Dubai Financial Market Dubai Financial Market

2,535.46 35.53 1.42 %

No sign yet of a turn in Dubai but we could be close

(4/15/2018 6:39:00 AM)

Last week the Dubai Financial Market General Index (DFMGI) was up by 11.03 or 0.36 per cent to close at 3,094.40, the first positive week in four. There were nine advancing issues and 33 declining, while volume dipped to a three-week low.

If support has been found at last week’s low of 3,061.45 then the DFMGI has a good chance of advancing in a counter-trend rally. Counter-trend as it would be a bounce in a larger downtrend price structure, which continues to dominate. During this time we can also watch for some sign of a trend reversal pattern developing, such as a head and shoulders bottom or double bottom. Barring that, we need to see a daily close above a prior swing high from the uptrend structure for signs that the trend may reverse and with the uptrend continuing to move higher.

Although there has been a negative correlation between the DFMGI and ADI recently, that could change as investor sentiment that is being positively influenced by strength in the Abu Dhabi market expands to embrace Dubai stocks once again. This may or may not happen but it is a dynamic that can be watched for. On a relative basis stocks traded in Dubai are cheaper and this fact might be suddenly recognised by market participants.

It seems hard to imagine that the DFMGI would continue to fall if the ADI breaks out to new highs. If Dubai is eventually “pulled up” by the bullish sentiment seen in the ADI, then it will be rising into a large potential resistance zone. How it behaves as it confronts resistance will be telling as to its near-term upside potential.

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 35.54 or 0.76 per cent last week to end at 4,653.03. Market breadth was bearish with seven advancing issues and 27 declining, while volume dipped to a three-week low.

The ADI has been consolidating for the past couple of years in a wide range. This behaviour reflects underlying investor uncertainty following the sharp 24 per cent rally off the January 2016 low. During this long consolidation phase the market has been trying to determine whether the long-term downtrend that started from the 2014 highs will continue, or whether the 2016 rally was just the first leg up in an extended recovery. It’s relatively common for a market to follow a sharp rally with a period of consolidation followed by a breakout of consolidation and a continuation of the initial uptrend.

Given the bullish behaviour of the ADI over the past couple of weeks it looks likely like the second and bullish scenario may be in the very early stages of playing out. However, confirmation is needed as we don’t yet have a clear signal. A decisive advance above the January 2017 high is needed and then a daily close above that high. The daily close should then be followed by a weekly close above that high to continue to show signs of sustainable strength. Until then, the price area around the 2017 high is a zone of resistance. So far that resistance has held. It could continue to hold and eventually turn the ADI back down, in which case the above bullish scenario would not be playing out in the near-term. Instead, the consolidation phase could continue to evolve.

At this point a daily close below last week’s low of 4,589.45 is likely to lead to further declines or at least downward pressure is to be maintained for a while longer.

A daily close above the January 2017 high provides a bullish signal and triggers a trend continuation for the long-term uptrend (a little over two years old so far). The ADI would then be heading towards a target zone from approximately 4,885 to 4,902 price area. That price zone consists of the completion of a large measured move, where the second leg up off the low from December 2017 matches the price appreciation of the first leg up off that low, and the July 2015 swing high. If the ADI continues from there it would next be heading towards 5,004, which comes from the November 2014 swing high.

Stocks to watch

Market leader Emaar Properties was the second strongest performer in Dubai last week, rising 4.12 per cent to end at 5.81. For the past few weeks Emaar has been testing a weekly resistance zone from around 5.93 to 5.94. A decisive rally above the high price will trigger a breakout of the resistance zone and put the stock at a four-week high, thereby signalling a potential bottom reversal breakout. The stock would then be heading towards the five-week high of 6.13, followed by 6.36 — prior seeing low from December.

It’s certainly possible that Emaar could continue to fall in the near-term as its bearish trend continues. At the same time it deserves to be watched for early signs of strength as noted above. Emaar has been dropping since the peak in October of last year and may just be about to rebound from being well oversold on the Relative Strength Index (RSI) momentum oscillator.

Support is at last week’s low of 5.52.

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