Dubai: The Dubai Financial Market General Index (DFMGI) gained 37.58 or 0.90 per cent last week to close at 4,220.45, with the index once again ending the week at a new high for the trend. Volume was muted however, dipping to an eleven-week low. And market breadth was weak with only 13 advancing issues versus 25 declining. For 2014 the index is up 25.24 per cent.

In addition to the weak volume and low bullish participation among individual issues there are several other signs in the price action pointing to a slowdown in upward momentum. Once that happens the odds for a consolidation phase or retracemet increases.

The definition of an uptrend is a series of higher highs and higher lows. In this case referring to the high and low of the weekly range. There was a change in the price pattern for both the high and the low last week, providing additional signs for caution.

Last week’s gain follows a sell off on Tuesday that saw the DFMGI drop below the prior week’s low (4,098.38) for the first time in fifteen weeks. That’s when the current advance began — off the November 13 swing low at 2,755.45. Weakness was not confirmed though as the index was able to recover by the end of the day and close above 4,098.38, rather than below it. The DFMGI ended last week up 53.17 per cent from the November low.

During each of the prior eleven weeks, the high of the range of each new week surpassed the high of the prior week. That did not happen last week. It got close, up to 4,242.34, versus the high of two weeks ago at 4,255.19.

A sign of strength that could lead to further upside does not occur until there is a daily close above 4,255.19. The DFMGI would then be targeting the 4,322 to 4,397 resistance zone, consisting of prior monthly resistance from 2007, and the 61.8 per cent Fibonacci retracement of the internal downtrend starting from the 2008 peak, respectively.

If there is a daily close below last week’s low the possibility of an increase in downward pressure from more aggressive profit taking is likely. An eventual move down to at least the 3,644 to 3,585 weekly support zone would then be highly probable.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by 43.97 or 0.89 per cent last week to close at 4,958.66. This puts the ADI at a new weekly closing high for the uptrend and up 15.58 per cent for the year. As with the DFMGI volume was weak, falling to a twelve-week low, while market breadth maintained its bullish stance with 34 issues advancing and 16 declining.

Although the ADI did drop below the prior week’s low it did not close below it. And, in addition to a new closing high, the high of the weekly range surpassed the prior week. For the past fourteen consecutive weeks the ADI has risen above the high of the prior week, a consistent pattern that still remains in place, whereas the low of the prior week has been breached only once before on an intraday basis. From the November 2013 swing low at 3,762.8 the ADI has advanced 31.78 per cent to date.

A rally above last week’s high of 5,004.34 will give the next sign of strength that could lead to more upside. The next more significant potential resistance zone is around 5,158.66, the swing high from 2008.

On the downside a daily close below last week’s low of 4,820.07 points to lower prices. At a minimum, a move down to at least 4,530 would then not be surprising. Still lower support would be around 4,383.

Stocks to watch

Etisalat was first discussed back in January as forming a large multi-month bullish ascending triangle trend continuation pattern on its chart. Since that time the stock has continued to consolidate until last week. Last week etisalat broke out of the pattern, rising 3.8 per cent for the week to a new five-year high, and closing strong at 12.30, the high for the week. Volume rose to a three-week high, and the third highest level in 10 months.

The move to 12.30 is not only a breakout of the triangle but also a clear trend continuation bullish signal for the larger uptrend pattern structure which began off the December 2008 low of 7.04.

All indications are that this is the beginning of a new move that should see the stock rise to at least 13.30, based on the depth of the triangle pattern, and eventually higher. The next higher targets would then be 13.45, where the second leg up off the 2008 low matches the price advance of the first leg (measured move). That would be followed by a potential resistance zone from approximately 14.48 to 14.70, where the second leg of the long-term uptrend matches the first as a percentage move, and prior monthly support (now potential resistance), respectively.

 

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