Dubai: The Dubai Financial Market General Index (DFMGI) rallied 201.18 or 7.04 per cent last week to end at 3,058.42, its second best weekly performance since April of last year. There were 32 advancing issues and only three declining. While volume fell from the prior week, it came in at the second highest level of the past 23 weeks.

In addition to the DFMGI putting in two consecutive weeks of strong performance on healthy volume, the index closed near the high for the week (3,063.95), at a four-week high, and above its 55-day exponential moving average (ema) for the first time since early-August 2015. These are all bullish signs signifying the underlying strength of this rally. The 55-week ema is a indicator telling us something about the intermediate-term trend, and represents potential resistance when it occurs above price. A daily close back above the moving average line is a sign of strengthening.

Further, since hitting a low of 2,590.72 three weeks ago the DFMGI has advanced as much as 18.3 per cent. As first discussed last week, a gain of more than 16.1 per cent (2,897) from a bottom would be the largest advance since early-May 2015. That was when the index hit its high for 2015, which eventually led to a 39.1 per cent decline as of the the January 2,590.72 low.

Regardless of the short-term positives, the bigger picture remains tenuous. The current rally is contained within a large 21-month downtrend, which saw the DFMGI drop 52.1 per cent as of the 2,590.72 January low. There is a potentially signficant resistance zone starting just above last week’s high of 3.063.95, and up to the most recent swing high of 3,188.83 from late-December. On the way there the DFMGI will have to contend with potential resistance from both a long-term uptrend line and intermediate-term downtrend line. The two lines intersect around 3,100. Further up is 3,149/3,151, consisting of the 200-week simple moving average (sma) and prevous monthly resistance, respectively.

The intermediate-term downtrend, which started from the late-July peak, remains in place until there is a daily close above the December high. Until then downward pressure remains. This means there is a good chance that the January lows will eventually be tested. Or, the January lows are exeeded to the downside thereby triggering a continuation of the long-term downtrend.

Near-term support is at last week’s low of 2857.24, followed by 2,800.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) gained 230.33 or 5.89 per cent to close at 4,140.77. This was the largest advance in the index since May of last year, with the move supported by a surge in volume. Volume reached its highest level since late-April 2015. Market breadth was positive, with 27 advancing issues and eleven declining, leaving room for additional stocks to join the advance.

The ADI ended strong, closing near the high for the week (4,147.32), and back above both its long-term uptrend line and 200-week sma. An advance above 4,166.87 will put it at a four-week high, where it will next be approaching potential resistance of the intermediate-term downtrend line and 21-week ema. The 21-week ema can be used as a proxy for the trend line as they have been converging for almost four months.

A decisive daily close above the 21-week ema will provide the next sign of strength. However, the six-and-a-half month downtrend remains in place until there is a decisive daily close above the late-December swing high of 4,313.78.

Last week’s low of 3,915.68 is near-term support. If that low is broken to the downside the ADI will be back below both its uptrend line and 200-week sma, thereby increasing the odds for a test of the 3,731.56, and possible break below it.

Stocks to Watch

The National Bank of Abu Dhabi (NBAD) advanced 0.80 or 10.8 per cent last week to close at 8.18. Volume was decent, but slightly lower than the prior week. This puts the stock at an eight-week high, and clearly above its 55-day ema for the first time since March of last year. Also, it is now back above the minor swing high of 8.04 from December. Each are signs of strength pointing to NBAD being a market leader on a technical basis. The weekly close above the December swing high is an early sign of a downtrend possibly turning into an uptrend. However, so far we’re just seeing a bounce off support of 6.86 hit three weeks ago. Next the stock needs to exceed the 21-week ema at 8.38, and then the 8.75 swing high from November to show it’s got more upside in the short-term.

A multi-month double bottom trend reversal pattern has been forming in the chart of Damac Properties. It closed up 6.55 per cent last week at 2.44 as volume surged to a 20-month high, and has now closed above its 55-day ema for the first time since September. These are early signs of strength as the double bottom breakout doesn’t occur until there is a rally above 2.49. Based on just the pattern, the minimum target would be 2.98, if a breakout occurs.

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