Dubai: The Dubai Financial Market General Index (DFMGI) advanced 64.53 or 1.99 per cent to close at 3,307.95, a new high for the uptrend and the highest weekly close since late-September 2008. Volume surged to the fifth highest level of the past five years, and daily volume on Wednesday reached a record for at least the past three years. Strength was seen in most issues with 25 advancing and only six declining.

As of the close the index has gained 103.9 per cent for the year, its strongest performance in eight years. Back in 2005 the DFMGI was up 195.3 per cent. That advance marked the market top that lead to a multi-year decline, years before the global financial crisis hit.

Last week completes the sixth consecutive weekly advance for the DFMGI, with it ending strong once again, near the high of the weekly range. Although volume was very strong, and a new high reached, the advance was the smallest of the past four weeks. Regardless, basic analysis of price structure would indicate there is still a chance for the advance to continue.

The next target for the index, based on prior support (previous support becomes potential resistance in the future), is approximately 3,624.67. That’s 9.6 per cent above last week’s close. Whether the DFMGI makes it that far in the current advance remains to be seen. An analysis of the more recent rallies would indicate there is a good chance it will at least get closer to that next potential resistance area.

The current advance, from the most recent swing low in November 13, is 20 per cent. So far that’s the smallest performance of the prior three rallies, which came in at 26.9, 26.6 and 37.4 per cent.

As long as the DFMGI holds above last week’s low of 3,216.60, the near-term outlook remains bullish. A break below and subsequent daily close below that support level turns the near-term outlook bearish. The DFMGI would then be targeting 3,157.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 46.43 or 1.12 per cent to close at 4,185.65, the highest weekly close since early-September 2008. Volume exploded as the index moved higher, reaching the second highest level of the past ten years. Although still bullish, market breadth was not as convincing as it might be on a move to a new five-year high. There were only 22 advancing issues versus seventeen declining. The current rally is up 11.24 per cent in six weeks.

The high for the week was 4,205.07 with the advance completing a 50 per cent retracement (4,198.28) of the larger downtrend coming off the 2005 high. Therefore, some minor resistance might be seen here. At the same time a decisive move above last week’s high is another sign of strength thereby increasing the odds the uptrend will continue in the vary near-term, especially given the significant surge in volume last week. If the six-week uptrend was further extended then the surge in volume might indicate an end to an advance, but that doesn’t look to be the case so far.

If last week’s high is exceeded with conviction then the ADI looks to be heading towards prior monthly support (now resistance) around 4,288.

A drop below last week’s low of 4,132.98 would give the first sign of weakening that could lead to a steeper decline.

Stocks to watch

Al Dar Properties closed at 2.69 last week, up 1.89 per cent. The stock has been consolidating for the past four months or so and has formed a symmetrical triangle trend continuation pattern on its chart. Last week may have been the beginning of an upside breakout as Al Dar closed above the prior week’s high of 2.66 and therefore above its downtrend line which marks the top of the triangle pattern. Although there has not been strong confirmation in price, as the advance has been minor so far, volume did rise to an eleven week high.

At this point, either a bullish breakout has begun, or the pattern will evolve into a larger consolidation pattern. Confirmation of strength will be indicated on a rise above and subsequent daily close above 2.79. Based on the height of the pattern a minimum potential target of 3.43 is indicated. Near-term support is at last week’s low of 2.66, while a drop below 2.56 puts the bullish breakout at risk of failure.

Air Arabia broke out of a two-month consolidation pattern last week, reaching a new five-year high and closing in the top quarter of its weekly range. The stock was up 11.97 per cent to close at 1.56. Retracements towards 1.52 support (resistance of most recent peak) will likely be used by investors to accumulate at a slightly lower price. Air Arabia has been trending higher since June 2012 and this recent breakout comes after a relatively short rest. Therefore, participation at this point would be considered aggressive.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com