Last week the Dubai Financial Market General Index (DFMGI) dropped by 57.99 or 1.38 per cent to end at 4,143.21. Volume fell below the prior week, which was a four-day trading week, while most listing followed, with 28 down for the week and only eight advancing.

What has become more apparent is that the DFMGI is continuing to develop a potentially bullish ascending triangle trend continuation pattern. This is a classic consolidation pattern that has a tendency to eventually break out to the upside, as the bottom of the pattern is ascending, reflecting buying pressure, and the move before the pattern was a rapid advance of 31.6 per cent over five weeks.

In addition, the triangle has formed around support of the 55-week exponential moving average (ema), and as of two weeks ago the shorter term 55-day ema has crossed above the long-term 200-day ema. The 55ema has been below the 200ema since mid-December 2014. These moving averages help to determine the underlying strength of trend at different timescales and current action supports the probability of the DFMGI moving higher.

The key levels to watch are the top of the pattern and support levels at the bottom of the pattern. Even though the odds favour a bullish breakout, patterns can fail, so we need to be prepared for a move higher as well as lower.

Resistance, defined by the late-April peak, is at 4,253.28. A decisive upside breakout should exceed that price level and would also trigger a continuation of the long-term uptrend, that began from the December 2014 lows.

By taking the height of the triangle and adding it to the breakout level we can arrive at a potential minimum target. In this case that target is 4,593.71. Other price levels to watch for resistance, include 4,385, a swing low support level (now potential resistance) from November 2014. That price level begins a larger resistance zone up to a high around 4,728, and is where consolidation occurred during late 2014.

So far there are two clearly defined support levels within the triangle pattern. The first is at 3,980.80 (swing low from early-July), and then 3,912.85 (swing low from late-May). A breakdown from the triangle will be indicated on a move below the higher price level and confirmed on a drop below the lower level.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell 65.57 or 1.34 per cent last week to close at 4,834.22. Volume was slightly above the prior week’s level, while the majority of issues fell as there were 24 declining stocks and 13 advancing.

The ADX broke out of its own ascending triangle consolidation pattern in late June (with a target of approximately 5,155), and has managed to stay above that price level for most of the time since. A peak at 4,896.89 was quickly reached following the breakout, where profit taking took hold leading to a pullback. Subsequently, the ADI made an attempt to break out above that peak two weeks ago, managing to close just barely above it on a weekly basis. It was turned back at that point leading to another pullback, which is now where we find ourselves. This is not too surprising given that the peak was exceeded following eight sequential days of advances. Upward momentum could not be sustained in order to counter the selling pressure that occurred.

Regardless, the fact that the ADI rallied for eight consecutive days and closed at a new weekly high for 2015 is a bullish sign. The current pullback should now be watched for signs of strengthening as the next attempt at new highs could be successful. This scenario may change though if we see more aggressive selling in the next week or two, leading to a deeper correction off that peak.

To date the pullback from the 4,902.09 high has been 1.9 per cent, which completed a 38.2 per cent Fibonacci retracement of the rally starting from the late-June swing low at 4,664.41. Last week’s low is 4,810.99. The next potential support below there is around 4,783.25 (50 per cent retracement), followed by the 4,768 price area.

A daily close above last Thursday’s high of 4,845.89 would give the first sign of strengthening, with the index then heading towards the 4,902.09 peak. If it can get above that peak then watch for an eventual rally up to 4,969 to 5,004.

Stocks to watch

Emirates Integrated Telecommunications (Du) has been consolidating in a narrow range for the past month, while it sits just above support of its 200-day ema. This is a bullish set-up, and the outlook could improve soon as the 55-day has moved back up to touch the 200-day ema and could soon cross above it. Last week the stock dropped -0.37 per cent to close at 5.38.

A bullish breakout will occur on a decisive rally above 5.45. The target derived from the pattern is around 5.67. However, given the overall trend structure of Du since the December 2014 low of 3.95, there is a good chance it would eventually hit a higher target around 5.87, which was resistance in August of 2014, if a bullish signal is given.

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