Dubai: Last week the Dubai Financial Market General Index (DFMGI) gained 221.11 or 4.79 per cent to close at 4,839.39. That’s a healthy advance which puts the index up 43.61 per cent for the year. Volume was slightly below the prior week as the DFMGI reached a new weekly closing high for the uptrend, the highest close since August 2008. Most stocks participated in the strength, with 26 advancing and only eight declining.

Potential monthly resistance at 4,787, from September 2008, was exceeded with the index now heading towards 4,919.38, the 50 per cent retracement zone of the full long-term downtrend off the 2005 high. That price level is combined with a number of prior monthly resistance and support levels up to around 5,103, creating a price zone of potential resistance. The high of that zone is only 5.5 per cent away. If it is exceeded to the upside, then the next potential resistance area looks to start from 5,342 up to 5,554.

This is the fourth week of consecutive gains following a 9.07 per cent correction in March. There are no signs of the rally slowing and it can be expected to continue until there is a clear sign weakness. That would not occur this week unless the DFMGI falls below last week’s low of 4,550.85. A daily close below that level would confirm weakness and likely keep the index sedated for a while longer. Given the significance of Abu Dhabi’s performance last week (discussed below) the odds for an upside continuation in Dubai have improved.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced 5,177.71 or 254.24 last week to close at 5.16, its strongest weekly performance since September 2013. This puts the index at an eight year high and 20.68 per cent higher for 2014. Volume surged to an eleven-week high and the fourth highest level in at least five years. This is a very bullish sign as the ADI exceeded and closed above a significant resistance zone from 2008 and on higher volume. All issues did not participate to the degree that might be expected on such a move as there were 27 advancing issues and 18 declining.

In technical analysis a significant increase in volume on a move above prior resistance is seen as a confirmation of strength, and points to a continuation of the trend over the coming weeks if not months.

In the case of the ADI, last week’s rally and strong close is potentially more significant than normal. It exceeded a very long-term key resistance zone, 5,158.56, which was the peak (swing high) from back in 2008. That peak defines the chart pattern structure of the long-term down trend coming off the 2005 high. A weekly close above that level, as occurred last week, is the most recent example of the ADI’s recovery from the 2008 financial crisis. It also increases the odds that the 2005 peak at 6,266.53 (record high) will eventually be exceeded. It also is a positive for the Dubai market given similar market participants.

Now we must see further signs of strength to confirm the significance of the above analysis. Although last week’s close was above the 2008 peak, it is not far above. That means there remains a chance it could fail in the near-term. A drop below last week’s low of 4,922.32 would be needed for signs of failure for the near-term. In the bigger picture a bullish outlook would remain unless there is a significant sell-off.

Stocks to watch

Dubai Islamic Insurance (AMAN) has been consolidating in a relatively tight range over the past nine days. Last week is ended at 1.22.

Since the pattern formation follows a 14.4 per cent rally to 1.28 two weeks ago, the chart/price pattern is referred to as a bullish pennant. This pattern is considered a bullish trend continuation pattern as it has a tendency to breakout to the upside.

As with all consolidation patterns there is a possibility that a breakout will not occur, will fail, or the pattern will evolve into a larger pattern formation. As it stands now an upside breakout is indicated on trade above 1.28, with a daily close above that price thereby confirming strength.

Based on the pattern the minimum target would be around 1.38 in the near-term, with a chance of eventually getting above the five-year high at 1.56, hit back in January.

A similar pattern exists in the daily chart of Takaful House. It closed at 1.17 last week. The first signs of a breakout occur above last week’s high of 1.23, with further confirmation on trade above 1.27. Trade below 1.10 indicates a failure of this particular pattern.

Methaq Takaful Insurance may have recently completed the second bottom of a bullish double bottom reversal pattern. The pattern has formed right around support of the 200-day exponential moving average and prior multi-year resistance (now support). This provides further evidence that the pattern may follow through to the upside. Last week the stock closed at 1.71.

An upside breakout occurs above 1.80. At that point the three-month correction off the 2.27 high is complete, and the long-term uptrend can continue. First the trend would be heading towards 2.27, then the three-year high of 3.00.

 

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