Dubai: Last week the Dubai Financial Market General Index (DFMGI) was down 13.22 or 0.36 per cent to close at 3,619.44, the third week of especially low volatility. Volume remained subdued, coming in close to the prior week, which had only three trading days, while market breadth leant on the bearish side with 23 declining issues and 13 advancing.

The DFMGI remained in a four-week trading range, as it continues to consolidate. Over the past five weeks this consolidation has formed into a descending triangle pattern. This type of chart formation is generally considered a bearish trend continuation pattern. However, in this case, given its placement relative to prior price action, the probable next direction is not as clear. It has occurred following a short rally or counter trend move against the larger downtrend from the past couple of months. Given that, it can be used as any consolidation pattern might, with the trigger given upon the breakout higher or lower, depending on the direction. Regardless, it reflects indecision in the market. Eventually the direction will be determined and momentum should pick up once a breakout occurs.

An upside breakout first begins on a decisive move above 3,674.18, and is confirmed on a daily close above 3,762.85, the six-week high. The index would then be heading up into an overhead resistance zone from around 3,913 to 4,253.28 (2015 peak), that occurred over a four-month period from April to the first half of August. Resistance could be seen anywhere within that zone but there are also some specific price areas to watch.

Significance

The first is at the 61.8 per cent Fibonacci retracement level at 3,854.96, which is from the July decline. That is followed by the lower part of the resistance zone from around 3,913 to 4,013. The potential significance of that price zone is higher than it might be as it includes the 55-week exponential moving average (ema) at 3,953.64, and the 200-day ema at 3,932.79.

On the downside, a clear support area has been identified by the market at 3,503.43. That price area was support over six days during the past 24 days. If broken to the downside the DFMGI would be looking to test support of the August low at 3,241.35. If approached the first area to watch for support would be around the 200-week ema, which is now at 3,378.64.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by only 5.68 or 0.13 per cent to end at 4,519.96. Volume fell to a three-week low, while most issues rose, with 16 advancing and 11 declining.

While making a brief attempt to sell off, the ADI managed to stay within a three-week range with a high of 4,567.73 and a low of 4,462.14 (last week’s low). Nothing of significance happens until the index breaks out of that range. At the same time, keep in mind a false breakout could occur as the consolidation phase may play out for a while longer.

The odds continue to favour an upside breakout as a relatively positive five-week uptrend is still in place and the index has barely sold off as it consolidated. It has continued to push up against a resistance zone from around 4,538 to 4,568.

Given the consolidation pattern that has formed an upside breakout becomes more likely on a move above last week’s high of 4,538.09, and is confirmed on a rally above the six-week peak at 4,567.73. A rally above that peak would put the ADI back above the 55-day ema for the first time since August 12, providing an additional confirmation of strength. Targets from there include a range from around 4,609 to the 200-day ema, which is now at 4,616.20. Previous prices action then identifies a potential resistance zone from 4,664 to 4,789.

A drop below support of 4,462.14 indicates further weakness, but that could lead to a deeper pullback off the 4,567.73 peak reached three weeks ago rather than an acceleration in downside momentum. That’s what we saw last week when the index dipped below a three-week low of 4,465.44 briefly, then quickly rebounded.

Stocks to watch

Volume on Arabtec surged to a 25-day high last Thursday as the stock broke out of a bullish wedge pattern that formed over the past month. For the week Arabtec advanced 0.09 or 4.89 per cent to close at 1.93.

Since the breakout just occurred, short-term weakness can be used to accumulate at lower prices. Thursday’s low of 1.86 is the closest support area, and then down to around the two-day low at 1.81 creates a range.

A rally above last week’s high of 1.95 signals a continuation of the breakout, with the stock first targeting the beginning of the wedge formation, which is at 2.09. That would put Arabtec back above its 55-day ema for the first time since June. Higher targets include 2.18/.19, consisting of prior support and a 38.2 per cent Fibonacci retracement level, followed by a 50 per cent retracement level at 2.35.

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