Speculation and selling pressures are expected to continue to dominate trading at the Dubai Financial Market (DFM) until the middle of September due to an atmosphere of uncertainty and changes in investors' trading styles.

The DFM index lost eight points yesterday and closed at 4883.15. The index was over the technical support level of 4900 points throughout the session, but it retreated during the last 10 minutes of trading after leading players in the real estate and banking sectors created selling pressures on the index.

The turnover was encouraging as 185.4 million shares changed hands at a total value of Dh654.7m. However, increasing speculations were the main factors in keeping up this level of turnover. Ajman Bank's stock continued to dominate most active lists of trade value and volume, as speculations were focused on this stock from the beginning of the session.

Analysts said uncertainty and a negative sentiment continued to determine trading styles in the market.

"There were high expectations that the DFM will witness a rally after positive signals from regional markets, especially the Saudi stock market, which gained five per cent in Saturday's session. However, investors are still very cautious in their movements due to the increasing selling pressures, especially by foreign investors," said Ahmed Al Rawi, head of trading at Dubai Financial Brokerage.

He explained that foreign investors have been net sellers during the past eight weeks and the DFM has become oversold.

"I think the selling wave is close to its end because investors have already sold most of their holdings; selling during the next two weeks will be limited. The issue is that institutional investors turned into short-term investors and speculators," Al Rawi said. "The session showed that all investors, including institutional investors, are not willing to invest for the medium- or long-term. This is clear in the strong fluctuations in the index and increasing speculations on small stocks in absolute terms."

He said changes in investors' behaviour would continue to increase as long as the market gave mixed signals, and they would prefer to invest for the short-term.

"Institutional investors are still expecting more selling pressures so they are waiting to build their portfolios at lower prices. They were net sellers last week, but the volume of their trading is still at low levels," he said.

Al Rawi said major and institutional investors were not in control of the market anymore and they were reacting to the market's trends instead of supporting the index.

"The DFM index is expected to continue this downturn trend until the next support level of around 4750 points which will be critical for the market. This level will determine if the market has reached its bottom and is going to change its long-term trend to the upward side, or it can continue its downtrend to a new low level of 4500 points," he said.

Ahmed Abdul Rahman, head of research at Amana Capital, said the DFM was still suffering from two main factors: "Lack of liquidity and the absence of trust in the market are driving trading and this situation has created a downward trend in the short-term. Liquidity levels were very low during the last eight weeks and the current turnover levels will not be able to support and hold the DFM index. There is an increasing notion among investors that the DFM has not reached its bottom and they are expecting further decline in stocks prices. This situation is creating more selling pressure on the index."

He said trading was very strong at the beginning of the session and the index gained more than one per cent, which reflected the positive sentiment among investors after the Saudi stock market rallied, together with positive signals from other GCC markets.

"The market failed to continue its upward rebound and declined by the end of the session, losing most of its gains and closed under its technical support level of 4900. According to current indicators, the market is projected to continue it short-term downward trend until the next support level of around 4700 points," Rahman said. "Emaar's stock declined to a very low level of Dh9.30. Other real estate stocks are also dipping and the performance of the banking sector is negative. These two sectors are dragging the index down and the market needs high liquidity to enter into leading stocks to support the index."


Critical support level

The short-term trend in the DFM continues to be on the downswing with increasing sideway movements. Support levels are still at a range between 4900 and 4700 points, while the critical support level is 4200 points. The index will face resistance at the level of 5100-5185 points and 5400 points.