UAE markets: Bears show who’s boss, and it’s not positive for stock prices
(12/2/2018 8:20:00 AM)
Last week the Dubai Financial Market General Index (DFMGI) fell the hardest in 15 weeks. The index was down 86.25 or 3.13 per cent to end at 2,668.66. Most of the listings participated in the sell-off as there were only three positive issues against 31 declining. Meanwhile, volume increased to a six-week high.
Given last week’s bearish performance, there are a number of developments that increase the chance for a continuation of the long-term decline in the index. The outlook for the DFMGI has turned decidedly bearish as the bulls failed to hold support following a bullish breakout of a descending wedge that triggered four weeks ago.
As of last week the breakout has clearly failed and subsequently triggered a bearish signal as the month of November ends at a new trend low, the low for the month, and the lowest monthly closing price since the long-term swing low in January 2016 at 2,590.72. That low is now at serious risk of being broken to the downside as we are less than 3.0 per cent away. So far, the index has corrected by 28.6 per cent from the peak of 3,738.69 in February 2017.
In technical analysis patterns that occur on a monthly chart are considered to be much more significant than patterns on shorter time periods, such as weekly or daily charts. Last month’s closing to a new trend low shows that the bearish trend is well in place and may still continue for some period of time. On top of that, a daily close below the 2016 low will trigger a bearish continuation of multi-year decline that started from the 2014 highs. It would also open up the possibility that the DFMGI could fall much further than might be expected.
Given the clear downward momentum exhibited last week and month, a drop below the 2016 low is looking more and more like a likely scenario. If it occurs then there are several price areas to watch where some degree of support might be seen. First, there is the monthly price zone around 2,408.90 (October 2009 resistance, now possible support). This is followed by another monthly price zone around 2,200.
Last week’s high of 2,757.95 is near-term resistance of note. A daily close above that price level could lead to a higher bounce, but the larger bearish pattern will likely keep the upside contained.
The Abu Dhabi Securities Exchange General Index (ADI) dropped by 214.67 or 4.31 per cent last week to close at 4,770.08, the largest one-week decline since January 2016, the bottom of the prior bear market. There were six advancing issues and 28 declining, while volume rose to a 28-week high.
A decisive bearish signal was generated as the index fell below 14-week consolidation support (4,836) with conviction, closing at the low of the week, and a four-month low. It is interesting that the week’s negative performance is second only to the bottom week at the end of the last bear market. Not a positive sign for what might be to come.
The ADI is falling hard into a zone of potential resistance that should start around the top of a multi-month sideways consolidation that occurred for much of 2016 and 2017. That first support zone is roughly around 4,721 to 4,505. After that clear levels are hard to find until we get down to the most recent swing low of 4,414 from May. Nevertheless, a daily close below that swing low increases the likelihood that the ADI will test the low of the consolidation range from around 4,244 to 4,174.
The current correction could play out for some time given last week’s decisive downward momentum. This makes some of the lower price levels noted about realistic targets over the coming weeks or months.
Stocks to watch
Given that both UAE market indices broke key support last week investors should review their risk management process. This is the time to review and make adjustments given the revised bearish UAE market outlook. There may be opportunities for short-term traders to take advantage of bounces or stocks with relative strength but until the markets clarify themselves long-term investors should watch and wait.
Emaar Development is in a similar falling trend as seen in the DFMGI. It broke to a new trend low of 4.50 last week, down 0.27 or 5.66 per cent. The stock is now 49.7 per cent below its 8.95 September 2017 high. January 2016 was when Emaar ended its prior decline at 4.22, found support and rallied. It’s now only about 6.0 per cent away from that low and heading right for it. Last week ended at the lowest weekly closing price since the bottom week of January 2016.
Given the clear downward momentum exhibited in last week’s breakdown (wide-range week, close at low, four-week high volume, new trend low) it seems like there is a good chance that Emaar could fall below that January low. If it is to do so, Emaar will trigger a bearish continuation of the long-term downtrend that began off the 2014 high of 10.58. Thereafter, 4.04 would be the first area to look for at least short-term support. Bruce Powers, CMT, is a technical analyst and global market strategist.