There are a good number of the more active listings that have been consolidating recently and have formed either a symmetrical triangle or ascending triangle pattern on their charts, as have the market indices. These patterns generally complete with a breakout and return of momentum, and can present high probability entry scenarios. In each case (discussed in Stocks to Watch below) an upside breakout could lead to an eventual move of at least 20 per cent if they reach their target.

Dubai

The Dubai Financial Market General Index (DFMGI) rallied 212.13 or 5.77 per cent last week to close at 3,886.53, its largest gain in six weeks. Volume improved to a six-week high, and most listings participated in the advance, as there were 32 advancing issues and only five declining.

For over a month the DFMGI has been consolidating and has formed a symmetrical triangle consolidation pattern on its chart. If we draw a descending trend line along the top (resistance) of the pattern, and an ascending line across the bottom (support) of this pattern, the lines will eventually converge (triangle apex).

If a proper breakout is to occur it needs to happen before the index reaches the apex. This means that a bullish breakout should happen this week. Otherwise, the index will evolve its consolidation phase into a larger pattern, or fail by breaking down through support (below 3,628).

A bullish breakout is first indicated on a rally above 3,959.66, and confirmed above 4008.38. Such a move puts the DFMGI back above its intermediate trend indicator, the 55-day exponential moving average (ema), which is now at 3,939.76. The index has been below the 55-day ema since early-October 2014. This would be another bullish sign and increases the odds that the target from the triangle could eventually be reached. That target is approximately 4,588.84.

Support of the triangle pattern is at 3,628.07, with further weakness likely if the DFMGI drops below that price level.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 151.74 or 3.40 per cent to close at 4,608.56. This was the biggest advance in six weeks and a nine-week closing high. The majority of listings participated in the rally, as there were 30 that advanced and 12 that declined. Volume reached a five-week high.

With the rally the ADI broke out of a symmetrical triangle pattern (above 4,605.72) as the high for the week was 4,656.37, putting it back above its 55-day ema. Further upside is indicated as the minimum target from the triangle pattern is around 4,892.73. However, it first needs to get back above its 200-day ema, which is now at 4,698.

A bearish failure is indicated if the index drops below 4,454.50.

Stocks to watch

There are at least several stocks that have formed ascending triangle patterns recently including the Dubai Financial Market, Emaar Properties, and National Central Cooling. They may not breakout this week but each is getting close.

Last week the DFM closed at 2.05, 7.89 per cent higher. An upside breakout occurs on trade above 2.18. At that point the stock would also be back above its 55-day ema (2.18), for the first time since late-September 2014. The minimum target, based on the triangle measurement, is 2.69. This would put the DFM very close to resistance of its 200-day ema, which is now at 2.67. Trade below 1.80 cancels this bullish scenario.

For Emaar Properties, watch for a decisive rally above 7.98 for a bullish breakout. That would put the stock back above its 55-day ema. Emaar would then be targeting approximately 9.68, just shy of the previous 9.70 support level from October/November last year, and well above its 200-day ema, which is now at 8.93. A drop below 6.60 cancels the above scenario. Last week Emaar closed up 8.81 per cent at 7.29.

National Central Cooling ended last week 5.84 per cent higher at 1.09. It needs to get above 1.23 before signalling a bullish breakout. The stock would then be targeting at least 1.46. A higher target would be the 200-day ema, which is now at 1.54. Alternatively, weakness is indicated on trade below 1.03, and confirmed below 1.00.

The next two stocks have formed symmetrical triangle patterns.

Al Dar Properties closed higher by 8.86 per cent last week at 2.58. A decisive rally above 2.68 is the first sign of a breakout of the triangle, with strength confirmed above 2.74, then again above 2.88. The minimum target is around 3.30. Given the price structure of this triangle a breakout should occur this week, otherwise the shape of the pattern changes or a failure (drop below 2.32) occurs.

Also for Methaq Takaful, a breakout should occur this week or the stock becomes bearish or expands its consolidation into a larger pattern. Last week the stock closed at 0.75, up 2.74 per cent. The first sign of an upside breakout is on trade above 0.79, then confirmed above 0.83, with final confirmation on a move above 0.88. A minimum target based on the pattern is approximately 1.02. The 200-day ema is now at 1.04. Alternatively, a failure of the pattern is indicated on trade below 0.70 support.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.