Given the price volatility seen in global markets last week following the BREXIT decision, UAE markets held up pretty well. Following declines last Sunday the indices spent the rest of the week rallying back towards prior week closing prices.

Dubai

The Dubai Financial Market General Index (DFMGI) fell by 56.54 or 1.68 per cent last week to end at 3,311.10. Volume picked up to a three-week high, with 28 issues declining and 12 advancing.

Sunday saw the index drop by 4.7 per cent to 3,208.81 (five-week low) as an initial reaction to the British exit from the EU, as daily volume jumped to the highs of the past two months. It quickly began to recover to close in the top half of the week’s range by the end of the week. The high for the week is 3,321.18. Some minor support areas were broken on the way down, but the more critical May 23 support at 3,197.32 held.

Even with the pickup in volatility the DFMGI remains contained within an eight-week consolidation range with a high of 3,378.11 and a low or support at 3,197.32. That range marks the right shoulder of a potential multi-month head and shoulders topping pattern on the daily chart. However, a decisive decline below 3,197.32 is needed to trigger the pattern and until then it can evolve into a different pattern. A drop below that price level would also trigger a bearish trend continuation of the downtrend begun from the 2016 high.

An early sign of a bearish trend continuation may have been given last week as the index fell below and closed below 3,296.50 support on a daily basis, thereby triggering a break of the short-term uptrend line. That line marked support of a four-week uptrend or bounce off the 3,197.32 swing low.

The potential decline from a trigger of the head and shoulders top pattern is approximately 2,801. Other price areas to watch for support if the DFMGI moves lower include 3,124, followed by 2,964 to 2,957.

On the upside, the DFMGI starts to bump into a formidable resistance zone from around 3,341 and up to 3,378.11. The 200-day exponential moving average (ema) is at 3,377.42. Given the way in which the daily highs of the eight-week range has formed a decisive move above and subsequent daily close above 3,378.11 is needed to trigger an upside breakout. The index would then face minor resistance around 3,421, followed by the area of the nine-week high at 3,495.25. A bullish trend continuation would not be indicated until there is a daily close above the 2016 high of 3,604.70.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) ended almost flat for the week, down 2.09 or 0.05 per cent to close at 4,497.64. Market breadth was split, with 16 advancing issues and 15 declining, while volume increased to a three-week high, but remained in the low end of the year’s range.

It held up better than the DFMGI, as it fell 3.6 per cent last Sunday and recovered essentially 100 per cent of the decline by the end of the week to end at the high. The drop did not fall below the low of the prior week, thereby maintaining the price structure for the five-week uptrend.

With the uptrend maintained, the ADI is pointing higher, up into a potentially significant resistance zone from around 4,587 to the 2016 peak of 4,637.24. A daily close above the higher level will put the index back above the long-term downtrend line, while a daily close above the 2016 peak signals a potential continuation of the uptrend that began off the January low. That would be a significant accomplishment as the long-term outlook would then start to improve.

Support is around the past three weekly lows from 4,339.12 down to 4,313. If the lower price level is exceeded to the downside, selling pressure could intensify. The key support level is the recent 4,174.71 swing low, as a drop below it will trigger a continuation of the intermediate downtrend.

Stocks to watch

Dubai Islamic Bank has been one of the weaker performers this year, down 17.3 per cent year-to-date. Last week the stock was down 0.20 per cent to close at 5.11. Regardless, a potential double bottom reversal pattern has now formed, with 4.90 support being tested twice over the past five weeks. Most recently it was tested last week. Each time support has held, leading to a bounce.

A bullish breakout of this pattern occurs on a move above the most recent peak of 5.17. That would also put Dubai Islamic Bank back above its 21-day ema for the first time since late-April, other than a one-day rally above it in late-May. The minimum target is 5.44, based on the pattern measurement and a 38.2 per cent Fibonacci retracement. Once a retracement begins, in this case a retracement of the downtrend coming off the April 27 peak of 6.31, it has a tendency to at least the 38.2 per cent level. Given that a breakout above the 21-day ema would also occur, and if the wider market holds up, the next higher target would be 5.58 (prior support) and the 50 per cent retracement level at 5.61.

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