More aggressive profit-taking was evidenced last week in the UAE markets after a strong six-week rally. This is only the first week since the rally began that the markets closed lower. Further selling is therefore likely over the next one to three weeks or so.The Dubai Financial Market General Index (DFMGI) dropped 91.53 or 5.38 per cent last week to close at 1,610.48. This was the largest one-week drop since early March 2011 and not a complete surprise as the index had already been trading in overbought territory. Volume was the highest in almost two years on a bearish reversal week. Market breadth was also bearish with 23 declining issues versus only eight advancing. Last week was technically a reversal week because the DFMGI first went above the range of the previous week, but then ended below the range of previous week. Resistance was found earlier in the week at 1,778.25, close to the swing high of November 2010. Selling then intensified starting on Tuesday with the index subsequently completing close to a 38.2 per cent Fibonacci retracement of the uptrend off the mid-January bottom. Fibonacci ratio analysis identifies potential support based on the price distance during the recent uptrend. In other words, in only three days, the DFMGI has already retraced what might normally be considered a minimum anticipated decline from the 1,778.25 high. The DFMGI has now entered a corrective phase with only one leg down so far. This first leg down will either continue in the immediate future or we\'ll see a bounce first. But, given the intensity of last week\'s selling on big volume, the odds that the weekly low of 1,591.84 will eventually be broken seems pretty high. The next price area to watch for support is approximately 1,543, arrived at from the combination of previous resistance (now support) and the 50 per cent trend retracement price level. Lower down is 1,479, the 61.8 per cent Fibonacci support level. A healthy retracement from here should stay somewhere above that 1,479 level. If the DFMGI decisively breaks below and stays below that price level then the chance of recovery into another leg up diminishes. Otherwise, the odds still favour an eventual continuation of the uptrend once profit-taking diminishes and the market finds support and turns higher. Abu Dhabi Last week, the Abu Dhabi Securities Exchange General Index (ADI) declined 62.13 or 2.37 per cent to close at 2,561.74. Volume dropped some from the prior couple weeks, while market breadth confirmed the weakness with 30 declining issues versus 14 advancing. The ADI found resistance from sellers at 2,642.66 last week, within the lower end of a multi-year consolidation range discussed in previous weeks. Until the ADI closes above the top of that range, approximately 2,674, it remains in a three-year downtrend and still vulnerable for the medium-term. Even then the ADI would need to close above the swing high at 2,777.21 from June 2011 to decisively break the downtrend structure. Weekly support is at 2,535.67, with the first more significant support zone around 2,512 to 2,508. Still lower is support around 2,468, the 50 per cent trend retracement, followed by the 2,427 price area. The 2,427 price area is a 61.8 per cent Fibonacci retracement of the prior uptrend. As long as the current profit-taking phase keeps the ADI above that price, the odds support an eventual continuation of the rally. Stocks to watch Once the high volatility levels seen in stocks such as Al Madina for Finance, Dubai Islamic Insurance, Arabtec Holding, National Central Cooling, Deyaar Development, and others, dies down over the coming weeks, they should present new lower risk entry opportunities. Until then, proceed with caution as the high volatility cuts both ways. Air Arabia broke out of a two-year downtrend several weeks ago. It\'s now seeing some profit taking that could take it down to trend line support around Dh0.67-Dh0.66. If that support area holds, and Air Arabia starts getting stronger from there, then the bullish trend should progress higher. Aramex continues to hold above support of a six-month consolidation base. Even though it really didn\'t participate in the recent market rally, this is medium-term bullish price behaviour. Abu Dhabi National Energy Company broke out of an eight month consolidation phase in early-February and has since formed the beginnings of an uptrend. Again last week it pulled back to support at Dh1.23 and has held that level. Trend continuation is now signalled on a break above Dh1.31. Abu Dhabi Commercial Bank briefly broke to a three-year high (above Dh3.32) last week before closing lower. Since June 2011 Abu Dhabi Commercial Bank has been building a sideways basing chart pattern. This pattern has a tendency to eventually break higher which would then trigger a continuation of the two-year uptrend. It may not yet be ready to break higher but deserves to be watched as the sideways basing structure continues to evolve.