Dubai: Last week the Dubai Financial Market General Index (DFMGI) had it largest one-week gain since early-September 2013. The index was up 322.61 or 8.10 per cent and ended at 4,303.55, a new weekly closing high for the uptrend. Volume reached a three-week high, with most stocks participating. There were 28 advancing issues and only seven declining. For 2014, the DFMGI is up 27.7 per cent.

As discussed last week, analysis of the weekly chart had indicated there was a good possibility that the DFMGI would continue to weaken in the near-term as key weekly support levels had been surpassed on the downside. Now, given the strong performance last week, a new weekly closing high, which moved the index easily through a potential resistance zone (range at prior peak), and improving volume, the DFMGI is again indicating that the uptrend is likely to continue.

The recent correction (decline from peak to swing low) was 9.07 per cent, slightly less than the average of seven corrections that have occurred since the DFMGI bottomed back in January 2012. Further, the retracement that occurred in the most recent trend, measured from the mid-November 2013 low to the recent peak of 4,255.19, was 25.7 per cent. That’s a relatively shallow pull back and a sign of strength in the underlying the advance.

Upside follow through is now needed for further confirmation that the move last week has some legs. Watch for a decisive rally above last week’s high of 4,306.77, followed by a daily close above that price level. That would put the DFMGI close to completing a 61.8 per cent Fibonacci retracement (4,397) of the shorter long-term downtrend, that started from the January 2008 peak. Given how close that level is, and that last week confirmed a continuation of the uptrend, there’s a good chance it will be surpassed.

Assuming that happens then the index would next be targeting prior monthly resistance around 4,548, followed by 4,787.

On the downside, potential support is around the 21-day exponential moving average (ema), now at 4,119.96. There are higher short-term support levels as well. But, if the 21ema is broken to the downside, the immediate upside potential is put at risk.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) gained 31.06 or 0.65 per cent last week to close at 4,784.85. Market breadth was mixed with 23 advancing issues and 24 declining, while volume improved, reaching a three-week high.

The near-term outlook for the ADI is not as bullish as the DFMGI. It has not yet recovered from its correction, which saw the ADI fall 7.3 per cent from its most recent peak of 5,004.34. That was a little lower than the average of seven prior corrections of 6.6 per cent, since the market bottom in January 2012. The retracement of the near-term trend, measured from the mid-November 2013 swing low, was 29.4 per cent so far, just a little more than what was seen in the DFMGI.

Further weakness is indicated on a daily close below last week’s low of 4,719.86. The recent swing low (bottom of correction to date) at 4,639.78 is then in site. A drop below that low will see the ADI next heading towards 4,530, followed by 4,497.

A daily close above 4,917.21, the weekly high from two weeks ago, is needed before there is clear sign of strength that could lead the index higher. The first indication that the ADI is getting stronger is on a daily close above last week’s high of 4,880.09. Until then the potential for further downside remains.

Stocks to watch

Some of the leading stocks, based on trend structure, which have not yet exceeded their prior peaks include, Ajman Bank, Dubai Investments, EmiratesNBD, and Union Properties, among others.

Ajman Bank went sideways last week, up 0.88 per cent and closing at 3.36. Early strength is indicated above last week’s high of 3.42, with trade above 3.57 signalling a continuation of the uptrend. Support is at the past two week lows of 3.30.

Dubai Investments gained 10.84 per cent last week to close at 3.58, the fifth strongest performer in the Dubai market last week. A daily close above the recent peak of 3.74 signals a continuation of the uptrend, with a daily close above 3.63 giving the next short-term bullish signal. Support is first at last week’s low of 3.18, followed by 3.06.

For the past five weeks EmiratesNBD has been consolidating sideways, as it pulled back 9.3 per cent off its recent peak of 8.60. During the past four weeks a clear resistance level has been indicated at 8.50/0.52. A daily close above that price zone gives an early bullish signal, while a decisive daily close above 8.60 confirms strength. The first support level is around 7.95, last week’s low. The stock ended last week at 8.30, up 6.41 per cent for the week.

Union Properties ended the week at a three-week closing high, and matched the trend weekly closing high from four weeks ago. The stock was up 5.05 per cent and closed at 2.08. The recent peak of 2.16 needs to be exceeded for the next clear bullish signal, with strength is first indicated on trade above a three week high of 2.10. Support is at last week’s low of 1.93.

 

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com.