Last week the Dubai Financial Market General Index (DFMGI) gained 53.23 or 2.56 per cent to close at 2,128.79. That move was accompanied by a surge in volume to the third highest level in at least three years. Strength was widespread with 23 advancing issues and nine declining. The DFMGI has gained 32.2 per cent so far in 2013 and 13.2 per cent in the current four-week rally.
Watch for the next resistance zone of significance from approximately 2,201 to 2,207 to be reached. Back in June 2009 the DFMGI completed a 54 per cent rally at the 2,201 resistance peak. That zone was also resistance on three separate monthly periods back in 2009. In other words it represents potentially strong resistance. Alternatively, a decisive daily or weekly close above that zone is a new strong bullish signal for the medium and long-term.
In addition, on a short term basis, 2,203.55 completes a measured move where the current rally from the early-April low at 1,819.46 matches the price move seen in the prior rally from the June 2012 low to the February peak. A measured move reflects symmetry between different price swings or rallies/declines.
Above that resistance zone the next target is around 2,409, which was resistance from a swing high in October 2009.
Last week’s low of 2,075.56 is now important near-term support which if violated could lead to additional selling pressure. The next support zone of significance would then be from approximately 1,959.40 to 1,941. Further still is a support zone from 1,870 to 1,860.
Abu Dhabi
Upward momentum stopped last week on the Abu Dhabi Securities Exchange General Index (ADI) as it declined 7.69 or 0.23 per cent to close at 3,280.18. At the same time market breadth continued to lean on the bullish side with 32 advancing issues and 15 declining, while volume rose to the fourth highest level in at least three years.
Given the clear stall of the advance, higher volume in this case could be a sign of exhaustion of the trend rather than a positive sign for a continuation in the near-term. In addition, the ADI is again overbought on a daily basis.
The ADI reached a new high earlier in the week but couldn’t maintain its upward momentum before closing below the prior high of 3,306.83, and close to the opening price for the week. A narrow range between the weekly opening and closing price after a strong advance is a sign of momentum slowing to the point that it could turn the other way, in this case down.
Given a four-week advance of 7.2 per cent and a 24.9 per cent gain year-to-date for 2013, it wouldn’t be unusual to see at least a mild retracement to follow. However, a correction at this point is not assured until we see clear signs of further weakening. Weekly support is at 3,231.03, with a drop below that level providing the first signal that the index could fall further. The next support area would then be around 3,138.07, followed by 3,082.46. Regardless, the long-term view remains bullish and a retracement is likely to be used by investors to accumulate shares at lower prices in anticipation of the trend continuing higher.
A daily close above last week’s high of 3,306.83 would be a sign that the ADI is strengthening and that it could then precede higher in the foreseeable future, thereby negating last week’s potentially bearish close. Further strengthening would then be needed for confirmation. Resistance is then around 3,327, followed by 3,362, previous monthly support from 2006 and 2007. That price levels can be looked at as a zone of potential resistance.
Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com
