The Dubai Financial Market General Index (DFMGI) gained 34.41 or 1.85 per cent last week to close at 1,893.97, just above resistance from the peak in March 2010 (1,887.21). Earlier in the week the index rallied above that zone to 1,917.47 before closing below the 50 per cent level of the weekly range. This reflects a slowdown in momentum. Regardless, the week ended above the prior two weeks and at a new closing high for the current rally. Volume managed to rise above the prior week and market breadth remains bullish with 16 advancing issues and nine declining.
Near-term support is now between approximately 1,859.56 and 1,842.59, the lows of the past two weeks. Below there watch for support around 1,793.10 to 1,778.25. That’s where resistance was found a couple times over the past several years and may now be where more aggressive buying.
What is interesting about last week’s high is that it completed a 100 per cent measured move or AB=CD pattern where the second leg up or rally off the January 2012 low equals the gains of the first leg up. This was a potential target for the DFMGI and has been discussed in this column in prior months. A measured move identifies symmetry between consecutive rallies. The first leg up of the 13-month uptrend gained 484.15 fils. If we add that amount to the subsequent swing low of 1,425.35 from June 2012 we arrive at a projected target of 1,909.49. That level was hit last week.
Given that momentum is slowing, the index is sitting in a potential long-term resistance zone, and that the measured move has been completed, there is an increased probability that the DFMGI is getting closer to a retracement as investors get more aggressive taking profits.
A move above last week’s high of 1,917.47 is indicating additional buying strength in near-term. Momentum on such a move will need to be watched carefully to see whether it is enough to sustain a continuation of the uptrend without first seeing a correction lower. The next two resistance zones of potential significance above last week’s high are around 2,200 followed by 2,409.
Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 26.22 or 0.90 per cent to close at 2,934.99. Market breadth was bullish once again with more than twice the number of advancing issues relative to declining at 31 and 12, respectively. This is now the ninth consecutive week of higher closes for the index. For the more recent prior six weeks the ADI has ended the week near the top of its range for the period. However, last week the ADI closed below the mid-range for the week, which was also below prior resistance of 2,944.45 from the March 2010 peak. This reflects a clear change in the pattern of price momentum.
Volume for each of the past two weeks has reached its highest level in over three years. Strong volume in an up move is considered to be bullish, but since this increase in volume is occurring later in the uptrend it is more supportive of the idea that the trend is getting closer to exhaustion with the potential for a downside correction continuing to rise. Last week’s high of 2,972.65 is near-term resistance with the next more significant higher resistance up around 3,269.92. Given that the ADI has been on a clear trend higher for almost 10 weeks, in the near-term some pullback would be healthy.
Near-term support is at last week’s low of 2,893.71, followed by 2,873.24. In none of the prior nine weeks has the low for the new week broken below the prior week’s low. When that happens it will be the first clear sign that price is weakening. Lower potential support areas include 2,777 and 2,707.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at email@example.com
Stock to watch
As of last week Emaar Properties has retraced 100 per cent it’s downswing begun from the October 2009 peak of Dh5.01. It got as high as Dh5.12 last week before closing at Dh4.99, just below the 2009 peak. This puts Emaar 109 per cent above its January 2012 low of Dh2.39. Given the selling that was seen the last time Emaar was in the Dh5.01 price area the potential for resistance again is clear. At the same time if the stock can see a strong close above last week’s high the medium-term outlook for Emaar further improves.
Six weeks ago Dubai Islamic Insurance broke out of a large symmetrical triangle pattern and has since been consolidating in typical bullish fashion. In other words, price behavior since the breakout indicates that further upside is likely. This stock has good risk to reward characteristics and can be watched for a completion of the consolidation phase and subsequent trend continuation. A daily close above the most recent high of Dh1.31 signals a trend continuation.