Last week’s 2.28% decline was the DFMGI’s weakest performance since the beginning of the nine-week uptrend
By Bruce Powers
Dubai: Last week the Dubai Financial Market General Index (DFMGI) declined 120.95 or 2.28 per cent to close at 5,181.14. Most listings participated in the weakness with 26 declining against eight advancing. Volume decreased from the prior week.
The index just barely made a new high, reaching 5,406.62 versus the prior week’s high of 5,394.88. Earlier in the week it dropped below the prior week’s low for the first time in nine weeks. That’s when the current rally began following a 9.07 per cent decline. The total advance during the rally has been 39.73 per cent. Last week’s 2.28 per cent decline was the DFMGI’s weakest performance since the beginning of the nine-week uptrend.
Even though the previous week’s low (5,078.37) was exceeded to the downside, we did not see a daily close below it. That would have given confirmation of weakness and increased the odds for further downward pressure. Given that, the DFMGI remains in a three-week consolidation phase with uncertainty as to the next likely direction. But there are additional signs to be diligent.
The nine-week uptrend remains intact, but the outlook weakens on a decisive daily close below the three-week low of 5,000.84. That would be the first clear sign that the trend is weakening and that selling pressure may increase from there. That low is being used instead of last week’s low of 5,011.45 since it is the low of the three-week range.
There is also a small bearish double top trend reversal pattern that has formed on the charts of the DFMGI. A drop below the three-week low would also trigger a breakdown of that double top pattern, providing further evidence to support a short-term bearish scenario.
An eventual drop to at least the 4,762.21 to 4,715.56 support zone is then likely. Those price levels are derived from prior weekly support and the 12-week exponential moving average (ema), respectively. The 12ema is a trend indicator used in this case to help identify a higher probably support zone for the trend.
Over the past eight months the DFGMI has bounced off the 12ema on a weekly chart during each of the two corrections that occurred during that time, the first a 5.55 per cent decline and the second 9.07 per cent, and it did not go below it. The 55-day ema can also be used in this case since it has tracked similar price levels as the 12-week ema.
For an upside continuation of the trend we would need to first see a daily close above last week’s high of 5,406.52.
The Abu Dhabi Securities Exchange General Index (ADI) held up better than the DFMGI last week as it fell only 25.92 or 0.51 per cent to close at 5,021.47. Volume dropped below the prior week and individual stocks were skewed to the downside, with 27 declining and 14 advancing.
Keep in mind that the ADI has already been in a minor correction since hitting a 5,239.38 high a month ago, and since has fallen as much as 5.55 per cent. Last week support was found at 4,948.59, right in the area of the 12-week ema, and the 55ema on the daily chart, before bouncing. The short-term trend remains down though until there is a daily close above last week’s high of 5,070.18.
As with the DFMGI, the price area of the 12ema on the weekly chart has done a good job of identifying support during two corrections over the past eight months. The most recent prior correction was 7.3 per cent, and the earlier one was 3.56 per cent.
A daily close below last week’s low will likely lead to further selling by investors. The next lower target would then be approximately 4,783, close to the 21ema on the weekly chart and the 100ema on the daily chart. More significant support is around 4,639.78, the swing low of the 7.3 per cent correction that completed in March.
A daily close below that swing low would start to change the long-term structure of the uptrend and would be the most significance bearish indication in two and a half years, which is when the ADI started its current long-term ascent.
Stocks to watch
A bearish double top pattern triggered last week in Union Properties as the stock moved below, and closed below support of 2.60 on both a daily and weekly basis. The stock was down 13.16 per cent to close at 2.31. The next support zone is around 2.00.
Abu Dhabi Commercial Bank has been consolidating for the past six weeks in a relatively tight range around the most recent peak of 8.25. The stock advanced 8.14 last week to close at 8.14. A decisive daily close above the peak signals a continuation of the uptrend. The next upside target would then be around 9.67, which would complete a 61.8 per cent Fibonacci retracement of the long-term downtrend, begun from the September 2005 peak.
Signs of weakness rather than strength begin on trade below 7.85, and further confirmed on a drop below 7.69.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at firstname.lastname@example.org