Dubai: Another very strong week for the Dubai market saw the Dubai Financial Market General Index (DFMGI) rally 116.22 or 7.67 per cent to close at 1,632.27. This is now the fifth week of the rally with the DFMGI closing strong, near the high of the week, and accompanied by higher volume.

Also, last week the index had the strongest performance rally so far, up 7.67 per cent. Several potential resistance levels were breached with little hesitation, reflecting the underlying buying strength. Strength was seen across the board with 28 advancing issues and only three declining.

One of the more significant resistance levels that was broken is represented by the long-term downtrend line coming off the March 2010 high (not shown in chart), at around 1,608.

The close for the week put the index clearly above that price level, and also above another important resistance price at 1,612.65. This higher price was the final resistance seen during the previous eight-month downtrend. The DFMGI has now retraced 85.4 per cent of that downtrend, and is up 26.1 per cent off the recent low of 1,294.10.

This analysis supports the probability that the DFMGI may be completing a long-term bottom. More time is needed, however, as last week's close above the downtrend line is only the first sign. We have to watch what happens next during the corrective phase of the current rally when profit taking becomes a more dominant driver.

The index is approaching an extreme overbought level and although it may still go a little higher, a price correction is closer now than it has been. Some of the early leaders of the rally have started to falter, including Al Madina, Ekttitab, and Hits Telecom, with the first two declining 12 per cent last week and Hits down 7.2 per cent. These stocks were the only negative performers in the Dubai market.

Another interesting note to support the idea that the rally may have run its course for now is that each of the previous three bear market rallies that took place over the past two years or so were up from 328.92 to 353.08 points, with the first two up exactly 22.5 per cent each, and the last prior rally up 26.4 percent. The current rally is up 339.4 points and 26.2 per cent.

If the ascent continues in the short-term, watch for resistance around 1,646. A more significant long-term bullish signal will be given on a close above previous resistance at 1,691.64. Once the DFMGI closes decisively above that level, then the two-year downtrend price structure is broken and still higher prices could follow. Until then that could be an area where selling becomes more intense.

Short-term weakening is first indicated on a break below Thursday's low of 1,605.97. Weekly support is around 1,516, followed by support around 1,501. A normal minimum correction from here could see the DFMGI drop down to at least that lower level.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) moved higher by 64.77 fils or 2.62 per cent last week to close at 2,539.20. Volume improved to the highest level since April 2011, while market breadth was on the bullish side, but not significantly, with 26 advancing and 15 declining issues. The ADI has now retraced 51 per cent of the prior six-month downtrend, and is up 10.7 per cent off the recent low of 2,293.38.

Resistance at the 200 daily exponential moving average (EMA) has now been cleared, with the ADI continuing its upward progression in a more controlled steady pace than what we've seen in Dubai.

Near-term resistance is from approximately 2,551 to 2,556, while more significant resistance could be found around the 2,593 price area. Still higher is potential resistance around 2,621. This higher level is near the low of a multi-year bearish consolidation pattern, which the ADI broke out of to the downside back in September 2011.

The ADI would need to decisively close above 2,673 before the long-term bearish nature of that consolidation phase is negated, thereby giving a long-term bullish signal.

Weekly support is at 2,473.62. The ADI should continue higher unless that support is broken to the downside. Below there is support around 2,447.33.

Stocks to watch

A number of big moves were seen last week in stocks like Gulf Navigation, up 44.3 per cent, Deyaar, up 39.4 per cent, and Eshraq, up 38.5 per cent. Deyaar is very extended, but Gulf Navigation and Eshraq could offer new opportunities on a pullback towards support levels.

Drake and Scull has been consolidating for the past couple of weeks after a strong prior move off the bottom. The retracement from the recent Dh0.985 high has been minimal reflecting continued strength. Also, last week's close Dh0.979 was near the high of the range for the week, also a sign of strength. Although further consolidation may occur, a decisive break above Dh0.985 will give a new bullish signal.

Gulf General Investments, up 18.3 per cent last week, broke out of a short three-week consolidation pattern on good volume — the highest since April 2011.

It's now clear the 200 EMA on the daily chart and 50 EMA on the weekly chart, is each a trend indicator now signalling the likelihood of higher prices.

 

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

 

Disclaimer: Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liability for the results of any action taken on the basis of the above information.