Dubai

Last week the Dubai Fnancial Market General Index (DFMGI) was not spared from global market volatility as the index dropped by 86.64 or 2.54 per cent to close at 3,325.62. This was its worse performance in 13 weeks and the third consecutive week down. Most issues lost money with 37 declining and only four advancing. Volume however fell to its lowest level since late-September rather than increase as it may when price breaks support and there is potentially sustainable underlying selling pressure.

The index has now fallen as much as 10.9 per cent off the October peak as of last week’s low at 3,283.66. That low touched the support zone around the June 2017 swing low. That swing low was part of a support zone from around 3,287.50 to 3,264.36. Nonetheless, that price range is part of a larger support zone that ended at 3,195.94 (2016 low). That’s the lowest price for the DFMGI since late-February 2016 and the lower end of a two-year rangebound period for the index. The range takes the form of a large symmetrical triangle consolidation pattern.

In that case last week’s price action takes on greater importance as the rising trend line at the bottom of the pattern was broken to the downside and the DFMGI has closed below it on a weekly closing basis. This is a bearish signal by itself. At the same time a bearish trend continuation signal was generated as the most recent swing low from seven weeks ago at 3,325.98 was broken. These two bearish signals increase the chance that the index will at least test the 2016 lows, and could bust below them. There’s no indication though that a break below the 2016 lows would lead to an eventual drop below the January 2016 swing low. So, for now we can anticipate that if the area of the 2016 low is approached there is a good chance that support will again be seen somewhere around that price area.

Alternatively, a rally above last week’s high and subsequent daily close above it signals a short-term bullish reversal. At that point the chance for further upside increases as the move reverses the three-week downtrend and puts the DFMGI back above the rising trend line. The top falling line of the symmetrical triangle would then be a high target as the odds for a continuation of the consolidation triangle improves. But first resistance could be seen around the most recent swing high of 3,542.90.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 12.86 or 0.28 per cent last week to end at 4,599.47. Market breadth leant on the bearish side with 21 declining issues and 14 advancing, while volume reached a four-week high.

Although the ADI was down as much as 2.6 per cent earlier in the week it almost fully recovered by the end to close in the quarter of the week’s range. This is short-term bullish behaviour. Further, last week’s low of 4,492.49 (support for the week) was an almost perfect 38.2 per cent Fibonacci retracement of the prior most recent uptrend coming off the late-December swing low. The 38.2 per cent retracement completed at 4,495.78 and price was rapidly rejected in that support zone.

Fibonacci ratio analysis is one method to mathematically calculate potential support or resistance price levels from either a prior uptrend or downtrend, respectively. A retracement that finds support at the earlier Fibonacci ratio of 38.2 per cent shows greater strength than a deeper retracement. It therefore reflects a higher potential for price to continue the dominant trend, in this case an uptrend. At the same time last week’s low was also a test of support of the downtrend line that starts from the January 2017 high, another sign of bullish behaviour.

The ADI faces resistance up to the most recent swing high of 4,651.11. If it can close above that resistance on a daily basis it then has a chance to confront the 4,668.77 February 2017 peak and the 4,714.05 January 2017 peak (high since August 2015).

Stocks to watch

DXB Entertainments is now at a critical area. Last week the stock was down 7.04 per cent to close at 0.594, making it the second weakest performing company in the Dubai market. A bearish trend continuation signal was generated as the prior trend low of 0.613 was broken to the downside and the week ended below that price. That’s the lowest price for DXB since January 2015 and the lowest weekly closing price ever.

DXB has been in a steady decline since hitting a record high of 1.77 in August 2016. It is now at risk of falling into unknown price territory as the record low for the stock is 0.588, which occurred the second week after its IPO in 2014. In other words it looks like key support could soon be broken.

The only potentially bullish indication is that there is a bullish divergence in the 14-week Relative Strength Index momentum oscillator. Since it is on the weekly chart it does carry some weight, but only if there is a bullish signal in price. That would next occur if there was a daily close above last week’s high of 0.636.

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