Dubai: Last week the Dubai Financial Market General Index (DFMGI) advanced by 60.12 or 1.82 per cent to close at 3,371.22. As there were only two trading days due to the holiday, volume was low. Most issues participated in the rally, with 29 advancing and only six declining.

For the fifth time over the past couple of months a short-term rally found resistance in the price zone from 3,373 to 3,378. It includes resistance of the 200-day exponential moving average (ema), which is now at 3,377. The high last week was 3,375.69.

The DFMGI has been building up energy over the past nine weeks as it has remained within a relatively tight range as best seen in the weekly chart. This means that when the index breaks out of the range, either up or down, it has a good chance to take off with strong momentum. There have been a few false upside breakouts over the past five weeks or so. Therefore, an upside breakout should be clear and decisive, and close visibly above the prior highs, to provide confidence that it can keep going.

The key price level to watch is the 3,378 high of the price range. A decisive rally above that price will trigger an upside breakout, thereafter confirmed on a daily close above that level. That would also trigger a move above the 200-day ema, for the first time since May 1st, a further bullish sign. Minor resistance is then around 3,421. Subsequently, the 10-week high of 3,495.25 begins a significant price zone up to the 2016 high of 3,604.70.

Bullish sign

Last week’s rally put the DFMGI back above its long-term downtrend line for the second time this year. An upside breakout of the nine-week range, would put the index further above the line, giving an additional bullish sign. At the same time, the uptrend off the January lows (26-month low) would need to bust above the 2016 high to trigger a continuation of this trend.

On the downside, the bearish implications of the decline two weeks ago were largely negated last week given the degree of the advance within the price pattern. A drop below 3,296 points to further downside pressure, with the first support zone of significance from around 3,230 to 3,197.32. The lower price level is the bottom of the nine-week range. A drop below it signals a breakdown from the nine-week consolidation pattern and therefore lower prices are likely. Price areas to then watch for some support include 3,124, and then a range from around 2,964 to 2,957.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was up 78.20 or 1.74 per cent last week to end at 4,575.84. There were 21 advancing issues and only five declining, while volume dropped due to the shortened trading week.

Seven weeks ago the ADI ended a five-week decline off the 2016 high of 4,637.24. Support was found at the long-term 200-week ema, leading to a 9.9 per cent rally that has so far topped at the 4,587.87 high from three weeks ago. The bounce off the 200-week ema is the third time in several years that this long-term trend indicator has acted as support for the market and turned it higher. So far it has done so again.

Last week the three-week high was tested as resistance with the week’s high of 4,579.29. If the ADI can get above the rally high in the near-term and stay there, it has a chance of surpassing the 2016 high. This would also put the index just above its long-term downtrend line, a bullish sign. A clear breakout above the 2016 high signals a bullish trend continuation, and confirms a breakout above the downtrend line. The line signifies dynamic resistance of the descent that began from the 2014 highs. If the 2016 high is exceeded the ADI would then be targeting 4,732, followed by 4,900.

A fall below last week’s low of 4,501.08 points to further short-term weakening, with potential support then around 4,404, followed by 4,313. If the lower level is broken to the downside, selling pressure could increase from there as a bearish trend continuation signal would be generated.

Stocks to watch

The Dubai Financial Market (DFM) has formed a potential double bottom trend reversal pattern over the past couple of months, around support of the 61.8 per cent Fibonacci retracement zone. A bullish breakout is indicated on a decisive move above the eight-week high of 1.32, with a minimum target of 1.45. Such a move would also put the stock back above its 21-week ema for the first time in 10 weeks. Alternatively, a decline below 1.19, the bottom of the pattern, is bearish and reflects a failure of the pattern. Last week DFM closed up 3.23 per cent to 1.28.

Union Properties has also been forming a complex head and shoulders reversal pattern. A breakout is signalled on a move above 0.74. That would also put the stock back above its 55-day ema (now at 0.74) for the first time since the beginning of May. The pattern indicates a minimum target of 0.81 if a breakout occurs. Last week Union Properties closed 2.09 per cent at 0.71.

 

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