­cel­er­a­tion in down­side mo­men­tum has in­creased. Any chance for a re­cov­ery has been ex­tended into the fu­ture.

Look­ing back at pre­vi­ous price ac­tion, there may first be some de­gree of sup­port seen around the monthly price area of 2,409. That’s where re­sis­tance was seen at the peak from Oc­to­ber 2009 and now it may be a sup­port area. Nev­er­the­less, there is no fur­ther ev­i­dence for the po­ten­tial sig­nif­i­cance of that price zone and there­fore it is not likely an area that will hold for the long-term.

Fur­ther down, is a price zone that is iden­ti­fied by mul­ti­ple months in the past as ei­ther sup­port or re­sis­tance, and it in­cludes a 127 per cent Fi­bonacci ex­ten­sion of the 2016 rally, and the 78.6 per cent Fi­bonacci re­trace­ment of the long-term up­trend com­ing off the 2012 bot­tom. That price zone is ap­prox­i­mately 2,243 to 2,174. Fi­bonacci ra­tio anal­y­sis is used to math­e­mat­i­cally iden­tify po­ten­tial sup­port and re­sis­tance zones us­ing spe­cific ra­tios that are ap­plied to prior price swings. When more than one mea­sure­ment iden­ti­fies a sim­i­lar price area then it is con­sid­ered to have greater po­ten­tial sig­nif­i­cance and there­fore we could see a re­ac­tion from price once it is reached.

The above price zone can there­fore be looked at as a likely min­i­mum even­tual tar­get fol­low­ing last week’s bear­ish long-term trend con­tin­u­a­tion trig­ger. This doesn’t mean that the DFMGI won’t con­tinue lower, just that once the zone is reached there is a greater chance for a re­ver­sal of some de­gree.

Abu Dhabi

Abu Dhabi con­tin­ues to hold up much bet­ter than Dubai. Last week the Abu Dhabi Se­cu­ri­ties Ex­change Gen­eral In­dex (ADI) rose by 106.60 or 2.23 per cent to close at 4,876.68. This, after a sharp sell-off the prior week that took the in­dex be­low key sup­port. There were 14 ad­vanc­ing is­sues and 15 de­clin­ing, while vol­ume fell to a five-week low given the three-day trad­ing week.

The ADI re­mains at risk of see­ing a deeper pull­back fol­low­ing the drop be­low 4,836.08 two weeks ago. If it does con­tinue lower the price lev­els that can be watched for some de­gree of sup­port in­clude a price zone from ap­prox­i­mately 4,721 to 4,505, fol­lowed by 4,414. How­ever, the 4,244 to 4,174 area is key as that’s the lower end of a con­sol­i­da­tion zone that formed the past cou­ple of years. Sub­se­quently, a break­out was seen in July.

At the same time, we could just see fur­ther con­sol­i­da­tion in the ADI as the bulls and bears con­tinue to fight it out within a price range. For those stu­dents of tech­ni­cal anal­y­sis and chart­ing, the top­ping pat­tern that has oc­curred in the ADI over the past sev­eral months is a broad­en­ing top. A break­down oc­curred two weeks ago but has not yet fol­lowed through as much of last week’s ac­tiv­ity is con­tained inside the pat­tern.

You can get an idea of where the DFMGI could be head­ing by look­ing at the chart of the Dubai Fi­nan­cial Mar­ket. It broke be­low its Jan­uary 2016 low in the sec­ond quar­ter of this year. After a short lived sub­se­quent bounce, it con­tin­ued to fall, and is now fast ap­proach­ing its 2012 low of 0.678. Last week the stock was down 0.05 or 6.02 per cent to close at 0.78.

Although the trend pat­terns are not ex­actly the same as what we see in the DFMGI, there is a sim­i­lar­ity as each found a sig­nif­i­cant low in Jan­uary 2012 and Jan­uary 2016. Also, they each topped around the same time after var­i­ous ral­lies on the way down off the 2014 highs. There­fore, we can say the Dubai Fi­nan­cial Mar­ket has been lead­ing the in­dex. In that case, changes in the pat­tern of the Dubai Fi­nan­cial Mar­ket may pro­vide an early in­di­ca­tion of what might be com­ing to the broader mar­ket.

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

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