Last week the Dubai Financial Market General Index (DFMGI) ended essentially flat at 5,100.68, up 13.21 or 0.26 per cent. Volatility was low, while volume improved to a four-week high. Market breadth leaned clearly on the bullish side with 27 issues advancing, while 11 declined.

Despite the recent correction of 15.95 per cent the DFMGI has mostly stayed above its medium-term trend line, since its start from the September 2013 swing low. The index dropped below the line only briefly and quickly recovered several weeks ago. Using a 55-day exponential moving average (ema), a similar tool to a trend line, produces the same result. Each is supportive of the probability that, even though not much upward progress was made last week, the index is gaining strength. Higher volume and positive market breadth further supports this scenario. In addition, last week ended above the prior week’s high, although just barely, a short-term confirmation of underlying strength.

At the same time, the DFMGI has rallied up into the lower half of a two-week resistance zone going up to the most recent peak of 5,406.52. That zone may continue to hold an advance in the near-term. Momentum needs a pick up to get through it, with a daily close above it needed for a signal that the uptrend is continuing. Until then the uptrend line and 55-day ema are good tools to identify support areas where the index should hold above if it is to continue to gain. The 55ema is now at 4,838.71, while the low from two-weeks ago, also identifying potential support, is nearby at 4,841.54.

Keep in mind that if the index goes into a sideways consolidation phase the lines could be exceeded to the downside, without necessarily seeing a significant decline thereafter (below the most recent corrective low of 4,544.07). The corrective low is an important price level as it is a key part of the price structure of the uptrend. Nearby is the 100-day ema around 4,500. Together they can be looked at as a zone of key support. A decisive daily close below the 100ema increases the odds for a deeper correction.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell 197.99 or 3.77 per cent last week to close at 5,055.42, biggest drop since early-September 2013. Volume increased, reaching a six-week high, while market breadth was relatively even with 18 advancing issues and 20 declining.

This is on the back of a weekly close into new highs the prior week. The bulls would have preferred positive performance last week to support the possibility of an upside continuation. Last week’s pullback adds uncertainty as to what might happen next.

So far the pullback, relative to the overall chart structure, is normal. But there may be more downside to come as there is no clear indication yet that it has completed, other than that the lows of both Wednesday and Thursday held support around 5,015. The prior swing low, and the next lower potential support area, is around 4,977.67, followed by weekly support at 4,922.53 from two weeks ago. A drop below that weekly support level will have the ADI heading towards the 4,841 area (100-day ema).

For the past nine weeks the ADI has been pushing up into a resistance zone from back in June 2008, while the underlying structure of the uptrend has remained in place. So far the overall market behaviour continues to lean towards an eventual move above the recent peak of 5,253.41. In the short-term the first sign of strength, assuming the ADI does not drop below last week’s low, will be seen on a move above 5,069.39.

A daily close above the recent peak will have the ADI next targeting the 5,370 area, and then around 5,831. For the long-term such a move is significant as the ADI would be clearly above the 2008 peak of 5,186.66.

Stocks to watch

Dana Gas attempted an upside breakout of a bullish symmetrical triangle pattern last week, but quickly closed back inside the pattern. The pattern has been forming for the past six months or so, just above support of the 55-month ema, while the bottom of the pattern is at support of the 50 per cent retracement of the nine-month trend.

Next, watch for a move above 0.92 as the next sign of strength, with confirmation of the breakout given on a daily close above 0.94. Last week Dana closed at 0.89, up 5.95 per cent.

The first upside target would be the most recent peak of 1.04, followed by 1.20. Alternatively, a drop below 0.81 puts the bullish scenario at risk of failure.

The chart of Sharjah Islamic Bank has formed a large bullish flag pattern just above support of its 200-day ema. It may not be ready to break out yet but deserves to be watched. As it stands now, an upside breakout is first indicated on trade above 1.99, with additional confirmation of strength above 2.12.

 

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