Dubai: Last week the Dubai Financial Market General Index (DFMGI) fell by 43.57 or 0.85 per cent to close at 5,054.25. Most issues weakened as there were 25 stock declining against nine advancing. Volume dropped just a bit from the prior week and remained around the levels seen over the past five weeks, while volatility, measured by the weekly high-to-low range, declined to a four-week low.

Earlier in the week the index just barely managed to reach a three-week high before it was met with selling pressure, turning down on Wednesday and Thursday. When looking at a daily chart a potential double top reversal pattern may be in the early stages of forming, as last week’s action creates a possible second swing high at 5,162.25. It is also lower than the prior swing high of 5,193.03 reflecting increased selling pressure.

That higher price level is the peak of the 12-week uptrend that began the recovery from the 31 per cent correction that ended in late-June at a low of 3,730.91. The double top pattern is just a possibility at this point. It’s bearish potential is not confirmed until there is a drop below 4,807.50. If that occurs then the odds for a deeper decline increases. At that point the DFMGI would be at a five-week low and showing signs of a failed uptrend. If it falls below 4,774.90, the index would be at a six-week low and below its 21-week exponential moving average (ema), another measure for support of the uptrend. Currently, the 21-week ema is at 4,791.78. The 21-week ema has identified support for the trend for the past nine-weeks, so a drop below it would signal a clear change in the pattern.

There would then be a number of possible support areas on the way down, none that stand out though until around 4,255.19. That’s were resistance (now potential support) was seen over a four-week period in July.

A bullish move doesn’t occur until there is a decisive rally above the 5,46.52 peak. Resistance would then be at the long-term trend high of 5,406.52. With the U.S. and many global markets now weakening, the odds for a decline in the DFMGI before a move to new highs is starting to look more likely.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) declined by 105.58 or 2.02 per cent last week to close at 5,127.60, its first drop in five weeks. Market breadth confirmed the bullish move, with 32 declining issues and 12 advancing, while volume fell to a five-week low.

There are signs that the ascent of the past 12 weeks will remain stalled at 5,241 resistance for now. Last week’s low fell below the prior week’s low for the first time in seven weeks, and the ADI closed below its 21-day ema on a daily basis for the first time since the first part of August.

Support for the week was found at 5,090.53, in the area of support from the drop just prior, which held a decline at 5,089.85, and is also a weekly low. Further confirmation of weakness would then be signalled on a drop below the lower price level. The next area to watch for support would then be around 5,055, and 5004, consisting of a prior resistance level and the 21-week ema, respectively.

Since the most recent peak of 5,241, which was hit last week, is less than a half per cent away from the 5,255.35 peak from five months ago, a decisive rally above 5,255.35 would be needed before there is much confidence that the ADI is headed into new highs. Therefore, the probability for further weakness in the near-term has increased.

Stocks to watch

Takaful House was up 7.3 per cent last week, closing at 0.88, a twelve-week high. Volume surged to a

20-week high indicating there should be more upside in the short-term. It was the top performer in the Dubai market last week and is one of the few stocks advancing its uptrend.

Takaful House suffered a 60.3 per cent decline after hitting resistance at 1.53 in February. That correction ended thirteen weeks ago at a low of 0.608. Since then the stock has been lagging in its recovery relative to the wider markets. The retracement of the 60.3 per cent fall so far has been less than a third.

Last week’s price action signals a continuation of the uptrend. Strength is confirmed by its action relative to both the 21 and 55-week ema’s as the stock has closed above each for the first time in 18 or more weeks.

Also moving into a new high was Dubai Islamic Bank. It was up 2.3 per cent, ending at 8.35, its highest weekly close since May 25, 2008. Volume reached a 16-week high on the breakout. The most recent peak with the stock was at 8.32 from May.

Next watch for a daily close above last week’s high of 8.49 for bullish confirmation, with the stock then targeting 9.52. Pullbacks can be watched for buying opportunities. However, if the wider market starts to weaken further upside may be limited in the near term.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at MarketsToday.net. He is based in Dubai.