Dubai

Last week the Dubai Financial Market General Index (DFMGI) jumped by 69.1 or 1.93 per cent to end at 3,660.27, its strongest performance in 13 weeks. Most issues were positive as 30 advanced and only five declined, while volume popped to a seventeen-week high.

Bullish momentum has picked up as of last week’s rally given the increase in volume, convincing performance (wide range weekly candle) and strong close. The week ended near the high of the week’s range of 3,661.48. That high was right up against the four-week high of 3,661.71 but it was not yet exceeded. In addition, last week’s high was right at resistance of the intermediate-term downtrend line that starts off the early-February 2017 peak.

Given the improvement in bullish momentum it looks like the DFMGI has a good chance of breaking through the downtrend line and continuing higher. A breakout above the line (above last week’s high) would provide the first sign that the uptrend, coming up from the early-June low, is continuing. The next bullish confirmation would be given on a rally above the most recent minor swing high of 3,667.42, followed by a move above the more significant swing high of 3,680.44 from early-August. A daily close above that higher price level will confirm a continuation of the uptrend. At that point the odds improve for a test of the 2017 high of 3738.69, and the possibility for a breakout above that peak.

Now, let’s step back just a bit and look at the larger bullish pattern that is unfolding. First, let’s consider the past one-and-a-half years or so. Even though it may not seem like it, during that time the DFMGI has been slowly advancing the uptrend that started off the January 2016 lows, as we have a series of higher swing highs and higher swing lows. Back in late-July of this year the long-term downtrend line was breached, leading to a continuation of the rally before it peaked at 3,680.44.

The retracement that followed, which as of last week we seem to coming out of now, found support around the downtrend line. That line was representing resistance before August and it is now support as recognised by the DFMGI’s behaviour. This is all bullish behaviour that supports a move higher as prior resistance, represented by the line, has now been shown as support by the index. Bull trends typically exhibit this type of price behaviour.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) spiked up by 111.72 or 2.53 per cent last week to close at 4,525.88. That’s that ADI’s strongest performance in fourteen weeks. Even so all stocks did not participate as there were 23 declining issues and 15 advancing. Volume was the strongest in a month.

Strong performance in the ADI was initiated last week upon the bullish breakout of a falling wedge consolidation pattern. This pattern was first mentioned several weeks ago in this column. The pattern parameters can be marked by two falling trend lines that angle towards each other so they will eventually cross. It is a form consolidation that is declining and in that sense a breakout has the potential to see a sharp rise in price. This is exactly what we saw last week in the ADI.

The week ended strong, at the high of the week and at a nine-week weekly closing high. One question now is will the ADI peak once more at a lower peak than all the prior peaks that occurred this year, thereby continuing the series of lower swing highs? Or, will it eventually breakout above the downtrend line and then rise above the most recent swing high of 4,608.64?

For now, it looks like at the very least the downtrend line price zone will be tested. This would mean that short-term weakness will be seen by investors as an opportunity to enter the market at lower prices. Price represented by the downtrend line will depend on when it is approached. What we can say now is that it will be below 4,570.

Stocks to watch

Islamic Arab Insurance Company was the biggest mover on the Dubai exchange, up 19.2 per cent for the week to end at 0.54, a 31-week closing high. Volume reached a 30-week high. The stock broke out of a head and shoulders bottom trend reversal pattern with confidence at it breached the 0.484 breakout level.

Since this is the first week of what could turn out to be a significant breakout, the odds favour a continuation of the upward bias over the coming weeks and months. The high for the year, 0.68, was made at the beginning of January. From that high the stock dropped over 40 per cent before hitting a low of 0.301 in May.

Last week’s bottom breakout completes the bottom and confirms a trend reversal. This means that stock can now head back toward the 2017 high and possibly exceed it eventually. That high is a three-year high. A daily close above it would therefore complete a multi-year bottom pattern thereby providing a new long-term bullish signal.

For now, short-term Islamic Arab Insurance is extended but it should be watched for retracement that might provide an opportunity to participate at a lower price point.

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