The Dubai Financial Market General Index (DFMGI) dropped by 28.86 or 0.79 per cent last week to end at 3,622.24. There were 10 advancing issues and 25 declining, while volume fell to a five-week low.

Lately, it’s been looking like the DFMGI could make a run above recent highs, but instead it keeps facing resistance. For the past several weeks the it has been pushing up against a resistance zone marked by the August 3,681.11 high and consolidating. Last week was an inside week as the high-to-low price range was contained within the range of the prior week. In addition to the consolidation range that can be seen on the daily chart from the past several weeks, the inside week pattern on the weekly chart is another indicator reflecting investor uncertainty.

If the index breaks to the downside, first by falling below last week’s low of 3,616.82, and then below the two-week low of 3,603.15, a test of the 3,538 support level becomes likely. That support level was the most recent swing low.

Last week’s high of 3,665.11 is the price level that needs to be broken to the upside to give the next bullish signal, however, a more reliable bullish indication will be implied on a breakout above the three-week high of 3,684.19

So far the intermediate-term bullish case remains as the DFMGI still has a shot to breakout to the upside and eventually above the 2017 highs. It is in a long-term uptrend as well an intermediate-term uptrend, at least for now. Even though the index hasn’t yet continued higher it also hasn’t fallen significantly as it has on each of the two prior rallies since the June 2016 lows. The current consolidation that has been developing relatively near the highs of a rally is heading into its 14th week, while the previous two consolidation phases near highs ended after six weeks and eleven weeks respectively. This relative market behaviour is indicative of underlying strength.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was essentially flat last week, falling only 2.57 or 0.06 per cent to close at 4,465.15. Market breadth was almost balanced, with 15 advancing issues and 17 declining, while volume dipped to a nine-week low.

Even though the ADI hadn’t changed much by the end of the week it did close just below the previous week’s low after falling as much as 0.6 per cent as of the week’s low of 4,443. By the time that low was hit the index had completed a 61.8 per cent Fibonacci retracement (4,497.43) of the rally off the October lows. Given the reaction following the index hitting the 61.8 per cent retracement there is a reasonable chance that the current pullback has ended. Fibonacci ratio analysis is one method used to mathematically find potential support or resistance zones derived from prior swings.

Last week’s low is the support area to watch as a break below it is a sign of additional weakening, which then lowers the chance that the current three-week pullback is over.

Watch for a move above last week’s high of 4,491.76 to provide the next sign of strength with the ADI then heading towards the two-week high of 4,510.42. A daily close above the two-week high increases the odds for an eventual move above the recent swing high 4,531.65 from three weeks ago.

Overall, the ADI remains within a large consolidation range as it has all year. Until we break out of that range trends will remain short-lived and choppy. The first sign that the index may be moving higher out of the range is on a move above the intermediate downtrend line, which is now around 4,553. On the downside, the support area is around 4,355.26.

Stocks to watch

Shuaa Capital came up off the bottom with enthusiasm last week, rising 5.5 per cent to close at 1.16, its highest weekly close in six weeks. Volume spiked to the highest level since July. Last week’s solid performance made it the top stock in the Dubai market.

Next, watch for a rally and subsequent daily close above last week’s at 1.18 to confirm strength. If that occurs then Shuaa looks to have turned the corner and confirmed a trend reversal as it comes off a bottom support zone with a low of 1.04.

A decisive move above 1.18 also signals a breakout of a daily double bottom trend reversal pattern. The first bottom was at 1.04 five weeks ago, and then last week’s 1.05 low was the second bottom. This is a classic bullish trend reversal pattern that is generally reliable. What this means is that a daily close above 1.18 should still be the very early stages of a recovery in price.

Shuaa hit a high of 2.02 in early March and then corrected down to 1.04 over the subsequent seven months, for a 48.5 per cent decline. Last week’s price action increases the odds that the correction has come to an end and the stock can once again advance.

Following a bullish breakout the next resistance areas of note are around 1.46, and then 1.55. However, once a bottom breakout is confirmed Shuaa has a good chance of eventually testing, if not exceeding, its 2017 high of 2.02.

 

Bruce Powers, CMT, is a technical analyst and global market strategist.