UAE MARKETS DROP BELOW KEY SUPPORT LEVELS.
The Dubai Financial Market General Index (DFMGI) dropped 323.22 or 7.19 per cent last week to close at 4171.15 its weakest performance in seven weeks. Most listings fell as there were 29 declining issues and six advancing. With the shortened three day trading week volume fell to an eight week low.
Of significance is that the DFMGI has broken down out of a large symmetrical triangle consolidation top pattern as it closed below 4231.12 (swing low from early October) on a weekly basis and has closed below the 55-week exponential moving average (ema) for the first time July 2012. The 55-week ema is a long-term trend indicator. It was tested as support twice in the past six months or so with the index rallying off it each time. This time looks to be different especially given that the breakdown of the triangle is happening at the same time. In addition the index ended the week near the low of the weekly range. Together these factors point to further weakening over the coming weeks and months.
In the short-term we could see a bounce back up into resistance but the longer term outlook has now turned bearish. Resistance starts around 4385 and goes up to last week's high of 4494.37. Selling pressure can be expected to intensify if the DFMGI makes it up that high. At the same time a move above and subsequent daily close above last week's high could lead to slightly higher prices and puts the index back into the triangle consolidation pattern. The potential for downside follow through from last week would then need to be reviewed.
The next potential support zone of significance is from around 3869 to 3731. The lower price level is critical as it marks support of the 31 per cent decline that ended July 1 of this year. A daily close below that price level further confirms the bearish breakdown of the symmetrical triangle top formation and points to the potential for much lower prices.
If we take the distance in price from the top of the pattern to the bottom (approximately 1571.09) then subtract that from the breakout confirmation level around 4231.12 we arrive at a potential target of 2660. As with all targets derived from price patterns they are a probability not a certainty. However this analysis does show that the DFMGI could be moving into a deeper and more prolonged correction from what has been seen over the past six months.
Other areas to watch for support below 3730.91 include 3517.32 which is where the second leg down from the 5406.52 May top matches the price decline of the first leg down. This would be an example of symmetry in the markets which is relatively common. From there was the next price level to watch for support is in the area of 3486.57 which is the 61.8 per cent Fibonacci retracement of the uptrend measured from the September 2013 swing low.
Last week the Abu Dhabi Securities Exchange General Index (ADI) declined by 95.76 or 2.0 per cent to end at 4702.14. Volume fell a bit below the prior week while 28 stocks declined and 11 gained. The ADI also broke down from a large symmetrical triangle top pattern last week although it didn't perform quite as bearishly as the DFMGI. It dropped below the 55-week ema but closed at it and although the index fell below the prior swing low support of 4688.36 it did not yet close below it on a weekly basis. Regardless the ADI has closed the furthest below its 200-day ema since July 2012. The 200-day ema is another important indicator for the long-term trend. Together the above analysis points to further downside.
Below last week's low of 4611.07 is a potential support zone in the area of the bottom of the correction that ended July 1. Watch for support from approximately 4510 to 4452.83. A daily close below the lower price level further confirms the bearish potential of the triangle top. Based on this pattern an eventual decline to approximately 4003 is possible. Near-term resistance is from around 4790 up to last week's high of 4809.49. A daily close above last week's high would have the ADI back into its triangle consolidation pattern.
STOCKS TO WATCH
Union National Bank also broke down from a large symmetrical triangle pattern last week closing at 6.06. That's below key support of 6.15 and a weekly close below the 55-week ema for the first time since December 2012. The stock fell 3.8 per cent last week. The odds now favour additional selling pressure down to the next support zone which is from approximately 5.90 to 5.70. That lower price level ended a 25 per cent correction in June. Further down is a potential support zone starting around 5.37 which is the top of a prior multi month resistance zone from 2013. The 200-day ema is now at 5.03. Based on the large triangle top Union National Bank could fall to 4.72 (calculated on a percentage basis) and possibly 4.43 (calculated on price). Unless there is a daily close above last week's high 6.26 the outlook for this stock is bearish. Bruce Powers CMT is president of Wide Vision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.