Oil prices took a definitive dive last week as it broke down from a three-month low volatility consolidation phase. Even though there will be short-term rallies the bears will likely be in control for a while longer as technical price targets are lower. The resulting negative investor sentiment could keep a cap on further advances in UAE stocks until the price correction has completed. So far the sell-off from oil is just a pullback in a developing uptrend with the price structure of the larger bullish trend remaining intact. Regardless, if the selling continues at last week’s pace it could take some time for oil to get back in trend and put similar pressure on the developing uptrends in the UAE exchanges.

Dubai

The Dubai Financial Market General Index (DFMGI) fell by 63.49 or 1.77 per cent to close at 3,520.17, its weakest performance in five weeks. Market breadth was also bearish with only five advancing issues against 32 declining, while volume was about even with the prior week.

Support for the week was seen at 3,485.08. That’s right around the second support zone of 3,502 to 3,490.66 discussed last week. It includes the most recent swing low from December, the 200-day exponential moving average (ema), now at 3,503.66, and the long-term uptrend line. If selling pressure continues into this week last week’s lows could be tested again and may or may not stop a further decline. There’s still a good chance of this occurring given that the 14-day Relative Strength Index momentum oscillator (RSI is not yet in oversold territory, meaning that downward pressure on prices remains.

A decisive daily close below last week’s 3,485.08 low will trigger a break below the 200-day ema and the uptrend line thereby increasing the chance for further downside. However, keep in mind that potential support levels point to areas of price support, not exact prices. Lower areas to anticipate support are at 3,378 to 3,350, and then followed by the lower area of the large rectangle consolidation pattern from around 3,197/3,195.

For the past four weeks the DFMGI has fallen with a series of lower or equal weekly highs and lower weekly lows. That pattern starts to change on a daily close above last week high of 3,583.79. At that point further upside may be possible, with resistance next around 3,626 to 3,657

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) dropped by 139.09 or 3.03 per cent to end at 4,457.30. That’s its weakest performance in six weeks. There were 10 advancing issues and 28 declining, while volume dipped to a 10-week low.

Prior support seen at the swing low of December (4,436.65) and then in February (4,439) was tested again with last week’s low of 4,437.57. Whether that price zone continues to hold further declines on another approach remains to be seen.

Given that the last swing high of 4,668.77 from two weeks ago is lower than the prior swing high of 4,715.05 from January, the odds favour at least another test and very possibly a break below those price levels. Also bearish is the fact that the ADI closed below the 200-day ema for the first time since early-December.

If a daily close below 3,336.65 occurs it would trigger a bearish continuation of the seven-week downtrend. The index would then be heading towards the long-term uptrend line, followed by the 4,350 price support area.

However, in the near-term a bounce in an attempt to fill the opening gap down that occurred on Thursday seems likely. Strength is first indicated on a move above last Thursday’s high of 4,499.93, with the gap being filled at 4,589.06.

Stocks to watch

Emaar Properties broke below and closed below two trend lines last week. Both the short-term uptrend line marking the lower angled support boundary of a two-month consolidation pattern and the long-term uptrend line. This is significant as price dropped below the two lines which had converged to identify a similar area of potential price support. Therefore, we can anticipate further selling as the selling pressure just intensified on the breakdown. Selling will likely dominate until Emaar can find sustainable support at lower prices. Last week Emaar ended down 3.67 per cent to 7.34.

The next potential short-term support zone is from around 7.05 to 7.01, consisting of the 200-day ema and swing low support from the end of December, respectively. At the same time Emaar gapped up at the beginning of December and that gap has not been filed. A price gap is filled once a stock trades within the price range represented by the gap. Part of the gap from December has been filled leaving a range of 6.93 to 6.82 to still be filled. Since Emaar is now heading towards the gap and gaps will usually fill eventually, we can anticipate the same for Emaar. This means a minimum downside target of 6.82 has a high probability of being reached.

At the same time the measuring objective from the recent two-month consolidation pattern and support represented by the long-term uptrend line identify a similar area of potential support which is from approximately 6.70 to 6.62.

 

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.