The FINANCIAL — The bearish trends in the UAE markets continued this week as global investor sentiment weakened driven by worsening European debt issues.
If the situation in Europe continues to deteriorate UAE markets will remain vulnerable to further declines. This is not to say that local investor decisions are only driven by what's happening in Europe, but it certainly doesn't help.
DubaiThe Dubai Financial Market General Index declined 30.46 or 2.21 per cent last week to close at 1,348.59. Volume was at the lower end of the range for this year, while market breadth was leaning towards the bearish side with 22 declining issues versus only six advancing.
A continuation of the seven month downtrend was triggered on a break below 1,347.41, but the DFMGI has so far held above 1,338.56, the low of the year. Support for the week was found at 1,338.79.The DFMGI remains very vulnerable to breaking below the low of the year. However, in the very short-term a bounce may come first. Downward momentum continued until Thursday when the index was able to close slightly higher for the first time in six days. It also has stopped at long-term support. A move above Thursday's high of 1,350.16 would be the first sign of strengthening, followed by a break above 1,352.27. Watch for resistance around 1,374.50.
Needless to say, trade below 1,338.56, long-term support and the low for 2011, triggers a bearish confirmation of the long-term trend, thereby putting the DFMGI at risk of lower prices over the coming months. The first area of potential support seems to be from 1,247.59 to 1,242.52, 7.5 to 7.9 per cent lower, respectively. This support zone is arrived at by calculating extended retracements of previous rallies.Last week the Abu Dhabi Securities Exchange General Index (ADI) fell by 55.44 or 2.24 per cent to close at 2,418.13, a price level not seen since April 2009. Volume was below the previous week and near the low end of the past year. Market breadth confirmed weakness with 25 declining issues versus nine advancing.
Price action last week confirmed a continuation of the medium-term five month downtrend as the ADI broke below 2,440.96. Also, follow-through of the multi-year symmetrical triangle price consolidation pattern, discussed a number of times previously in this column, was confirmed on trade below 2,429.97. Downward momentum continued into the close of the week as the ADI ended near the low of the range. Taken together, this analysis points to an eventual re-test of the 2009 low price area around 2,130.02 (11.9 per cent lower).
The symmetrical triangle pattern in the ADI chart took approximately two years to form and is well defined. It indicates that there's a good chance the minimum price target of approximately 2,043.14 (15.5 per cent lower) would be reached eventually. This target is based off a more conservative measurement of the pattern. It is arrived at by measuring the price difference of the pattern, then subtracting that distance from the breakdown price. Even if the triangle target is not reached, the fact that it is below the 2009 low increases the odds that this higher price area will be reached at some point.
Markets don't go straight down, so at some point a counter trend rally will ensue. The next support zone looks to be from 2,376.56, previously monthly resistance, to 2,373.96, the 78.6 per cent Fibonacci retracement of the rally off the 2009 low. The Fibonacci support level is mathematically derived from a trend measurement. Below that zone is 2,289.73, previously monthly support.Without signs of strength in the larger market it's difficult to have much confidence in bullish chart patterns, and there aren't many.
There are only two active listings that are above their 200 daily exponential moving average lines, reflecting strength relative to other listings. The 200ema is a long-term trend indicator calculated using daily closing prices. Stocks above the 200ema are generally considered stronger than those below it. Although that strength could take some time to be reflected in price appreciation, they deserve to be watched.
Abu Dhabi Commercial Bank is one. It's been trading above its 200ema for the past 14 months. Last week it tested support of its 200ema again at Dh2.77, and held above it.
Other than for short time periods, Arabtec Holding has traded below its 200ema for the past couple of years. Recently however it's managed to trade back above it, even in a weak market.
This is a sign of relative strength which could see buyers return once the market strengthens. Many listings are looking bearish with a few vulnerable to new signals.
Al Dar Properties has remained in a downtrend for a little over two years with downward pressure remaining. It closed the week at Dh0.99, very close to the record low of Dh0.96. A clear break below Dh0.96 signals a continuation of the downtrend.
A similar situation exists in the stock of National Central Cooling. It's vulnerable to further declines on a break below Dh0.58. Also, Gulf Navigation fell to new lows last week and could see lower prices from here.
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