Dubai: The Dubai Financial Market General Index (DFMGI) ended essentially sideways last week, closing down 8.95 or 0.22 per cent at 4,063.88. There were 17 advancing issues and 18 declining, while volume dropped from the prior week. The activity for the week occurred within a narrow range, the narrowest since February, and the index ended near the low of the week, which was at 4,056.96.

Over the past eight weeks the DFMGI has defined a consolidation range, with resistance at 4,253.28 (April peak), and support at 3,912.85 (May swing low). Until there is a decisive move through one of those price levels, signalling the next direction, the index will be within consolidation. Investors should be prepared for either scenario to unfold as a technical argument can be made for a move in either direction.

To date the correction off the April swing high (to May low) has been 8 per cent, essentially completing a 38.2 per cent Fibonacci retracement of the prior uptrend (close enough), measured from the March low of 3,232.79. The 38.2 per cent retracement completes at 3,863.45. This is a minimal retracement of the prior uptrend that can be expected, reflecting underlying strength. At the same time, there is no confirmation that the pullback is complete until we see a daily close above the April peak of 4,253.28.

That peak or resistance was seen in the area of both previous resistance and support in the past, thus supporting an argument for a deeper pullback before the market is ready to bust through that price area, if it is to do so. There would then be two potential resistance areas to watch, one around 4,385, and then a price zone of 4,657 to 4,728.

If we see a decline to below the May low of 3,912.85, the next areas to watch for support are 3,743.04 (50 per cent retracement), 3,622.62 (61.8 per cent Fibonacci retracement), and 3,613, previous weekly support and resistance.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) crept higher by 16.73 or 0.37 per cent to end at 4,572.02. Market breadth was close to even, with 16 advancing issues and 19 declining, while weekly volume dropped to an 8-month low.

For the past several weeks the ADI has been consolidating between a high of 4,609.21 and a low of 4,511.63. Although a breakout above the high price does not signal a continuation of a trend, a drop through the low price does. This would be a continuation of the downtrend that began from the April peak of 4,723.42, with the next lower target being around 4,488, the 50 per cent retracement of the March uptrend. Further down is the 61.8 per cent Fibonacci retracement level at 4,454.50, prior support at 4,296, and then 4,252.

On the upside, a rally above the three-week high of 4,609.21, heads the index up into potential resistance of the downtrend line and 200-day exponential moving average (ema), around 4,622.

A daily close is needed above the most recent swing high of 4,675.63 for a clear sign that the ADI is turning more bullish and could continue higher with a sustainable rally.

Stocks to watch

Both Emaar Properties and Aldar Properties have been forming similar patterns over the past couple of months. Each has been consolidating within a range, roughly between the 55-day ema as support and the 200-day ema as resistance.

Although not assured, the odds favour an eventual resolution to the upside given the prior price strength and positioning of the consolidation pattern relative to previous price action. In other words, the range is occurring near prior highs. In addition, since rising back above their 55-day ema’s, each stock had been below their 55-day ema for the prior four months or so. Since early-April they have remained above their 55-day ema’s, further indicating a change in trend from down to up. Once a trend starts to change it has a tendency to continue for a while. Holding above the 55-day ema, after being below it for a number of months, is supportive of a continuation of strength.

Last week Emaar ended higher by 0.25 per cent to close at 8.04. The top of Emaar’s range is 8.39. That price can be used as a signal for a breakout of range by watching for a daily close above that price level. A more aggressive investor can look at last week’s high of 8.28. Support is at the bottom of the range, which is at 7.67. Using the range to project a target gives us 8.98.

Aldar Properties has been trading in a range with support at 2.57 and resistance at 3.01. A slightly lower price level of 2.89 can be used as a more aggressive bullish breakout signal. Last week Aldar closed at 2.71, down 1.81 per cent for the week.

The minimum target on a breakout is 3.30, over 21 per cent from last week’s close, and above the long-term downtrend line.

 

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