Dubai: Last week the Dubai Financial Market General Index (DFMGI) was up 64.25 or 2.09 per cent to close at 3,137.32. Even with the shortened four-day trading week volume managed to almost match the prior week’s level. Most issues participated in the rally, with 27 advancing and only eight declining.

We had bullish upside follow-through last week from the bounce that started two weeks ago off a strong long-term support zone. The 2,851.24 low from two weeks ago identifies the key medium-term support level now. Multiple indicators verify the significance of that low, with the odds that it will hold for at least the near-term strengthened given last week’s price action. This means that a rally of some note has a good chance of occurring, and that, if and when that low is broken a new long-term bearish signal will be indicated.

After dipping earlier in the week the DFMGI managed to close at a two-week high and in the top quarter of the week’s range. Near-term resistance is the high of the week at 3,173.1. A rally above that price level will give the next bullish signal, with the next key area to watch for resistance starting around the three-week high of 3,227, and going up to the five-week high around 3,302.

If those price levels are exceeded to the upside then next watch for resistance around the 200-week exponential moving average (ema) combined with previous support levels, from 3,358 to 3,384, followed by a price zone starting from 3,503. The area of the 200-week ema (now at 3,373) looks to have a good chance of being reached given that the minimum retracement of the prior downtrend that might be anticipated using Fibonacci analysis is 3,386.8. Reaching that price level would complete a 38.2 per cent retracement of the declining coming off the 2015 peak of 4,253.28.

As long as any pullback in the near-term holds above last week’s low of 2,979.66, the odds favour further upside. A drop below last week’s low could lead to further selling or a choppy rangebound period, as a more complex bottoming formation may be in the works.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by 93.44 or 2.25 per cent last week to close at 4,241.73. A majority of 21 issues advanced while 11 decline, and volume reached an 11-week high.

Not only did the ADI exceed the prior week’s high, but it managed to get above the three-week high (4,239.87), and closed above it. On top of that the week ended strong, near the high of the week’s range, which was 4,242.90.

The next key price level to be exceeded to show continued signs of strength is the seven-week high of 4,274.53. If that occurs then the next target areas are the eight-week high of 4,338, followed by 4,499. The higher price completes a 12.9 per cent advance from the 3,983.89 spike low from two weeks ago. That would match the prior rally of 12.9 per cent from the August low on a percentage basis. If exceeded to the upside, the 61.8 per cent Fibonacci retracement at 4,551.34 would then be the next target.

Near-term support is at last week’s low of 4,103.42, followed by the spike low at 3,983.89. A drop below the lower level signals a bearish trend continuation. However, pullbacks that stay above that price in the near-term will provide an area that investors will likely accumulate positions in preparation for a continuation higher.

Stocks to watch

Dubai Financial Market broke out of a bullish double bottom pattern last week as it rallied above and closed above 1.20 on Thursday, with volume rising to a 24-day high. For the week the stock was up 5.2 per cent to close at 1.22, putting it at a six-week high and back above its 21-day ema for the first time since mid-October. The double bottom pattern is a classic trend reversal pattern in technical analysis. Once triggered it provides greater confidence that a downtrend is starting to reverse into an uptrend. We can use the pattern itself to determine a minimum target following a breakout. In this case the target would be 1.35 based on the pattern. A higher target would be a range from 1.40 to 1.44, which is where key support was found in the past, and therefore could be an area of resistance on the way back up.

Drake & Scull has a potential double bottom pattern forming on its chart as it has not yet triggered a breakout and confirmed the pattern. Last week the stock was up 3.7 per cent to close at 0.42 as volume rose to a five-week high. Another sign of strength is that the stock ended above its 21-day ema for the first time since mid-October. A bullish breakout of the double bottom occurs on a decisive move above 0.454, with a target derived from the pattern at 0.537. More aggressive investors can look for other reasons for entry before the breakout, keeping in mind that key support is the 0.371.

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