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UAE markets sitting just below resistance

Dubai: Last week the Dubai Financial Market General Index (DFMGI) strengthened by 66.28 or 2.35 per cent to close at 2,891.16. Market breadth leaned on the bullish side with 22 advancing issues and eleven declining. The bullish move was accompanied by an increase in volume to a four-week high.

DFMGI continued to rebound higher off support of the 100-day exponential moving average (ema), which was hit two weeks ago during the pullback. Support for the pullback is at 2,755.45.

Last week’s close put the index back within the prior sideways range that it held for two weeks. That range is from 2,884.31 to 2,952.43, with the higher price level being the most recent peak and top of the 22-month uptrend. DFMGI remains one of the best performing equity markets for 2013, up 78.2 per cent year-to-date.

The key short-term resistance level to watch is the weekly high of 2,910.88 from two weeks ago. A daily close above that level will alter the consecutive four-week pattern of lower highs, thereby increasing the odds that the DFMGI might have enough momentum to continue higher. Prior monthly resistance around 3,048.79 would than be the next target, followed by the 38.2 per cent Fibonacci retracement of the shorter long-term downtrend off the January 2008 peak.

There is some significance to a move above 2,952.43. First, it would be the first time the DFMGI has started to move above and away from the long-term downtrend line, which originates from the 2005 top. And at that point the 100-month ema would be exceeded to the upside. A move through a monthly moving average is much more significant than a move through one derived from shorter time periods. It would be one strong bullish sign for the medium to long-term outlook.

DFMGI needs to stay above 2,755.45 for it to have a chance of moving higher. A drop below that level could see an eventual decline to at least the 2,627 support area.

The Abu Dhabi Securities Exchange General Index (ADI) gained 37.17 or 0.98 per cent last week to close at 3,831.78. Volume was near the high of the past six weeks, while advancing issues beat declining at 24 to 15, respectively.

This is the fourth consecutive week where the high for the week was lower than the high of the prior week, indicative of continued downward pressure. At the same time the recent retracement has so far held support at 3,762.80, now an eight week low, but only 3.56 per cent lower than the most recent swing high at 3,901.83. There was a chance that selling would intensify once dropping below weekly support at 3,794.41 two weeks ago. That support level was the bottom of a six-week sideways consolidation pattern.

As discussed in prior weeks in this column, the ADI is at greater risk of a further decline relative to the DFMGI as the most recent rally failed to get above the late-August peak of 3,975.74, whereas the DFMGI did manage to get above its equivalent peak. Therefore, the ADI now has a potential lower swing high, a partial definition of a downtrend. Potential, because its not yet clear that the swing high from a month ago will not be surpassed in the near-term, prior to a decline below support from two weeks ago.

Near-term support is at last week’s low of 3,782.26, followed closely by 3,762.80. A decline below the lower level will see the index target a support zone from approximately 3,728 to 3,687, consisting of multiple prior weekly support and resistance levels. Keep in mind that both previous support and resistance levels indicate potential support during a decline.

On the upside, a daily close above last week’s high of 3,845.23 is the first sign of strength that could lead to further upside. More important would be a daily close above 3,901.83.

Aramex has formed a sideways resistance zone around 2.71 for the past two months as it moved sideways in a tight range. A daily close above resistance will be the first sign of strength that could see buyers stepping in once again. Support is at 2.55, the low of the past two months. If the stock drops below that price then the potential bullish scenario for the near-term is cancelled.

In the first quarter of the year Emaar Properties lead the market higher. Price appreciation in the stock then slowed noticeably as it moved into an upward sloping consolidation phase, where it has remained. There are now several potentially bullish indications for the stock.

Last week it was up 4.16 per cent to close at 6.26, the second highest weekly close since the uptrend began. That’s only 1.3 per cent away from the 6.34 peak hit in early-August. And volume is improving as the price pattern is showing greater overall strength. Volume reached an eleven-week high last week. A decisive daily close above 6.35 signals a bullish breakout, with further confirmation of strength then needed.

(Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com)