Dubai: Last week the Dubai Financial Market General Index (DFMGI) reached another new high for the trend, rising 85.57 or 2.71 per cent to close at 3,243.42. This is the fifth consecutive week of positive performance with another strong close. The DFMGI is now up 100 per cent for the year, but still a distant second to the over 500 per cent gain in the Caracas market index. Advancing issues lead declining by more than two to one, coming in at 22 and 10, respectively, while volume improved over the prior week, but not by much. Regardless, volume was at the 10th highest level of the past three years.

The question now is, how much further before a correction of some degree sets in? Certainly, the five-week rally is probably closer to the end than the beginning. Momentum indicators show the index starting to get extended and into overbought territory. But, given the DFMGI’s performance history over the past couple of years there could still be more upside in the near-term. Regardless, investors will be on guard for signs of weakening that could lead to more aggressive profit taking. Most of the corrections during 2013 has been relatively quick and shallow. It would be healthy for the long-term uptrend to see some base building, where the index consolidates for some time before it continues to ascend.

The next resistance zone starts around 3,624.67. That’s where support was seen back in April 2007, and was the bottom of a 16-month decline off the 2005 top. Higher is the 3,962 potential resistance area, which was previously a support level. Together the range between these two price levels can be looked at a potentially significant resistance zone. This doesn’t mean the index will reach that zone on its current run, but it is certainly possible.

Near-term support is at last week’s low of 3,118.05. A downside break of that price level could easily prompt more aggressive selling. The next target for the index would then start around 3,019, with a potentially more significant support zone around 2,917.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) increased 138.28 or 3.46 per cent last week to close at 4,139.22, thereby reaching 60.3 per cent advance for the year and the highest weekly close since September 2008. This was the strongest performance for the ADI since the second week in September and it was supported by strong volume. Volume surged to the third highest level of the past five years. Strength was seen in 29 issues, while 15 weakened. The index ended the week at the high, a sign that the bullish momentum has a good chance of continuing into this week.

Momentum is accelerating as the ADI moves to new highs for the uptrend. This is reflective of investors who have been waiting on the sidelines jumping back into the market as enthusiasm for Abu Dhabi stocks spread. Last week was only the second week of new highs, which means there’s a good chance the ascent will continue in the near-term.

There are two potentially significant resistance levels to watch next, one around 4,198, the 50 per cent retracement level of the larger downtrend that comes off the 2005 peak, and the second starting around 4,288, prior support on two separate months. A ways higher from there is 4,413.40, which was where resistance on a monthly chart was seen in the past.

Support starts at last week’s low of 4,004.22 and goes down to around 3,975, the most recent prior peak. A drop below the higher level would be the first sign that a deeper drop may be in the works.

Stocks to Watch

EmiratesNBD, which was discussed in some detail last week, broke out of its symmetrical triangle pattern on strong volume, for a 6.77 per cent gain. The stock closed at 5.99, the third best performer in the Dubai market. This is exactly the type of price behaviour we would want to see on such a breakout to indicate the beginning of a new move. Since this was the first week of the breakout further upside in the near-term is likely. The first target is around 7.25, followed by 8.13. Support is at last week’s low of 5.55.

Also, a breakout of a multi-month bullish consolidation pattern occurred in Al Salam Bank. It was up 5.56 per cent to close at 1.14, the highest weekly close since June 2009. The next resistance area is around 1.32. But the target based on a measurement of the consolidation pattern is around 1.48. The consolidation phase followed a 146 per cent three-month rally in the first quarter of 2012. Last week’s breakout can be considered the beginning of the next phase of that rally and therefore a new trend as well.

A daily close above 0.865 will give the next bullish signal for Gulf General Investments. The stock would then be targeting 0.957. Support is at 0.811.

 

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