Dubai

Last week the Dubai Financial Market General Index (DFMGI) managed to end slightly higher, up 9.15 or 0.27 per cent to close at 3,401.15. There were 20 advancing issues and 14 declining. Volume was subdued, on the low end of the past eight months or so.

For the past several weeks the DFMGI has held above a tight short-term support zone from 3,373.76 to 3,371.08 (last week’s low). This is very close to a multi-week resistance zone around 3,368 that appeared last October/November, and in the area of support represented by the intermediate-term downtrend line.

A decline below last week’s low signals a continuation of the retracement off the 3,465.38 swing high from three weeks ago. However, nothing significant changes as support of the downtrend line and minor weekly support around 3,354 is close by. Further down is the 3,264.36 swing low support from five weeks ago.

Developments in the chart of the DFMGI recently continue to point to the likely continuation of the bullish ascent that began five weeks ago. That rally took the index above both the downtrend line and 55-day exponential moving average (ema) thereby pointing to a bullish change in trend. The current pullback has tested the trendline as support and it has so far held. Next the index should be close to continuing the rally started five weeks ago.

So far there has been only one leg up off the 3,264.36 low. Given how trends generally progress there is a high probability we’ll see a second leg up. As of now the second leg up could start from last week’s low. If so, we can arrive at one potential higher price target by calculating a measured move.

A measured move is a classic chart pattern that occurs frequently in markets where the second leg up (or down) approximately equals the price appreciation of the first leg up (or down). It reflects the tendency for market swings to sometimes have symmetrical price relationships. The current measured move in the DFMGI points to a potential price target of 3,572.10. This is useful by itself but more reliable here given that the prior swing high target from early-April is almost a match at 3,573.25.

Whether the targets are reached or not the above analysis indicates the potential for further upside. First though a new short-term bullish signal needs to occur. The first bullish signal is on a daily close above last week’s high, and then on a daily close above the three week high at 3,465.38.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) declined by 29.05 or 0.66 per cent last week to end at 4,396.36. Market breadth was close to even with 18 advancing issues and 16 declining, while volume improved to the third highest level in nineteen weeks.

A short-term bearish trend continuation signal was generated as the index dropped below the prior week’s low of 4,390.22, before finding support at 4,358.36 on Tuesday and bouncing slightly. That low was in an anticipated support zone around the March swing low of 4,355.26. It has the potential to become a floor that could hold for a while. We’ll know soon enough as a daily close below the March low is a sign of further weakness and a breakdown of that support zone.

Watch closely as volume is low during the summer and there can be a tendency for price to overshoot price levels thereby giving false signals. There may be little or no follow-through in the direction triggered. Subsequently, the move is reversed and the originally anticipated response occurs.

The next lower potential support levels below the March low look to be first the 200-day ema, now at 4,307.28, followed by monthly support around 4,248.

Stocks to watch

Price behaviour in Deyaar Development has some similarity to recent activity in the DFMGI. During the recent rally off the 0.45 swing low from late-May Deyaar broke out above both its downtrend line and 55-day ema. Resistance was then seen at a 0.54 leading to a retracement that has so far tested the downtrend line as support and held.

A rally above last week’s high of 0.52 gives the next sign of strength, followed by a move above the more significant 0.54 swing high. The three-week low of 0.496 needs to hold to sustain a short-term bullish outlook. Last week Deyaar was up 0.20 per cent to end at 0.51.

Aramex broke out of a bullish flag pattern last week as it rallied above 5.31. The stock closed up 4.4 per cent for the week to 5.31. That’s close to the week’s high of 5.44. The pattern formed on support of the 21-week ema, which was previously tested as support once before in February leading to a strong rally.

The breakout has just started so keep an eye out for entries on weakness. Confirmation of the bullish breakout next occurs on move above the 2017 high of 5.50. Aramex then heads toward the target derived from the flag pattern, which is around 6.66.

Last week’s low of 5.20 is near-term support. Price should hold above that price during any weakness. If not, and there is a daily close below it, the breakout has the potential to fail.

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net.