Dubai: The Dubai Financial Market General Index (DFMGI) ended last week essentially flat, up only 15.32 or 0.40 per cent to close at 3,882.93. Volume almost matched the prior week, while market breadth was on the bullish side, with 22 advancing issues and 12 declining.

The week’s high to low range was the smallest in 16 weeks, reflecting investor uncertainty as to whether the index will continue higher from here or sell off again. Consolidation has occurred over the past week just below the resistance area identified by the most recent peak of 4,008.38 hit in late-December 2014. This is normal given the high volatility levels seen previously. Although the index did not advance higher by much, it also did not sell off, and stayed within a very narrow range as the buyers and sellers fight it out. The odds continue to favour an eventual continuation of the rally that began off the mid-December 2014 lows, until proven otherwise.

It remains to be seen whether the positive response in the global equity markets to last week’s economic stimulus announcement by the European Central Bank will carry over to the UAE markets. For now, it looks like it will.

The first reliable signal of strength is on a move above last week’s high of 3,959.66, followed by a rally above 4,008.38, then a daily close above that higher price level. If that occurs the DFMGI will also be back above the 55-day exponential moving average (ema), an intermediate term trend indicator, which is now at 3,997.95. The index has been below its 55-day ema since early-October 2015. If the latest peak is exceeded the DFMGI will likely face significant resistance anywhere from around 4,231 and up to 4,728.

A case could also be made for further consolidation or a move lower as the ascent in the DFMGI from the December 2014 low stalled in a resistance zone at the bottom of a large multi-month symmetrical triangle consolidation pattern (previously support, now resistance), and near resistance of the 55-day ema. The December 2014 peak confirmed resistance. Although it’s still too early to say, last week’s high could turn into another peak, and it is lower than the December peak (potentially bearish). Regardless, watch for price action to point to the next direction.

A daily close below last week’s low of 3,830.37 points to lower prices, with the DFMGI then heading towards a potential support area from around 3,662 to 3,637. These levels are derived from previous weekly support. However, the most recent swing low of 3,357.96 from three weeks ago is critical, as a drop below it is the first sign that the larger downtrend, coming off the late-August 2014 peak of 5,193, is likely continuing and a test of the December 2,992.53 corrective low is in place.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 45.56 or 1.02 per cent to close at 4,526.92. Volume fell to a fifteen-week low, while market breadth was on the bullish side, with 20 advancing issues and 10 declining.

As with the DFMGI, the ADI has also been consolidating up against resistance near the bottom of a large consolidation pattern, and the 55-day ema (now at 4,599.44). An advance above the December 2014 peak of 4,605.72 is needed for the next bullish signal, with an early indication of strength on a rally above last week’s high of 4,580.72.

The ADI would then be heading into a number of potential resistance areas, starting from 4,688, and up to 5,004.10. That range represents a six-week consolidation zone from October/November last year. The 55-week ema is at 4,648.52, and resistance could also be seen at that lower level.

A drop below last week’s low 4,499.18 is the first sign of weakening, but the weekly low of 4,413.96 has more significance given the price structure on the ADI’s chart. That low is followed by the weekly low of 4,295.57, with a drop below that level signalling a test of the recent correction low of 3,876.44 from December last year.

Stocks to watch

Union Properties was up 1.57 per cent last week, ending at 1.29. It has a similar chart pattern to the DFMGI as the December rally first hit a peak at 1.36 in late-December 2014, then tried to move above it last week but was pushed back down. Last week’s high was 1.34. Resistance of the 55-day ema is now at 1.36, matching the price level of the peak. This provides a clear price level to watch for signs of strength.

A decisive rally, and subsequent daily close, above 1.36, signals a bullish continuation of the uptrend. Union Properties would then be targeting 1.45, the swing low (now potential resistance) from July 1, 2014. That low ended a 50 per cent correction in the stock, however, it didn’t stay there long and therefore as we head back up we may not see too much resistance there. The next higher potential resistance zone starts around 1.62, while the 55-week ema is at 1.63.

If we layer in Fibonacci analysis, we get a higher target of 1.78. This is the 38.2 per cent retracement, which is the minimum that can be anticipated when measuring the decline off the August 2014 peak.

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