Last week the Dubai Financial Market General Index (DFMGI) fell by 172.43 or 4.76 per cent to close at 3,449.81, that’s the largest one-week decline since May 2016 and the lowest close in 18 weeks. Most issues fell as there were 34 declining and only eight that advanced, while volume increased from the previous week.
The precipitous fall triggered the breakdown of a double top trend reversal pattern on a move below 3,538 with the index then retracing just over two thirds of the prior advance. In addition, the minimum anticipated target of 3,391.90 from the double top was just about reached, close enough to consider finished.
As of last week’s low of 3,397.92 the index was down 6.2 per cent for the week before recoving into the close. Also at that low the DFMGI was 7.8 per cent below the recent peak of 3,684.19 hit only three weeks ago. Selling pressure remained into the end of the week with the index closing in the bottom quarter of the week’s range.
On a daily basis the DFMGI reached an extreme oversold reading on the 14-day Relative Strength Index (RSI), an oscillator that measures momentun. The RSI has not been this oversold since the long-term bottom in January 2016. Such an extreme oversold reading along with the completion of a two-third retracement of the prior trend, could lead to at least a decent bounce in the short-term.
It looks like that in the short-term the index could see a further bounce from Thursday’s 1.02 per cent advance, which follows five straight days of declines. The signs are the extreme oversold condition, plus the completion of a 61.8 per cent Fibonacci retracement which occurred last week, plus the completion of the double top minimum target, combined with Thursday’s positive performance.
The obvious resistance area to watch on any bounce is around the bottom of the double top pattern at 3,538 and up to the August low around 3,560. Of course, that is a rough range. The thing to remember is that on a rally the DFMGI is heading up into a resistance consolidation zone. Actual resistance may be exhibited at any number of price areas.
The Abu Dhabi Securities Exchange General Index (ADI) declined by 88.93 or 1.99 per cent to end at 4,376.22, its weakest performance since April. There were eight advancing issues and 26 declining, while volume increased to the highest level in three weeks.
Obviously, the bear trend that started four weeks ago picked up steam last week as the ADI triggered a continuation of the declining trend as it dropped below 4,443, and eventually fell to an eighteen-week low of 4,358.44, the low for the week. At that point the ADI was 3.8 per cent off its 4,531.65 peak from four weeks ago. That low hit a support zone from 4,358.36 to 4,355.26. On two prior declines this year the ADI found support in that price zone and reversed higher. The same thing may happen again and that’s one scenario to watch for.
The next sign of strength would then be on a rally above Thursday’s 4,400.04 high and then on a move above Wednesday’s high of 4,425.33. At that point the ADI has at least a chance to eventually continue back towards the recent 4,531.65 peak and maybe high, up to the long-term downtrend line, roughly around 4,540.
Nevertheless, a bigger concern right now is the large bearish descending triangle consolidation pattern that has formed throughout this year. Last week’s low was the third time that the index has recognized that support zone. A descending triangle has a horizontal support bottom whereas the top of the pattern has a series of falling peaks. In other words each successive peak in the pattern is lower than the prior. This is an overall bearish market behavior, which is why this pattern is considered to be bearish.
A decisive drop and subsequent daily close below 4,355.26 triggers a bearish breakdown of the triangle. At that point selling could intensify down to the next support zone of any significance, from around 4,278 to 4,174.
Stocks to watch
As seen in the DFMGI, bellweather Emaar Properties has also become the most oversold since the bottom of the bear market in January 2016. Regardless, a market can remain oversold and either stay down or fall further.
As of last week’s 7.60 Emaar had corrected 15.1 per cent off the 2017 peak of 8.95 reached in mid-September, and was down as much as 8.5 per cent for the week. By the end of the week the stock was down 6.14 per cent to close at 7.80.
Over the past one-and-a-half years or so Emaar has been trending higher in an ascending trend channel. It remains in that uptrend as it is still above the lower ascending trendline of the channel. The area of the line or above is where we can anticipate at least some degree of support. This week support of the line looks to be around 7.48, and little lower are several Fibonacci ratio support levels with a low of approximately 7.35. The range then from around 7.48 to 7.35 should be watched for some signs of support.
Bruce Powers, CMT, is a technical analyst and global market strategist.
Source: Gulf News