Dubai: Both the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) have continued to trade on low volumes with miniscule ranges for the week. Investors continue to wait for a catalyst to spark interest and are hopeful that activity will pick up after Ramadan. Recent strength in other GCC markets has not carried over to the UAE, the most bearish looking of the lot.

One potentially good sign is that the DFMGI and ADI have not continued to decline and are holding steady. If strength continues in the other GCC markets and there is further bullishness from major international exchanges, some of that sentiment could rub off on the UAE.

Dubai

In Dubai, we may be getting closer to increased activity as the DFMGI continues its sideways movement within a symmetrical triangle consolidation pattern, as discussed a couple of weeks ago.

There is still a good chance that when the index moves through either the top downtrend line, or the bottom upward sloping line of this pattern we could see a pickup in momentum and volume. Low volatility leads to higher volatility. A minimum target for a breakout through the top line of this triangle is 1,604.70.

The first sign of strengthening and a confirmation of a move through the top line of the triangle would be above short term resistance of 1,503.20. Further strengthening would be indicated if the DFMGI breaks through 1535.05, the upper limit of a resistance zone beginning at 1527.90.

Don't get too excited yet, however, as the triangle could also break down. A downside break of the symmetrical triangle would be indicated once the DFMGI closes below support of 1,464.18. The target on that move would be approximately 1,362.68, based on the triangle formation. This would put the index below support from February 2009, an indication that further downside was likely from there.

Last week, the DFMGI was essentially flat, improving only 0.31 or 0.02 per cent to close at 1,497.78. Declining issues clearly beat advancing at 20 to eight — not a particularly bullish sign. Once again volume was lethargic.

Abu Dhabi

The overall price structure of the ADI continues to look bearish, although little follow-through to the downside has been seen so far. It has been sitting up against resistance (previous support) for the past several weeks, with little movement up or down.

Why bearish? Because long-, medium- and short-term trends are still down. Until proven otherwise, by breaking through the top of its three-month price range, the odds still favour a move lower. And, if the ADI moves lower, chances are that the DFMGI will move with it.

The ADI has been hitting resistance of its lower downtrend line for the past week. Even if it breaks through that line it has a range of overhead resistance just above it until 2562.48, the top of the range for the past several months.

A move through that level would confirm strengthening and a chance for a further move higher, up to the 200 period exponential moving average (ema) on the daily chart. The 200ema is currently at 2,668.83, but will change as time goes on.

A move through the low of two weeks ago, 2,486.71, confirms weakening. At that point it will likely reach support of 2,469.83 and either break lower or bounce, before going still lower. After that the next level of support is 2,429.97, the low of February 2009.

Last week the ADI was basically flat, down 6.1 or 0.24 per cent to close at 2,494.52. As with the DFMGI, advancing issues clearly lagged declining at 15 to 23. There was a small uptick in volume relative to previous weeks.

Stocks to watch

One listing showing relative strength is Aramex. It's been building a sideways price base for almost a year, with a high around Dh1.77. It moved through that level on Thursday on higher volume, closing at Dh1.79. This is bullish price behaviour and indicates that Aramex probably has further to go on this break. This is one of the very few bullish-looking stocks out there.

Emirates Integrated Telecommunications broke up out of a head and shoulders bottom formation a couple of weeks ago. Watch for a pullback towards the breakout level around Dh2.09, before it goes higher. The objective based off the target from the head and shoulders formation and the 200ema is Dh2.40.

Sharjah Islamic Bank has hit resistance at Dh0.85 multiple times. In other words, price action has clearly identified the Dh0.85 level as being significant. Therefore, a move above and a close above that level would signal the likelihood of further upside.

Emaar Properties has been tracing out a symmetrical triangle pattern in its chart for the past couple of months or so. A move through near-term resistance of Dh3.35 would be the first sign of strengthening and a possible breakout of this pattern. Watch for strength of the follow-through thereafter to see if the rally can be sustained.

Bruce Powers is a financial consultant, trader and educator based in Dubai. He can be reached at bruce@etf-bond.com. Disclaimer: Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liabilities for the result of any action taken on the basis of the above information.