Despite turnover at the Dubai Financial Market (DFM) increasing sharply for the second session this year, the index closed down 19.30 points, or 1.09 per cent, at 1,743.90 points yesterday.
However, the marginal retreat in the index after a session of aggressive rebound gave strong indicators for analysts the rebound would continue for the next few sessions.
The index fluctuated sharply throughout the day with gains of around 50 points during the first hour of trading. It advanced to 1,799 points, very close to its historical bottom of 1,800 points, but could not break through this resistance channel and fluctuated during the rest of the session to retreat during the last hour.
Turnover continued to increase as 401.5 million shares changed hands at a total value of Dh625.8 million. Emaar, DFM and Arabtec stocks continued to dominate trading in the market. Real estate stocks created high pressures on the index due to profit-taking movements, while the banking sector advanced strongly by almost two per cent and helped to narrow loses in the index.
However, analysts are of the view that the DFM index is still on the rebound channel and the profit-taking trend by the end of the session was expected after the index advanced around 200 points within two sessions. This encouraged many short-term investors to sell for quick profit taking.
"The DFM is still searching for a new bottom and this will create increasing volatility in the market during the next 10 sessions as institutional investors and high-net worth individuals are waiting for companies' financial disclosures. The movements in the index showed that retail investors, rather than institutions, are still dominating trading," said Sherif Abdul Khalek, institutional trading manager at Beltone Financial.
"Most active stocks suffered profit-taking movements during the session and this is increasing the volatility in the market. This trend was expected after the DFM index bounced up aggressively during the first trading session of the year.
"Prices in the market have become very encouraging, both fundamentally and technically. Foreign institutions are entering the market, but for quick trading and on selected stocks, to accumulate special portfolios for their clients. We still need to see strong institutional investments to stabilise trading," Abdul Khalek said.
Fadi Al Saeed, head of Mena Equities at ING Investment, agreed that the bounce back in the market was still strong due to several factors. "Stocks on the DFM are oversold and the prices have reached very low levels. Oil prices have rallied from around $30 to $50 and regional markets have showed some stability. These factors will support the UAE markets as funds will be able to re-set their portfolios from low levels.
"The DFM index showed relative stability during yesterday's session after the aggressive rebound during the first session of the year. It gained around eight per cent in the first session and lost around a percentage point in the next one so the rebound is still holding and we expect the index to fluctuate in the range of a percentage point during the next few sessions.
"The DFM suffered high pressure during the past few sessions of last year. This was due to movements by different funds because of short selling and window dressing of their portfolios to reduce exposure in markets with negative performance before they submit their annual reports. However, they have a chance to start a new year of trading from very low levels," Al Saeed said.
He was optimistic about the DFM's performance in the year ahead. "The DFM will stabilise this year as the results of listed companies is also expected to be stable."
He also highlighted the negative impact of investors' concentration on the real estate and banking sectors, while the DFM has a long list of other companies with strong performances. "For example, Air Arabia's stock has high liquidity due to the strong performance of the company. The stock has Dh0.60 of cash liquidity."
Shiv Prakash, technical analyst at MAC Capital Advisors, also expected the rebound on the DFM to continue during the next few sessions. "The DFM faced resistance at 1,800 points – the upper channel resistance area during intraday trading – and witnessed some selling which made the market close lower at 1743.90 points. The close was higher than the intraday pivot levels, indicating the corrective rally remains intact. The DFM can witness further rise if we see any breakout on the 1,800 channel resistance levels. Otherwise profit-taking can create some pressure," he said.
Arabtec stock declines 9.65%
Arabtec's stock slipped sharply by 9.65 per cent to close at Dh2.34 after the company confirmed news that Meydan had cancelled its mega contract to build the Meydan racecourse. The stock rose until Dh2.63, but could not break the neckline resistance and closed lower.
However, analysts said the profit-taking trend in the Arabtec stock was expected after the firm distributed bonus shares and also because of the rally in the stock during the last few sessions of 2008. The cancellation of the Meydan project is to increase selling pressure on Arabtec stock.