Dubai
Last week the Dubai Financial Market General Index (DFMGI) dropped by 62.40 or 1.77 per cent to close at 3,468.65. There were 14 advancing issues against 25 declining, while volume peaked above the prior week’s level.
The decline last week put an end to a pattern of weekly gains as the index had five straight weeks of positive performance. As referenced in last week’s column, the DFMGI has not seen more than five weeks up in a row for at least the past three years. This made the chance for a pullback very high, and given the structure of last week’s price behaviour it looks like the pullback may have further down to go before it’s complete. There are a several points that illustrate this assessment.
First, last week’s high of 3,539.88 did not exceed the prior week’s high of 3,542.90 (11-week high), a sign of weakness. Then there is last week’s low of 3,453.53, which was well below the previous week’s low of 3,489.17, and almost dropped below the three-week low at 3,453.44. Finally, the weekly close was well above the prior week’s low, plus it was in the bottom quarter of the week’s range.
Note that not only did the DFMGI find support at the three-week low last week, but also where resistance was clearly seen at the minor two-day swing high of 3,454.35 from mid-December. This is a great example of the technical analysis principle of polarity, where prior price resistance levels can become support in the future or where prior support levels can become resistance — a classic pattern of price behaviour.
A drop below the three-week low will give the next bearish signal. There is not much that clearly stands out when looking at the past for prior price support and resistance levels. Those price levels would then be watched as potential support during further weakness. Given that, Fibonacci retracement levels are calculated to provide some guidance. Fibonacci ratio analysis uses the prior trend, in this case the most recent short-term uptrend, to calculate where support might be seen. The first level to watch is the 50 per cent retracement of the prior trend at 3,434.44, while the more significant 61.8 per cent retracement completes at 3,408.84.
Certainly, in the short-term a retracement higher may be seen, in which case watch for resistance around 3,489, followed by the 3,511 price area.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) maintained its upward momentum a little better than Dubai, as it was positive, rising 18.15 or 0.39 per cent to end at 4,643.54. There were 12 advancing issues and 20 declining, with volume essentially flat with the previous week.
A bullish trend continuation signal was given with last week’s high of 4,651.11 exceeding the prior week’s high of 4,634.91 and the low of 4,605.94 well above the prior week’s low of 4,567.98. In addition, the week’s close was above the prior week’s high, in the top quarter of the week’s range, and at an 11-month closing weekly high. Last week’s close is also the fourth highest weekly close in two years, and it puts the ADI only 1.5 per cent away from the two-year high at 4,715.05. A daily close above that peak would provide a strong long-term bullish signal.
Despite the strong performance over recent weeks the index is well overdue for a stall or retracement. For one thing, it has been up seven straight weeks in a row. This has not happened since the steady 15-week advance that began in November 2013. It is therefore an intermediate-term bullish sign, but short-term bearish. In addition, the 14-day Relative Strength Index (RSI) momentum oscillator, which measures momentum or the speed of price appreciation, has started to turn down after going sideways for the past several weeks even as price kept rising. Recent RSI overbought levels have not been this high since the January 2017 peaks.
If last week’s low is breached to the downside then the chance for a continuation lower increases. The next weekly support area would then be around the two-week low of 4,567.98, followed by the three-week low at 4,530.34. Lower down is the 50 per cent retracement at 4,447.80, followed by the 61.8 per cent Fibonacci retracement at 4,399.82.
Stocks to watch
Dubai Islamic Bank was down 0.92 per cent last week to end at 6.49. What is noticeable in this stock is the large 11-month bullish ascending triangle basing pattern that completed at the start of the year. This pattern is a classic bullish trend continuation pattern once confirmed by a decisive breakout. That breakout came on January 3 as Dubai Islamic rallied above resistance of the pattern at 6.29 and kept going. Two weeks ago a high of 6.63 was reached before last week’s pullback.
So far there’s only been one rally post breakout and a retracement that started last week. This is perfectly normal and healthy for the long-term uptrend. Unfortunately, the only price area to identify potential support is at the prior resistance zone from approximately 6.29 to 6.24. The odds favour an eventual continuation of the uptrend following a deeper retracement, given the overall pattern of consolidation along with decisive nature of the initial breakout.
Bruce Powers, CMT, is a technical analyst and global market strategist.