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Keep a close eye on UAE markets for signs of the next move.

Summary: High volume continues to be a concern as it is rising as the index falls

Bruce Powers, CMT, Special to Gulf News

Dubai: Last week the Dubai Financial Market General Index (DFMGI) was down by 45.49 or 1.62 per cent to end at 2,764.38, the lowest weekly closing price since the third week in January 2016. That week was the low of a 20-month 52.1 per cent decline for the index. Market breadth was bearish, with 29 declining issues and only nine advancing. Volume was below the prior week but high historically, the fourth highest of the year.

High volume continues to be a concern as it is rising as the index falls to new trend lows, which is bearish by itself. The drop last week ended a relatively tight four-week consolidation phase. Last week's column discussed the volume spike that had occurred within the consolidation pattern and how it may be an early warning for a bearish continuation. That is what happened and therefore we should continue to watch volume more closely in the near-term.

The retracement to date of the prior uptrend, which began at the January 2016 lows, almost reached the 88.6 per cent retracement level of 2,721.54. Last week's low was 2,727.83. An extreme retracement by any measure and it reflects the continued bearish sentiment that has dominated recently and seems to be increasing. Volume is one indication of this. The DFMGI closed around 6.3. per cent from the 2016 low was 2,590.72.

The 88.6 per cent retracement comes from Fibonacci ratio analysis and is not as widely known as other ratios, but valid nonetheless. It is the last retracement level before reaching a 100 per cent retracement and is the square root of 78.6, which is the square root of 61.8, the reciprocal of the Golden Ratio, 1.618. Fibonacci ratio analysis is one way to mathematically determine where we might see support or resistance on the retracement of a trend.

Nevertheless, investors should watch closely in the coming weeks for any signs of a bullish reversal as there may not be much more downside left. The 88.6 per cent retracement is a potential area of support, the 14-period weekly Relative Strength Index (RSI) momentum oscillator is showing a bullish divergence (although this has been the case for a number of weeks), and the daily RSI has turned back up after falling into oversold territory earlier last week. Further, as discussed in greater detail in recent columns, there is a possible bullish three drive pattern forming that may have completed or will complete around 2,693.63.

On the other hand, if the DFMGI breaks below the 88.6 per cent retracement level with momentum, it heads towards the 2016 low and has a good chance of breaking below it eventually.

Daily Chart

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 51.02 or 1.03 per cent last week to close at 4,883.42. There were 14 advancing issues and 20 declining, while volume increased to a five-week high.

For the past five weeks the ADI has been consolidating around the 5,039.83 high reached last month. That's the highest price level in almost four years and puts the index well on its way to contesting the 2014 swing high of 5,255.35. At last months high the index was 35.1 per cent above the January 2016 trend low.

The current consolidation will either lead to an upside breakout and target towards the 2014 highs, a retracement lower, or an expanded consolidation phase. At this point we only have the five-week consolidation to go by. If a breakout above the 5,039.83 high occurs then further upside is likely, and if four-week support is broken on the downside, then a deeper retracement is coming. If we head lower price areas to watch for signs of support include the weekly low of 4,797, and a price zone around 4,745 to 4,652. The lower price range is where resistance was seen previously over the course of many months.

Daily Chart

Stocks to Watch

DXB Entertainments broke out of a bullish double bottom trend reversal pattern recently as it rallied above 0.356. Subsequently, resistance was seen at 0.381 which led to a pullback and test of the prior resistance price area, as the low of the pullback so far was last week's low of 0.35. The low of the double bottom at 0.32 was a record low for the stock and put DXB 81.9 per cent below its record high of 1.77 reached in August 2016. Last week the stock was down 0.28 per cent to close at 0.36.

DXB Entertainments has been trailing the market with the third weakest performance in Dubai on both a year-to-date and one-year time frame. All bad things come to an end and maybe DXB is now close to lessoning the pain caused to holders and also ready to create new opportunities for investors.

A bullish 14-period RSI divergence is present on both the daily and weekly charts and a potential bullish flag has formed in the daily chart. The bull flag is a trend continuation pattern and if triggered would continue the bullish move started on the breakout of the double bottom. It may need a little more time to form but at this point a decisive move above 0.381 would give a bullish signal.

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

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Publication:Gulf News (United Arab Emirates)
Geographic Code:7UNIT
Date:Sep 22, 2018
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