The Dubai Financial Market (DFM) ended a six-day retreat yesterday after active stocks bounced sharply to push the index up 3.51 per cent, adding 52.24 points, to close at 1542.26 points.
Before yesterday's rally, the DFM index had been dragged down to its critical support level at 1,500 points. The bounce in the market came with a sharp increase in turnover, as 463.3 million shares changed hands at a total value of Dh629.2 million, nearly 50 per cent up compared to the trade value in the previous session.
Only two stocks, Ekttitab and ENBD, retreated during the session, while 21 stocks advanced. The leading active stocks were DFM, Arabtec and DIB, which were also active gainers during the session.
Most active stocks had declined during the past few sessions and touched their support levels opening the way for a recovery from their lows. According to analysts, the DFM index has the potential to rebound until it touches the resistance level of 1,660 points.
"The DFM index was moving between 1,480 and 1,660 points during the previous six weeks. The index declined for several sessions and most stocks reached their support levels. Volumes declined sharply in Tuesday's session because of increasing hesitation among investors about the possibility of a continuous decline in the index in the short-term. This created positive signals for a strong recovery in the market yesterday," said Amjad Bakir, trading manager at Mac Sharaf Securities.
"There were increasing expectations that the bottom in the DFM will range between 1,400-1,500 points and the market was moving around this range for a long time. The correlation between local markets and global markets reached very low levels because the DFM had already discounted most possible negative news. This was clear during the past two weeks as global markets declined, while the DFM showed upward trends. Moreover, the reaction among investors regarding negative news about listed companies declined sharply as well. These factors show that the market is starting to give indications of stability," Bakir said.
Mohamad Al Beheiri, trading manager at Amanah Financial Services, agreed that the DFM had been giving some indications of stability in the past few weeks.
"Despite sharp fluctuations during some sessions, the market has been moving between 1,425 and 1,655 points since January 22. Yesterday's recovery was a natural movement after the index suffered six sessions of continuous decline. Volumes also advanced during the recovery, which is a positive indicator for strong buying in the market after it suffered a long wave of selling pressures."
Dubai Islamic Bank's stock joined the most active list during the past few sessions with a bullish trend and increasing volume. The stock attracted strong buying yesterday, adding 9.25 per cent to close at Dh2.36.
"Historically, the DIB stock has always been the last one among heavyweight stocks to rally during upward trends. The same situation is repeating as some active stocks advanced recently, including Arabtec and DFM stocks. Now, the DIB stock is showing bullishness in the short-term," said Al Beheiri.
Bakir expected the DIB stock would advance during the next two sessions to Dh2.55-Dh2.60.
Foreign investors were net buyers by Dh3.4m during yesterday's session as they bought shares worth Dh242.96m, representing 38.6 per cent of total purchases, and sold shares worth Dh239.5m, or 38 per cent of the total stocks sold. However, non-Arab foreign investors bought shares worth Dh39.45m and sold shares worth Dh47.21m, making them net sellers of Dh7.76m.
"Foreign investors were reducing their investments in some stocks during the past two weeks. For example, foreign investors held 26 per cent of Arabtec's shares, while their holdings declined to 16 per cent yesterday. Also, holdings in the DFM stock dropped from three per cent to 1.5 per cent. This created strong selling pressures on some stocks during the last few sessions," Al Beheiri said.
However, Bakir attributed the movements by foreign investors to the negative sentiment in the market and the increasing speculative nature of most investors.
"All investors –individuals and institutional – have no long-term investment plans at the moment. Most trading movements are for the short-term – two or three sessions."
Rally expected to continue today
The DFM index is expected to rally to its support level of 1,660 points and might continue the rally until its strong resistance level at 1,800 points, according to Amjad Bakir, trading manager at Mac Sharaf Securities.
"There are bullish indicators in the market. We expect a strong buy trend at the beginning of today's session, which can take the index up to its next resistance at 1,660 points. If this bullishness continues, we can see the market hitting the 1,800-points level within a few sessions."
However, Bakir predicted that the DFM index might face some profit- booking at the end of today's session. "Some investors may take profit booking movements on stocks which rallied yesterday. Others will prefer to liquify their holdings before the weekend."