Last week the Dubai Financial Market General Index (DFMGI) advanced by 29.39 or 0.88 per cent to close at 3,384.63, the fourth consecutive week of positive performance. For the first week in four there were more stocks that fell than rose, with 20 declining against 18 advancing. Volume fell well below the prior two weeks, reaching a three-week low.

For the past couple of weeks the index has made several attemps to break above the 200-day exponential moving average (ema), now at 3,405.44. It has represented trend resistance along with the two-week high at 3,420.71. If the high is exceeded the DFMGI next heads towards a resistance zone from 3,498 to 3,542. Thereafter, there is a resistance zone up to the October highs, around 3,740 to 3,763.

So far, given last week’s performance, we can anticipate that the two-week high will be exceeded. The DFMGI fell into Wednesday before finding support at the 21-day ema and rallying, ending with a bullish one-day candle, followed by a four-day closing high on Thursday. This type of price action identifies the 21-day ema as an important trend support indicator for the near-term uptrend, and therefore it should continue to be watched. In addition, by Wednesday the DFMGI was down 3 per cent for the week before recovering into Thursday to close positive. Support was found at 3,253.1, just above the prior week’s low of 3,251.05, thereby maintaining a consistent eight week’s of higher lows.

Further, since clearing the inverse head and shoulders trend reversal pattern that completed on January 27, the index has had two noticeable retracements. The first retracement ended at the swing low on February 11 (also near 21-day ema support), completing a 5.2 per cent decline, and the second last week, ended a 4.9 per cent decline. This reflects a degree of symmetry between the two retracements, demonstrating that the uptrend remains healthy.

Last week’s low was at 3,253.10, close the the two-week low of 3,251.05. The two-week low then should be used as the key short-term support level as a drop below it will change the pattern of higher weekly lows. As long as the DFMGI doesn’t drop below it the chance for a continuation higher remains. However, if it is exceeded to the downside, then the next target is the 55-day ema, which is now at 3,168.45. The next lower support level would then be around 3,125, the three-week low.

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 21.17 or 0.47 per cent last week to end at 4,478.73, its first decline in five weeks. Market breadth was almost even, with 16 advancing issues and 15 declining, while volume dipped to a seven-week low.

Even though the ADI was able to recover a 4 per cent decline for the week earlier in the week, and close in the top half of the week’s range, damage has been done to upward momentum. The uptrend from the January low has maintained a series of higher weekly lows and highs other than on one occasion where each saw a minor violation. This pattern changed last week as the week’s high of 4,529.06 was clearly below the prior week’s 4,587.70 high, and the low of 4,312.16 was well below the previous week’s low of 4,421.45. Also, the 14-day Relative Strength Index (RSI) momentum oscillator has turned down after being the most overbought in two years.

Two weeks ago the ADI hit resistance at 4,587.7, which matched resistance seen around the peak in October. Selling intensified at that point, leading to a retracement of 6.0 per cent at last week’s low of 4,312.16. Together, the above factors increase the odds that the two-week high will hold a continuation of the uptrend for now.

Support for the week was seen in the area of the December 4,313.78 peak and the 200-day ema (4,346.77), as discussed last week. We can anticipate a test of that support zone in the foreseeable future and a possible break below it. A drop below it would have the index next heading towards the 4,250 support area, followed by a zone from 4,147 to 4,044.

Stocks to watch

RAK Properties has been forming a bullish ascending triangle pattern in its daily chart, right around support of the 55-week ema and just above the 200-day ema. Resistance of the pattern has been identified by the market at 0.65 on eight of the past eleven days. However, there is a spike high that hit once at 0.66 four weeks ago, so a break above that level should be used as the signal price. That would also put the stock above the 0.66 swing high from September, an additional sign of strength. If a decisive breakout occurs the first target is around 0.72, followed by 0.80. Last week’s closing price was 0.65.

Both Emaar Malls and National Bank of Abu Dhabi (NBAD) broke out of bullish flag patterns last week to close at new highs for 2016, and thereby triggering trend continuations. Emaar Malls was up 3.96 per cent to 2.89, and NBAD ended higher by 3.45 per cent at 9.30. Each can be watched for pullbacks before proceeding higher. A failure of the breakout occurs in Emaar Malls on a drop below 2.67, and below 8.61 for NBAD.

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