Dubai

Last week the Dubai Financial Market General Index (DFMGI) fell by 672.46 or 13.6 per cent to close at 4,270.43, its biggest weekly decline since late-2008. Volume spiked to a 13-week high as selling intensified, while a significant majority of listings were negative. There were 35 declining issues and only two advancing.

The DFMGI has now fallen as much as 18.5 per cent below its most recent swing high of 5,193.03. Selling continued into the end of the week with the index closing near the week’s low of 4,231.12. Significantly, the index ended the week lower than its 200-day exponential moving average (ema), a measure of its long-term trend, for only the second time in a little more than two years. This is bearish behavior and unless there is a relatively quick recovery back above the 200-day ema, the DFMGI is at risk of further declines.

However, there are also signs that last week’s support of 4,231.12 could hold as it is very close to the 55-week ema (now at 4,212.25, and prior resistance (now support) from February. This would be only the third test of that moving average since the DFMGI moved above it in mid-July 2012. During the most recent correction, ended in late-June, the index found support at the 55-week ema and rallied strongly from there.

A decisive daily close below 4,212.25 would give a new bearish signal, putting the long-term uptrend price structure at risk of failure. This could lead to a deeper selloff or a continuation of a large developing consolidation phase.

There is now a lower swing high (5,193.03) in the trend patten of the DFMGI, opening up the possibility that we are in the early stages of the development of a bearish double top reversal pattern. That pattern is not triggered until there is a decline below the June corrective low of 3,730.91. Until then the double top pattern is not confirmed and could easily fail to develop to completion. A drop below the 55-week ema increases the odds that it could be triggered.

The next area to watch for support below last week’s low starts around 3,869 and goes down to 3,730.91.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 309.28 or 6.09 per cent last week to close at 4,768.15, its weakest performance since December 2009. Volume jumped to a 13-week high, while there were 34 declining issues and only eight advancing.

As with the DFMGI, the ADI has also closed below its 200-day ema. This is the first time it has done so since moving above it in August 2012. All support levels identify areas of price support, and Thursday’s closing price was not too far below the moving average. So, the index could still hold support of the price area of the 200-day ema as long as there is not a daily close below last week’s low of 4,715.25. If that happens, it would likely lead to further selling. As of last week’s low the ADI has dropped 10 per cent from its most recent swing high of 5,241.

On a weekly view the next support zone is from approximately 4,658.78 to 4,638, consisting of the 55-week ema, now at 4,658.78, and previous support from the two week decline that ended in early-February. A daily close below that lower level would have three bearish signals, as the ADI would then be below the 200-day ema, below the 55-week ema, and below February support. The next target would then be the corrective low of 4,453 from late-June.

Stocks to watch

Shuaa Capital triggered a downtrend continuation last week as it fell below and closed below the July corrective low of 0.95, and the 55-day ema crossed below the 200-day ema. Together, these factors point to lower prices for Shuaa in the coming months.

This is the first time since May 2013 that the 55-day ema has been below the 200-day ema and it provides a classic bearish signal when using moving averages to identify changes in trend

Last week Shuaa ended down 18.8 per cent at 0.909. Volume surged to a 19-week high. Its next support zone starts around 0.80 and goes down to around 0.67. Given that Shuaa only saw one wave up off the July bottom, and that swing low was broken last week, the odds seem good that it will eventually reach those lower price levels.

Even with current weakness, technically, Emaar Properties remains stronger than most stocks. Last week Emaar declined by 13.54 per cent to close at 9.90, putting the stock back below its 55-day ema for the first time since late-July. Volume hit a six-week high.

The next more significant support zone for Emaar starts around 9.56 (200-day ema) and goes down to approximately 9.50. That lower price level is the 61.8 per cent Fibonacci trend retracement level. Last week the 50 per cent retracement level was exceeded to the downside, thereby improving that odds that 9.50 could eventually be reached.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at MarketsToday.net. He is based in Dubai.