After last week’s strong performance in both UAE markets the near-term outlook is pointing higher. This is supported by an upside breakout in oil a couple of weeks ago, along with renewed strength in global equity markets, such as in the US, Germany, the UK and Hong Kong.
Dubai Last week the Dubai Financial Market General Index (DFMGI) gained 127.49 or 5.63 per cent to close at 2,391.63. Strength was widespread with 23 advancing issues and only six declining, while volume was just slightly lower than the prior week.
Given last week’s powerful advance, along with the Abu Dhabi market exceeding prior highs, it looks like the recent 12.7 per cent correction in the DFMGI may be over. A daily close above the recent peak of 2,500.56 is now needed to confirm the sustainability of last week’s rally and will signal a continuation of the 18-month uptrend. The index would then be targeting the 2,712 price area, followed by a potential monthly resistance zone from approximately 2,870 to 3,049.
Support of the recent correction was found at 2,182. That swing low is now important near-term support and as long as the index stays above that price level at this point the uptrend remains in place. A decline below last week’s low of 2,259 would give the first sign of weakening with the odds increasing at that point that the 2,182 low will be tested and very possibly exceeded to the downside. The next more significant support area would start around 1,959.
Abu Dhabi
The Abu Dhabi Securities Exchange General Index (ADI) surged 4.01 per cent last week to close at 3,705.65. This was the third strongest performing week of the past three-and-a-half years, and the highest weekly close since late-October 2008. Further, for the short-term, the ADI ended strong, near the high for the week and a new high for the uptrend. Each is a testament to the strength of the uptrend, now in its 18th month.
As noted last week, the near-term outlook remains bearish unless there is a daily close above the recent peak. Last week the index closed above that peak shifting the outlook to bullish once again.
Although volume did not improve significantly, it was higher and still in the top 20 per cent highest levels of the past couple of years. Strength was seen across the board with 28 advancing issues and 10 declining.
It remains to be seen whether the ADI can continue its upward climb, but the positive indications just discussed make it look like it has a good chance to do so. The index is now just below potential resistance of the long-term downtrend line, coming down from the peak in 2005. If it can close above the line on a daily basis and then stay above it the ADI would then be targeting prior monthly resistance around 3,956.72. That would be followed by potential resistance around 4,001.56, the 61.8 per cent Fibonacci retracement of the long-term downtrend coming off the June 2008 peak. Since both price levels are so close together, they should be watched as a zone of potential resistance, rather than only the specific price levels.
Any breakout is prone to failure no matter how positive it might behave when it first occurs. As long as the ADI stays above last week’s support at 3,564.95 the odds favor a continuation higher. A daily close below that support level will shift the short-term outlook to the downside. Support is then around 3,494.83, the most recent corrective low, followed by a potential support zone around 3,370.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com
