Dubai: The Dubai Financial Market General Index (DFMGI) ended flat last week, rising only 8.02 or 0.25 per cent to close at 3,273.30, almost the high for the week. This was the first week of positive performance, although small, in six weeks. There were 13 advancing issues and 21 declining, while volume improved to an 11-week high.

Earlier in the week the DFMGI was down as much as 4.2 per cent for the week at the low of 3,127.96, and 26.5 per cent lower than the 2015 peak of 4,253.38. The index then managed to reverse the declines to close positive for the week, and on higher volume. This is a positive development and indicates that a low has probably been put in for now, at least short-term.

Declines from here should see support step in anywhere down to last week’s low. If oil starts to strengthen at the same time, this will help a rally, however, there is no clear sign of that yet, and it is not necessary for the DFMGI continue higher. Of course, a drop below last week’s low puts this potentially bullish reversal scenario at risk of failure.

A break above last week’s high of 3,273.8 gives the next bullish signal, with the index then heading up into a resistance zone from around 3,358 to 3,403. That zone includes the 200-week exponential moving average (ema) at 3,386.5, as well as multiple prior weekly support levels (now resistance). Then there is the two-week high of 3,450.9, followed by 3,503.4.

It looks like we should see an eventual retracement up to at least the higher price level (7.0 per cent higher), as a 61.8 per cent Fibonacci retracement will complete at 3,506.1. Above there the DFMGI runs into a price range up to the high of the range at 3,762.85. The short-term four-month downtrend will remain in place unless there is a daily close above the top of the range. Therefore, the DFMGI will remain at risk until then.

If last week’s low is exceeded to the downside, first watch for support around 3,070, followed by 2,992.5 (2014 low).

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 59.90 or 1.43 per cent to close at 4,260.06, its first positive weekly performance in six weeks. While advancing issues of 17 and declining of 16 were relatively the same, volume popped to a six-week high.

Support for the week was found at 4,085.17, just above the August spike low at 4,069.1. The week ended strong, just shy of the week’s high of 4,260.44, and just below the prior week’s high of 4,262.8.

A move above the two-week high will now provide the next short-term bullish signal, which will be confirmed on a daily close above that price level. The next higher price areas to watch for some resistance are around the three-week high of 4,338, followed by the 61.8 per cent Fibonacci retracement level at 4,383.4, and then the four-week high at 4,489.

The odds favour further upside given the intra-week reversal on higher volume, and support being seen around the August low and the 200-week ema. In addition, last week’s rally put the ADI back above its 200-week ema, which it had dropped below earlier in the week. This would be the third time since December 2014 that a significant decline was reversed around the 200-week ema, and therefore worth taking note.

Stocks to Watch

If you’ve been waiting on the sidelines until the markets becomes clearer, this is probably the time to become engaged again, at least for the short-term. Bigger moves may be seen in stocks that have sold off hard recently, but safer plays will be found in those that have maintained some signs of relative strength as the wider market weakened.

Etisalat is one of the technical leaders, having broken out to a new seven-year high last week on strong volume. Weekly volume jumped to the second highest level since 2004. The stock was up 4.2 per cent for the week, ending at 16.10, which is the high for the week. So far this year Etisalat is up 47 per cent, making it the top performer in the Dubai market.

Retracements back towards support, starting with the breakout level of 15.85, can be used to participate in the new long-term bullish signal given for Etisalat. Other potential support areas on pullbacks include 15.70 and 15.45.

The next major target for the Etisalat is around 17.50, which was previously resistance in August 2007. That target is followed by 17.97, the 78.6 per cent Fibonacci retracement level, when measuring the downtrend that started from the early-2008 peak of 20.75.

Volatility in the stock has been high in recent months and may continue to be, so investors should be cautious and know what they are doing. It still remains to be seen whether buying strength will remain strong and propel the stock higher. Important support is around 14.90. If exceeded to the downside the above bullish scenario becomes less likely in the foreseeable future.

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