Dubai: The Dubai Financial Market General Index (DFMGI) was flat last week, up only 0.46 or 0.01 per cent to end at 3,420.19. There were 11 advancing issues and 24 declining, while volume slipped a bit from the previous week.

At the beginning of the week the index dipped below the prior week’s low, giving a bearish trend continuation signal. Support was subsequently found on Monday at the week’s low of 3,380.16. At that low the DFMGI had corrected 9.6 per cent off the 2017 February high of 3,738.69. That’s less than either of the two prior corrections that have occurred since the DFMGI bottomed in January 2016. Each of those were over 11 per cent.

This might mean that if last week’s bottom holds it is a sign of relative strength, and it would clearly be a higher bottom than the last bottom or swing low that was hit in November of last year. Sequential higher bottoms is one element showing strength within price behaviour.

In addition, last week’s weekly candlestick pattern has formed a bullish hammer pattern. This is a classic bottoming pattern where the difference between the period’s open and close is narrow and occurs at the top area of the week’s range, plus there is a distinct shadow or wick reflecting weakness from earlier in the period. There now needs to be a daily close above last week’s high of 3,421.52 to confirm this one-week pattern. After that strength is again confirmed on a daily close above the most recent swing high of 3,455.22.

Keep in mind that for the past five weeks the DFMGI has been trending down with a series of lower weekly highs and lower weekly lows. Once there is a jump above last week’s high that five-week pattern is broken. Once a pattern is broken the odds for a change of direction improves. What we don’t know is how long it might take to see improvement beyond early indications. For that we’ll have to watch and see.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) fell by only 8.88 or 0.19 per cent to close at 4,608.28. Market breadth was slightly bearish with 19 declining issues against 12 advancing, while weekly volume rose to a one-month high.

Resistance for the week was seen around the downtrend line coming off the 2017 high. The high for the week was at 4,627.77. That high exceeded the prior week’s high and the week’s low was higher than the prior week’s low. Price behaviour of last week along with the past eight weeks or so show a market that wants to go higher. It just hasn’t been time yet.

As noted in this column in previous weeks, given the confluence of an uptrend line and downtrend line around the consolidation pattern of the past five months, the ADI should break out — either up or down — within then the next four to five weeks or so. Until a breakout through one of those lines occurs the consolidation phase will continue.

If a bullish breakout occurs sooner, then we will see a daily close above 4,655.81. At that point the ADI would next be heading towards the 2017 high of 4,715.05, and it would have a good chance of exceeding that high.

Bearish indications occur if we see a daily close below 4,481.55. At that point selling pressure could intensify. However, price behaviour needs to then be watched carefully as the index will be within a potential price support zone around the long-term uptrend line as well. We could see support intensify rather than weakness.

Stocks to watch

Dubai Islamic Insurance and Reinsurance (Aman) was up 0.88 per cent last week to close at 0.804. It hit its 2017 high at 1.24 back in early-January. Since then the stock has fallen as much as 39.5 per cent as of the 0.75 low reached three weeks ago. It also completed a 61.8 per cent Fibonacci retracement that week at 0.763. That retracement area also coincides with support of the 200-day exponential moving average (ema), now at 0.77. Aman has been sitting at support of the 200-day ema for the past several weeks and it has done a good job of stopping further declines.

Given the above Aman is at a potential pivot zone where buying could pick up. We may be close to confirming completion of the four-month correction. Nevertheless, support is close by and a bearish signal will be spotted quickly on a drop below 0.75. In other words the potential reward relative to risk is good around current price levels.

The next bullish signal will be generated on move above the three-week high of 0.825. Aman will then be heading towards the most recent swing high at 0.918 with a good chance of exceeding that high. A daily close above the three-week high will also be a breakout above the downtrend line. That breakout has the potential to be the beginning of a continuation of the uptrend that started from the November 2016 lows. Aman rallied 165 per cent off that low in nine weeks up to the 1.24 high.

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