Dubai: Last week the Dubai Financial Market General Index (DFMGI) improved by 94.49 or 1.96 per cent, ending at 4,90755. Volume dropped slightly below the prior week and remained near one-year lows, while market breadth was bullish with 27 advancing issues and only seven declining.

The DFMGI continues to evolve a bullish ascending triangle consolidation pattern on its daily chart. This is where the lower part of the pattern is ascending, with a series of higher swing and daily lows, while the top of the formation reflects horizontal resistance with a high of 4,935.24. Also, a series of higher weekly lows can be seen on the weekly chart.

An upside breakout can be anticipated, but is not confirmed until there is a decisive move higher, above that resistance level. Ideally, it is accompanied by a noticeable pick-up in volume.

Given this particular pattern in the DFMGI, if it going to break out it should do so this week. Otherwise, it is prone to failure (short-term bearish), or the consolidation phase is not complete and a larger consolidation pattern may form.

At this point, weakening is first indicated on a drop below 4,825.60, then below 4,769.73. The more significant area to watch for support would be around 4,706, as a daily close below that price level increases the odds for additional weakening. Support found at or above 4,706 points to a continuation of consolidation into a larger pattern structure.

We can arrive at a minimum estimated target for a breakout by measuring the price distance from the high to low of the triangle pattern, then adding it to the breakout trigger price. When we do that we get a potential minimum target of approximately 5,292.83, a move of 357.59 or 7.3 per cent above 4,935.24.

Targets should always be suspect as they are often the most unreliable part of analysis. However, the above objective from the triangle formation at least tells us there is some upside potential if a breakout occurs. The calculated target is above the next higher and more significant resistance area, which is around 5,191.50, the swing high from early-June. This indicates a more bullish outlook than if the target was below that swing high.

Abu Dhabi

The performance in the Abu Dhabi Securities Exchange General Index (ADI) was flat last week, ending lower by 1.67 or 0.03 per cent to close at 5,051.27. Regardless, advancing issues were more than twice declining at 28 to 12, respectively. Volume rose slightly above the prior week, but not by much.

The ADI attempted to move higher over a couple days last week as it got above the three-week high of 5,076.30 (also above prior month’s high), but it was quickly beaten back down each day to end below it. Upward momentum could not be sustained as selling pressure increased on moves to new highs for the uptrend.

This is not a sign of strength and puts the ADI at risk of weakening in the short-term. Further, the high to low weekly range narrowed considerably, to the lowest range in at least several months. Along with the flat performance, it represents uncertainty by investors as to which way the ADI will head next. Since it has so far failed to trend higher, the current overall direction, the odds for a decline increases.

Given the above, a move above last week’s high of 5,093.16 in the near-term cannot be trusted to keep going. If it is to have a chance of sustaining itself it needs to be decisive and accompanied by a clear increase in volume. Even then it looks like the odds for a pull-back first, prior to a continuation of the short-term seven-week uptrend, has increased.

On a pull-back the ADI remains inside a four to five-week consolidation pattern down to support around 4,896.48. A daily close below that level indicates further declines may be forthcoming, as the daily price structure of the uptrend is also violated at that point (drops below prior swing low).

Stocks to watch

Takaful House, discussed last week, broke out of its symmetrical triangle consolidation pattern on Thursday, as volume surged to an eleven-week high. It ended the week up 11.7 per cent to close at 0.821, achieving the second best advance in the Dubai market. The next confirmation of strength is on a daily close above 0.829 resistance.

This is likely the beginning of a new move higher with a minimum target of 0.94, followed by 0.96, then 1.00. Therefore, weakness back towards support can be watched for aggressive entries. The first support zone is around 0.79/0.77.

Union Properties has been forming a bullish ascending triangle formation over recent weeks, similar to what’s seen in the chart of the DFMGI. An upside breakout is indicated on trade above 2.21. The pattern measurement points to a minimum target of 2.48 if a breakout occurs. Just below there is potential resistance from 2.39 to 2.44, from the June peaks.

Trade below 2.10 support would indicate weakness instead of strength, while a drop below 2.04 changes the short-term outlook to bearish.

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