Dubai: The Dubai Financial Market General Index (DFMGI) strengthened by 77.12 or 1.79 per cent last week to close at 4,380.67, and it reached a new weekly closing high for the 26-month uptrend. Volume declined from the prior week reaching a three-week low, while market breadth was close to evenly split, with 17 advancing issues and 18 declining.

With only two more trading days before the end of March, monthly volume is at a four-month low. For 2014, the DFMGI has advanced 30.0 per cent.

The trend continues to point higher given the positive performance last week and new weekly closing high. However, the index is just about pushing up against the potential 61.8 per cent Fibonacci retracement resistance zone around 4,397. That’s a retracement level derived from measuring the secondary decline from the 2005 high, starting at the January 2008 peak.

Given that the 4,397 resistance zone is so close, watch for a decisive daily close above that level for the next clear bullish signal, following a move above last week’s high of 4,388.54. Monthly resistance is then at approximately 4,548.

Last week’s low at 4,281.80 is the closest support level of significance. A daily close below that level puts at risk a continuation of the trend into new highs.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced 70.25 or 1.47 per cent to close at 4,855.10. Market breadth leaned on the bearish side with 27 declining issues and 18 advancing. There was a relative change in volume as it exceeded the prior week’s level and reached a six-week high.

The ADI has yet to fully recover from a 7.3 per cent decline off the most recent peak of 5,004.34. It remains around 3.0 per cent below that level. Last week was an inside week, where the high to low range of the week was contained within the prior week’s range. The same is true of the weekly range from two weeks ago. This reflects investor uncertainty as to the next direction, either a recovery higher and subsequent continuation of the two plus year uptrend, or a deeper correction lower. There is not yet clarity as to which direction is most likely in the near-term.

What can be determined is that the ADI will likely get stronger if there is a daily close above 4,880.09, and weaker on a daily close below 4,773.91. A breach of the lower level would have the index next targeting the recent swing low around 4,639.79. The minimum target below there would then be around at 4,515.50. That’s where the second leg down in the correction matches the decline of the first leg down. It is called a measured move in technical analysis and reflects symmetry in the price distance of sequential swings in a market. There is also potential weekly support around 4,497, and the 21-day exponential moving average (ema) is currently at 4,504.60, and frequently will identify an area where support is seen.

A daily close above 4,880.09 means that the ADI then has a chance of exceeding its recent peak of 5,004.34. But first it needs to get above weekly resistance from around 4,917 to 4,927. Last week’s increase in volume on positive index performance improves the odds for an eventual move higher.

Stocks to watch

National Bank of Abu Dhabi has been retracing earlier gains for the past nine weeks after hitting a high of 16.10 in late-January. That high finished a strong rally begun from a breakout of a five-month consolidation pattern. The stock was up 1.85 per cent last week, ending at 14.11.

The low of the retracement so far is 13.45, almost completing a 61.8 per cent Fibonacci retracement of the most recent upswing, which would be at 13.32. That’s also in the area of support (prior resistance) of the past consolidation zone. So far this is a normal pull back and the trend can be anticipated to continue once the retracement is complete. The 200-day ema has been a good indicator of trend support since August 2012 and it should continue to do so. It turns out that the 200 ema is currently at 13.33, matching the potential support level indicated by the Fibonacci retracement level. Having two different indicators identifying the same area of support gives it greater significance and a higher probability it will hold.

Union National Bank (UNB has been trading sideways for the past nine weeks in a relatively tight trading range near the top zone of its uptrend. The stock bounced off support at 6.30 two weeks ago, close to the 6.23 price level indicated by the 21-week ema. A daily close below the 21-week ema would give a sign for further weakening as it has provided a good indicator of trend support for the past six months. However, the odds favour a trend continuation to the upside.

Last week that stock was down 2.14 per cent at 6.85, only 4.2 per cent below the 7.15 peak reached in early-February. A daily close above that high provides the next clear bullish signal and trend continuation. That would also put UNB decisively above its peak from 2008, a significant technical sign for further strengthening.

 

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