UAE MARKETS HOLD ABOVE SUPPORT.
The Dubai Financial Market General Index (DFMGI) fell by 69.02 or 1.51 per cent last week to close at 4494.37. There were only nine advancing issues against 24 declining while volume increased slightly above the prior week.
Support was found on Thursday last at 4387.99 just above the previous swing low of 4385. The uptrend line was breached to the downside briefly but the index closed above it by the end of the week. Therefore the DFMGI remains within a five-week consolidation pattern. It did however break down from the previously identified symmetrical triangle pattern that's formed over the past month. But there was no confirmation indicating further weakness as the index did not drop below 4385. That's the near term support level to watch. If there is a drop below and subsequent daily close below that price level further weakness could follow.
Regardless the more significant support level continues to be the corrective low of 4231.12 from mid-October. A drop below that level signals a breakdown from a large multi month symmetrical triangle pattern top and a multi month continuation of the correction that started in May could then follow.
The first potential support zone below 4231.12 starts based on previous levels around 3869.32 (swing low from March 13) and goes down to approximately 3730.91 (swing low July 1). Also there is a bearish pennant trend continuation pattern in the chart of the DFMGI and the minimum target is also within that support zone. A bearish pennant includes the small symmetrical triangle mentioned above and discussed in prior week's of this column along with the decline that preceded it also referred to as the pole. If we take the distance of the pole (a decline of approximately 656.10) and subtract it from the bottom of the triangle or pennant pattern we get a target of 3865.16.
As an alternative to the above bearish scenario the DFMGI could continue to strengthen off last week's low and eventually breakout from the small triangle pattern to the upside. So far this is more likely. An upside breakout is first indicated above 4657 then above 4698.28 and most importantly confirmed above 4728. Then the next resistance zone would be from around 4902 to 4943.
Last week the Abu Dhabi Securities Exchange General Index (ADI) declined by 159.89 or 3.23 per cent to close at 4797.90. Volume increased slightly from the prior week but was still at the second highest level of the past nineteen weeks. The majority of listings fell for the week as there were 27 decliners and 11 advancers.
The ADI dropped below the prior swing low support of 4790.28 briefly on Thursday hitting 4761.31 but quickly recovered to end the week above that level. That low was also in the area of support represented by the uptrend line and is the important near-term support level to watch for signs of additional weakening if it is exceeded to the downside.
The more significant support level is at 4688.36 the corrective low from October 20. A drop below that level signals a breakdown from a large symmetrical triangle top and would likely lead to lower prices and more aggressive selling. The next support zone would then be from approximately 4510 to 4452.83 (corrective low from July 1).
Until then a rally off last week's low can be anticipated with the ADI continuing to evolve within the multi month symmetrical triangle consolidation pattern. Resistance is first around 5004. An upside breakout above that price level would likely see the ADI progress back up towards the most recent peaks from September and early summer starting around 5146.
STOCKS TO WATCH
Union Properties fell back to its earlier support level of 1.45 from the beginning of July last week. The stock fell by 3.87 per cent to close at 1.49. The low for the week was 1.44. Assuming the stock holds this support area and strengthens from here this presents a good risk to reward opportunity for aggressive investors.
A decisive drop below 1.44 indicates the stock may not yet be done going down and should be exited. At a minimum a bounce up to 1.62 looks likely with the next resistance area up around 1.79 to 1.81.
Air Arabia continues to hold up well relative to the wider market. The next bullish trigger is seen on a move above 1.49 the high for each of the past several weeks. In other words a very well defined resistance point.
Last week the stock advanced by 2.07 per cent to close at 1.48. Volume increased reaching its second highest level of the past nineteen weeks. The next resistance zone is from approximately 1.55/1.58 derived by calculating a measured move. This is where a second leg up matches the price appreciation of the first leg. The first leg up starts from the 1.13 low reached in June to the 1.46 peak in July. Currently the stock is in its second leg up which began off the 1.22 low in October. The 1.55 target is a minimum target. Air Arabia could easily go higher and would likely get up towards 1.62 to 1.65 before the current rally is complete.