Dubai: The Dubai Financial Market General Index (DFMGI) dropped by 159.72 or 3.12 per cent last week, ending at 4,961.03, it’s first decline in five weeks. Market breadth was clearly bearish with only three stocks advancing and 28 falling, while volume was not significant, falling slightly below the prior weeks level.

For the previous six consecutive weeks the DFMGI has been advancing with a series of higher weekly lows, thereby creating the bottom half of the uptrend. Last week that pattern was violated as the low for the week, 4,807.50, was below the prior two weeks (4,901.81), creating a three-week low.

We’ll have to wait and see if this means something or not as the index ended above the prior week’s low of 4,928.22, rather than below it, and recovered close to 50 per cent of its weekly range by the end of the week. This combined with low volume on a down week can provide some solace to bulls as the sellers have not been able to turn the Dubai market around just yet. The odds for that happening would increase on a daily close below the 4,901.81 weekly low.

The five-week trend is contained within a larger 10-week uptrend, as the DFMGI has had a strong recovery from the 31 per cent correction that ended at the 3,730.91 low on July 1. Resistance was found at 5,193.03 two weeks ago, in the same area that saw resistance in early-June. The largest decline since 2009 followed that June peak.

So far the uptrend remains intact and continues to point higher. Nevertheless, given the significance of the June resistance zone, further weakness may come before a move to new highs, if it is to come. As mentioned above, a daily close below 4,901.81 provides the first signs for further weakness, then below 4,901.81. However, last week’s low is now the more important area to watch for support kick in, or for support to be broken to the downside.

On the upside, first watch for a move above, then a daily close above 5,113.18, for a sign of strength that could lead to further upside momentum. A break above the more significant 5,193.03 resistance area is needed for the next clear trend continuation signal.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 39.05 or 0.76 per cent to close at 5,180.23. Volume dropped slightly below the prior week’s level, and declining issues exceeded advancing 28 to 17, respectively.

This is the fifth week of the short-term uptrend, as the index exceeded the prior week’s high and stayed above the prior week’s low. The high for the week, resistance, was at 5,201.53, and the low, support, at 5,089.85.

Even though the gain for the week was low, the ADI managed to close above the 50 per cent level of the week’s range, a sign of short-term strength. This may end up being more significant than at first glance as it was the strongest close, relative to a week’s range, of the past four weeks.

The ADI is now only 1.4 per cent away from its peak of 5,255.35, an eight-and-a-half year high, and is up over 16 per cent since bottoming on July 1st from a 15.3 per cent correction. Overall, this is a very bullish recovery in a relatively short period of time. But, now the index needs to contend with resistance up to the 5,255.35 peak. We’ll have to watch closely to see if it can be done without first moving into a pullback lower.

A drop below last week’s low of 5,089.85 will be the first bearish sign that could lead to further weakness, with confirmation given on a daily close below that low. The more obvious support zone starts around 5,076 to 5,034, the weekly highs over five weeks from July and August.

Stocks to watch

Emaar Properties broke out to a new high a couple of weeks ago before hitting resistance at 12.00. The breakout occurred with a surge in volume, to the second highest level of the prior four years. It has subsequently pulled back towards previous resistance, now potential support. Not only did Emaar advance to a new high, above prior resistance at 11.20, but it also closed above it on a weekly basis. This type of price action favours an eventual continuation to the upside.

Last week the stock dropped by 3.51 per cent to close at 11.00, as volume fell almost 50 per cent below the prior week’s volume. It was down as much as 6.6 per cent by Thursday when it found support at 10.65 and bounced from there.

If 10.65 low is exceeded on the downside, the next level to watch for support starts around 10.50 and goes down to approximately 10.40. However, a daily close below 10.50 puts Emaar at risk of further declines in the near-term as that is a weekly low. For the past seven week Emaar has traded with a series of higher weekly lows. A drop below 10.50 changes that bullish pattern.

The first sign of strength is on trade above last week’s high of 11.60.

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