Dubai: The Dubai Financial Market General Index (DFMGI) advanced by 72.31, or 2.08 per cent, last week to close at 3,544.21. Volume reached a 13-week high, with most of the issues contributing to the trend, with 30 advancing and only nine declining.

Bullish behaviour continued last week, with the index moving further above the long-term downtrend line following an upside breakout two weeks ago, as it exceeded and closed above the 100-week exponential moving average (ema), and ended the week in the top quarter of the week’s range. Other than for one-week in April, the DFMGI has been below its 100-week ema for the past 11 months. The DFMGI topped out at 3,561.91 for the week, putting it 11.0 per cent above the June low of 3,208.81 hit only 17 days ago, and only 1.2 per cent shy of the 2016 high of 3,604.70.

Together, the above signs increase the odds that the index will eventually exceed the 2016 high of 3,604.70. If that occurs, the DFMGI will be heading next towards the October 2015 peak of 3,740 to 3,763, followed by the area around 2,913 and up to approximately 3,999. The higher price level will complete a 50 per cent retracement of the full downtrend starting off the 2014 highs to the 2016 low.

Since hitting a low in January, the DFMGI has essentially had one leg up or upswing in the trend so far, followed by a retracement and consolidation, with bottom support at 3,197.32. A potential second leg-up started from that low, and a bullish trend continuation signal will be confirmed on a daily close above the 2016 high. If this second leg up matches the price appreciation of the first the DFMGI would be targeting 4,211.30. That’s right around a 4,234 to 4,253 resistance zone from May to July 2015, confirming its significance.

It’s not uncommon to see some similarity in the price movement of swings within a trend, making this higher target a real possibility if the 2016 high is breached. However, keep in mind this would be a long-term target and if it is reached the index could take some time getting there.

Given the 11 per cent rally in only a few weeks, the DFMGI is getting extended in the short-term, reaching an overbought condition on the 14-day Relative Strength Index (RSI) momentum oscillator. It is not extreme yet and the index could still keep going, but it is starting to be overdue for a retracement, even if only a minor one. If the index breaks above the 2016 high before an obvious retracement, it will be further extended thereby making it difficult to continue its upward momentum in short-term.

Price areas to watch for support during a retracement include last week’s low of 3,455.22, followed by 3,378, and down to the two-week low of 3,357.

Last week the Abu Dhabi Securities Exchange General Index (ADI) was up only 13.11 or 0.29 per cent to end at 4,589.84, the second week in a row the index ended close to even. There were 18 advancing issues and 15 declining, while volume jumped to a ten-week high.

The ADI reached a high of 4,617.68 last week, only 0.42 per cent below the 2016 high of 4,637.24, and 10.6 per cent above the most recent swing low of 4,174.71 from May. Although not by much, the index has ended each of the past three weeks above its long-term downtrend line, a sign of strength, and has been above its 100-week ema for the past five weeks.

The next bullish confirmation will be given on a rally above the 2016 high, thereby triggering a continuation of the uptrend begun in January, and putting the index decisively above the downtrend line. At that point the ADI would be targeting the 4,902 price area, which was a peak in July 2015. There is also a lower price area to watch for resistance, from approximately 4,675 to 4,723.

As with the DFMGI, the ADI has had only one leg up in its uptrend that began in January, and a second leg up has been developing over the past eight weeks (starting from the 4,174.71 May low). A measured move will complete around 5,080.4, where the price appreciation of the second leg-up will match the first.

On the downside, near-term support is at last week’s low of 4,557.52. This is followed by a weekly price zone from around 4,517 to 4,497.

Stocks to watch

Emaar Properties reached a new 2016 high last week, gaining 4.48 per cent to close at 7.00, while volume hit a 13-week high. A high of 7.08 was hit on Thursday before the stock backed off a little. Year-to-date Emaar has advanced 23.02 per cent, and as of last week it is well above its 100-week ema for the first time in a year.

A bullish trend continuation signal was given as the prior 2016 high was 6.95. Last week’s price action is bullish for the short-term, but in the very short-term Emaar looks to be getting close to exhaustion and is overdue for a retracement. It has risen 1.01 or 16.6 per cent in just 13 days, and the RSI is showing the most overbought level since April 2015.

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