Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 24.94 or 0.70 per cent to end at 3,519.27. Most issues fell, with 31 declining and only five advancing, while volume dropped to near the lowest levels in at least a year.

The DFMGI tried to advance above the prior week’s high last week but couldn’t do it. Last week’s high was 3,559.61, just below the 3,561.91 high from two weeks ago. This created a small bearish double top trend reversal pattern on the daily chart. The pattern was triggered last Wednesday as the index fell below and closed below 3,516.09 on a daily basis. Therefore, a deeper pullback off the two-week high is now likely.

Areas to watch for support include the 21-day exponential moving average (ema) around 3,465.45, along with the two-week low of 3,455.22, and the 55-week ema around 3,445. A little lower is the 38.2 per cent Fibonacci retracement of the current near-term uptrend at 3,425.61. Frequently, once a retracement of a trend begins it has a tendency to retrace a minimum of 38.2 per cent. This doesn’t mean it will, but the odds favour such a retracement.

There is also an important support zone from around 3,394 (200-day ema) to approximately 3,351. That price zone is in the area of previous resistance from the recent nine-week consolidation double bottom pattern. The DFMGI broke out of that pattern several weeks ago and headed higher with conviction. It wouldn’t be unexpected for the index to retrace down to this zone and test it as support, given that it was key resistance previously, and that the 200-day is in the same price area. The DFMGI broke out above the 200-day ema three weeks ago after being below it for the prior nine weeks.

A daily close above the two-week high is needed for the next bullish trend continuation signal. The DFMGI may then face resistance around the 2016 high of 3,604.70. If the 2016 high can be exceeded on a daily closing basis, the odds improve for a continuation of the advance. Subsequent targets include the October 2015 peak around 3,740, previous support from May 2015 at 3,913, and previous support and resistance around 4,000.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was almost even last week, rising just 3.74 or 0.08 per cent to close at 4,593.58. Market breadth was mixed, with 14 advancing issues and 18 declining, while volume dipped to a three-week low.

The ADI has been creeping up for the past several weeks, reaching the second highest weekly closing price for 2016 for each of the most recent four weeks, including last week, and closing just above the long-term downtrend line. Last week’s high was 4,621.50, and the 2016 high was 4,637.24.

That downtrend line represents resistance of the decline starting from the 2014 highs. A move above it is bullish, and weekly closes above it is also bullish. At the same time the ADI has not advanced much above the line and needs to show additional strength to confirm the potential significance of the breakout. That will occur if there is a daily close above the 2016 high, and then subsequent upside follow-through.

If the 2016 high is exceeded, the next main target will be up around the July 2015 peak of 4,902. On the way there is a potential resistance zone from around 4,675 to 4,723.

Last week’s low of 4,551.03 is the near-term support area to watch. A daily close below it could lead to a deeper retracement, with the next lower support zone around the four-week low of 4,501.08, followed by the 55-day ema, now at 4,477.10.

Stocks to watch

There are several stocks that had breakouts of chart patterns in the past two to three weeks, with each since retracing back towards the original breakout price zone. Since only one leg up has occurred in each so far another leg up at a minimum can be anticipated once the pullback is complete.

Dubai Financial Market broke out of a double bottom pattern three weeks ago on a move above 1.32 before hitting resistance at 1.39 two weeks ago. Last week the stock hit support of 1.31, potentially completing its retracement, and if not it should be close. Preferably it does not drop below the three-week low of 1.27, which could lead to further weakness. Targets include the recent 1.39 high, followed by 1.41, then 1.47.

Union Properties broke out of a head and shoulders bottom pattern three weeks ago as it rallied above 0.74. It then found resistance at 0.78 and retraced to 0.745 last week, right in the area of support from both the 21-day ema and 55-day ema. Based on the pattern, the initial minimum target is around 0.81.

Finally, we have Methaq Takaful, which broke out of a flag continuation pattern two weeks ago as it advanced above 0.83. It subsequently hit resistance at 0.99 two weeks ago and has been pulling back. Areas to watch for support and a potential reversal higher include the 21-day ema at 0.86, and then the breakout zone around 0.83. Potential targets include the recent high of 0.99, followed by 1.05, 1.19, and 1.35.

 

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