Dubai: The Dubai Financial Market General Index (DFMGI) was up 19.55 or 0.56 per cent last week to close at 3,511.77. There were 24 advancing issues and 11 declining, while volume was slightly above the prior week’s high.

The DFMGI was relatively calm with the week’s high-to-low range contained within the prior week’s range thereby creating an inside week. A breakout above the week’s high of 3,531.39 points to a continuation of upward momentum, while a drop below the week’s low of 3,473.99 increases the chance that selling pressure will intensify.

A key concern now is whether the index will be able to breakout to new 2016 highs before a decline below the most recent support zone from 3,442 to 3,430. That zone is around support of the 55-week exponential moving average (ema), which is now at 3,456.74. Further strengthening the significance of the support zone is an uptrend line that comes in just around the low’s of the past couple of weeks. Therefore, a drop below 3,430 would be a clear violation of support of the uptrend line, the 55-week ema, and the prior swing low which defines the price structure of the nine-week uptrend. If that happens then a longer period of consolidation is likely.

Over the past four months the DFMGI has formed a rectangle pattern on its chart with resistance at 3,623.70 (2016 high) and support at 3,197.32. Contained within the rectangle is a breakout above the long-term downtrend line that occurred eight weeks ago. Before the breakout that line defined resistance of the downtrend that began off the September 2014 high. Now that the index is above the line it represents potential support.

The line has not yet been tested as support since the index moved above it and it certainly could before attempting to break above the 2016 high. A retracement back towards that trend line at this point would continue to maintain the developing rectangle pattern and would be a common price behaviour following a bullish trend line break. This means that even with a retracement to the trend line support of the rectangle will continue to be the key price area to watch.

If instead of weakening over the next several weeks or so the DFMGI strengthens, then watch for a daily close above the 2016 high to provide the next bullish trend continuation signal. If that occurs then the next target would be a price zone from around 3,740 to 3,762.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 39.18 or 0.87 per cent last week to end at 4,480.65, its lowest weekly close in nine weeks. Volume increased to a six-week high, while market breadth leant on the bearish side, with 16 declining issues and 13 advancing.

The ADI broke down from a three and-a-half week consolidation pattern as it fell below 4,486 and closed below it on a weekly basis, and it also fell back below the 55-day ema. That drop triggered a bearish trend continuation of the correction that began from the swing high reached six weeks ago, and confirms an advance of the second leg down. If we see the completion of a measured move, where the second leg down matches the decline of the first leg, the ADI would target 4,448. Last week’s low was close at 4,456.85.

That target can be combined with the 200-day ema, which is at 4,431.70. When analysing moving average trend indicators of different time periods we assume that once one moving average level is broken the odds favour a move to the next moving average time period. Last week the 55-day ema (intermediate) was broken to the downside, therefore the 200-day ema (long-term) becomes the next target just based on the moving averages. Further down from there is the next more significant support zone around 4,313.

Last week’s high of 4,524.41 is near-term resistance, followed by the two-week high at 4,543.42, and then the most recent swing high at 4,583.36. That high is followed by the more critical price resistance zone that connects the two 2016 peaks from 4,621.50 and up to 4,637.24.

Stocks to watch

Gulf Navigation is one of the top performers for 2016, up 87.1 per cent year-to-date, the third best stock this year in the UAE. It was the fourth best performer in Dubai last week, rising 7.41 per cent to close at 1.16.

Strong stocks have a tendency to stay strong and it looks like we’re seeing that again with Gulf Navigation. Last week it broke out of a symmetrical triangle trend continuation pattern on a move above 1.13, while volume spiked to the second highest level of the past 11 weeks. The 1.16 weekly closing price was the highest since early-April 2014 and close to the week’s high of 1.17. Short-term weakness can be used to accumulate this stock in anticipation of further upside follow-through.

The next upper price level to watch is the 2016 high of 1.18, as a move above it will confirm the pattern breakout and signal a bullish trend continuation. At that point the stock can be anticipated to head towards the next more obvious resistance zone around 1.29 to 1.30, which includes the target derived from the triangle and prior monthly support and resistance, followed by 1.38 to 1.40.

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