Dubai: Last week the Dubai Financial Market General Index (DFMGI) gained 70.75 or 2.65 per cent to close at 2,736.89, just shy of the most recent 2,761.55 peak (less than one per cent away), and near the high for the week. Strength was seen in most issues with 26 advancing and only eight declining.

Volume surged to the second highest level in 10-years, yet the index was unable to advance above the recent peak. In addition, the gains in each of the past three weeks, since the rally off the most recent swing bottom, have declined sequentially, reflecting a slowing of upward momentum and overhead resistance. Three weeks ago the DFMGI gained 8.62 per cent, followed by 5.03 per cent, and then 2.65 per cent last week.

The near record volume and close near the recent peak are bullish signs, yet the decline in upward momentum a sign of uncertainty. Uncertainty as to whether the index can breakout to new highs and continue its ascent. This is similar to what happened with Emaar in early August. The stock broke out to new highs but subsequently failed to continue higher, and then dropped back down moving into a consolidation phase, where it remains.

There is also is a bearish divergence in the Relative Strength Index (RSI) on both a daily and weekly basis, another sign of weakening upward momentum. However, this is more significant for the medium-term than the short-term.

Price could still strengthen to new highs, but the rate of ascent of the long-term uptrend is slowing relative to what was seen in the first half of the year. The RSI is a technical indicator that measures the strength of a security relative to its prior price history.

Above the most recent peak the next resistance zone looks to start around 2,869.70, going up to 3,049. These are prior support or resistance levels on a monthly basis and therefore a formidable wall.

Even though a continuation of the uptrend may occur, a period of consolidation at this point would also not be surprising and healthy for the long-term trend. Weekly support is at last week’s low of 2,737.53. A decline below that level increases the likelihood of another move down to test the 2,299.80 swing low.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) closed up 26.72 or 0.70 per cent to 3,838.81. Volume rose to a five-year high while market breadth was less decisive as there were 22 advancing issues and 14 declining.

Although the advance was minor the ADI did manage to close above weekly resistance at 3,826.84, a sign of continuation for the three-week uptrend. Just above there is a resistance zone from 3,866 to the recent peak of 3,975.74.

The ADI consolidated within that zone for approximately five weeks before rolling over in late-August. There’s no sign the ADI can keep going higher until a daily close above the peak occurs. The index would then target the 4,198 area, followed by 4,298.

Last week’s range was narrow making a move below the low of 3,794.41 possible without a significant weakening signal. If that occurs then support would next be around 3,728 to 3,719, with a drop below the lower price making a test of the most recent swing low at 3,456.24 that much more likely.

Stocks to watch

Abu Dhabi National Company for Building Materials (Bildco) shot up 17.74 per cent last week to close at 0.73 on strong volume. It was the third strongest stock in the Abu Dhabi market and closed at a 14-month high after breaking out of a three-month consolidation price pattern. This should be the beginning of a new run with the potential to eventually match the 53 per cent rally that occurred off the April low of 0.47, before the stock moved into a consolidation phase.

For the past several months, etisalat has been holding above support of its 200-week exponential moving average (ema) as it forms a bullish ascending triangle consolidation pattern. Prior to the consolidation the stock rallied 41.4 per cent off the 8.56 low before finding resistance at 12.10.

That resistance price is the top of the triangle and the level that needs to be exceeded for an upside breakout to occur. A decisive breakout would be very bullish for Etisalat as it would be back at price levels not seen since November 2008, completing a multi-year bottoming process. There’s no sign that the stock is ready to break out just yet, but it deserves to be kept on the radar screen.

Emirates NBD has also been consolidating for the past several months forming a symmetrical triangle pattern. During that time it has held the support area of its 200-week ema and above a prior long-term resistance zone, now support.

As with Etisalat, the stock may continue to consolidate for a number of weeks. It ended the week at 5.30, up 1.34 per cent. A bullish breakout occurs above 5.76 with the next resistance area then around 7.22, 25 per cent higher. If it drops below support of 4.75, then a pattern failure and bearish signal is given instead.

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