Dubai: The Dubai Financial Market General Index (DFMGI) was essentially flat for the week, rising only 8.18 or 0.20 per cent to end at 4,088.09. Market breadth also reflected uncertainty in market direction, with 20 declining issues and 17 advancing, while volume rose to the highest level in over a year, the highest since early — February 2014 on a weekly basis. This is not particularly bullish for the near-term for a number of reasons, as it reflects a trend that may be reaching exhaustion and getting ready for a pullback.

When a market reaches a new trend high, especially on very high volume, and does not follow through to the upside, it can be at least a short-term bearish sign. Last week the DFMGI rose above the prior week’s high, as it has for the past four weeks, reaching its highest level in 19-weeks, but yet ended almost flat. Further, the 14-day Relative Strength Index (RSI), a measure of momentum or rate of change of price, had reached an overbought rating and has since started to turn down. In addition, the candlestick pattern on the weekly chart has created a doji (open and high for a period are equal or almost equal), which can be bearish by itself, but particularly so if it occurs at the high of a trend as we see in the DFMGI, and more so when on the weekly chart. This doji also occurs within the bottom half of the week’s range, further pointing to a shift in momentum, where the sellers are having a bigger impact on price than the buyers.

Volume is an important additional indicator here given its performance on a weekly basis as noted above. In addition, daily volume surged last Tuesday to an extreme not seen since June 2009, the day a new high of 4,195.91 was reached in the four-week uptrend. The index closed higher on that day but in the bottom part of the daily range, another sign of weakness. When volume spikes at the beginning of a trend it is bullish, but when it occurs further into a trend it can be an early sign that a change in trend may be coming, or at least a pullback.

The first sign of weakness occurs on a drop below last week’s low of 4,011.75, and is confirmed on a daily close below that price level. That would also put the index back below its 200-day exponential moving average (ema) trend indicator for the first time in six days. The next lower zone of support looks to then be from around 3,800 (a prior week’s low and the 55-day ema) to 3,753.59 (prior week’s low)

Alternatively, if the DFMGI is able to maintain its advance into a fifth week, watch for a decisive daily close above last week’s high. At that point it starts to reach the next potential resistance area around 4,231, which is followed by 4,385.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 24.05 or 0.52 per cent to close at 4,631.75. Market breadth was on the bearish side, with 20 declining issues and 13 advancing, while volume spiked to a seventeen week high. Again, as in the DFMGI, we see volume reach an extreme higher up in a trend, thereby increasing the odds for a pullback.

Resistance for the week was seen at 4,723.42 on Wednesday, right in the area of previous resistance from February, and a key hurdle for the short term five-week uptrend, and intermediate term four-month uptrend. That peak was followed by a 1.59 per cent drop on Thursday, the largest one-day decline in the past five weeks, with the ADI ending below the range of the prior two days, also a first during this time period.

The ADI broke above its downtrend line a couple weeks ago and is now likely pulling back to that price area to test the line for support. This is normal behaviour and is healthy for the trend as it was starting to get extended. Healthy, in that a pullback at this point from prior resistance, will allow the market to build up enough demand to enable it to bust above the February highs once the pullback is complete.

The 55-day ema can be used as one proxy for the trend line, and it is currently at 4,559. When combined with previous support it starts a support zone down to around 4,517.

Stocks to watch

Dubai Parks & Resorts ended the week higher by 0.04 or 4.31 per cent, at 0.969. There are several reasons it deserves attention.

First, the weekly closing price was the highest since the company went public in October last year, and it follows a new trading high of 0.994 (above 0.977) hit on Thursday. That high put Dubai Parks 60.1 per cent above its record low of 0.621 from December 2014.

Second, volume for the week was the second highest in the history of the stock, and the third highest on a daily basis. It occurs as a breakout into new highs is being attempted, and is therefore a bullish indicator.

A decisive rally and daily close above last week’s high confirms the bullish outlook, with the first short-term targets being 1.02, followed by 1.06, each a Fibonacci extension price level.

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