Dubai: The Dubai Financial Market General Index (DFMGI) jumped by 87.04 or 2.4 per cent last week to close at 3,706.48, its strongest performance in 12 weeks, and highest weekly close in seven weeks. Most issues participated in the rally, with 27 advancing and only nine declining, while volume rose to a five-week high.

A bullish breakout of a four-week relatively narrow range has now occurred with the DFMGI ending at the highest weekly close in seven weeks, and near the high for the week (3,725.97). The breakout occurred on Wednesday accompanied by high volume, a 26-day high.

Resistance was seen just shy of the 55-day exponential moving average (ema), which is now at 3,735.33, and provides the next price level to be exceeded for a short-term trend continuation signal. The index has been below the 55-day ema for the past eight weeks. Just above there is the eight-week high at 3,762.85. A decisive rally above the eight-week is needed for a bullish trend continuation signal for the six-week uptrend.

Given the price action noted above the chance for further upside has increased. If the trend continuation signals are triggered the DFMGI will be heading up into a number of potential resistance levels, with a good chance of reaching at least the 200-day ema, which is now at 3,919.81. That’s within a resistance zone starting from around 3,912 and up to approximately 3,981. In addition, the 55-week ema is also within this zone at 3,944.82.

As the near-term outlook is improving the intermediate term outlook remains bearish given the larger chart pattern in the DFMGI, which is a bearish flag formation. This pattern was triggered on August 23, leading to a spike low at 3,241.35 the next day. Since then the index has been retracing the downtrend that began off the 4,234.24 peak from July 21. Keep this in mind if the index continues to rally from current levels as strong resistance is likely to be seen at some point, halting an advance and turning the DFMGI back down. This scenario will remain a risk unless the index can eventually get above the July peak.

Near-term support is at last week’s low of 3,593.66, followed by the low of the prior five-week base at 3,503.43.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 26.5 or 0.59 per cent to end at 4,546.46, the highest close in four weeks. There were 11 advancing issues and 23 declining, while volume improved some from the prior week. The index reached a seven-week high on Wednesday before finding resistance at 4,589.14, leading to a weekly close back below the seven-week high of 4,567.73.

A rally above last week’s high gives the next bullish signal, with the ADI then quickly contending with potential resistance around the 55-week ema, which is now at 4,613.25, and the 200-day ema at 4,613.19. When two moving averages are identifying the same area of resistance, its significance increases. Either strong resistance could be seen there or a breakout above the price area provides an improved bullish signal.

If an upside breakout above the two moving averages does occur the ADI will next be heading further into a resistance zone where it could encounter selling pressure at a number of price areas. Some that stand out include 4,664, 4,690, and 4,768.

What is of concern in the ADI, when taking a look at the bigger picture, are the two bearish ascending wedges that have formed. Wedges can be identified with two uptrend lines pointed towards each other leading to an eventual crossing. One is drawn along support of the wedge pattern and the other along resistance.

The larger multi-month bearish wedge was triggered eight weeks ago and led to an accelerated decline until the ADI found support at 4,069.11 the following week, in the area of its 200-week ema. Since then the index has been retracing higher and has formed a smaller bearish wedge over the recent six weeks. This smaller wedge looks to need more time developing before it triggers, but it could keep momentum subdued if the ADI is to continue higher from here.

At this point key support is at the two-week low of 4,462.14.

Stocks to watch

Over the past month a bullish inverse head and shoulders bottoming pattern has been forming in the chart of Air Arabia. This is a classic trend reversal pattern that typically breaks out to the upside. Preferably a breakout is accompanied by higher volume.

Resistance of the pattern is at 1.45, with a decisive rally above it providing a trigger. That price level has been tested on five different days, including last Thursday, thereby strengthening its significance.

Although a minimum target based on the pattern is only 1.54, higher targets include the 61.8 per cent Fibonacci retracement level at 1.56, and previous support starting around 1.57 and 1.58.

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