The Dubai Financial Market General Index (DFMGI) closed 18.70 or 1.06 per cent higher last week at 1,774.92. It ended strong, closing near the high for the week (1,775.03).

That high was just shy of prior resistance at 1,778.25, the peak for 2012. Volume, down from the prior week, remained very strong, reaching its eighth highest level in three years. Even though market breadth leaned on the bullish side with 17 advancing issues versus 13 declining, the difference was not as pronounced as the past couple of weeks.

Given the upside momentum into the close last week and healthy volume, the DFMGI may have a chance of getting above the near-term resistance zone, from 1,778.25 to 1,793.10. Keep in mind though that the current short-term trend is now three weeks old and the index has reached overbought territory. If it continues higher the probability of at least a short-term correction rises.

A daily close above the next resistance zone will be more positive for the medium-term trend as two prior peaks will have been exceeded. That would give the first signal that a breakout of a bottoming pattern has occurred, and it would also signal a continuation of the one-year uptrend off the January 2012 low. Both would be positive signs for the outlook of the DFMGI.

The next higher area to watch for resistance would then be around 1,887.21, the high from April 2010. As discussed in prior weeks, it is not unusual for the second leg of an uptrend to at least match the price appreciation of the first leg. The first leg in the DFMGI was off the mid-January 2012 low of 1,294.10. That rally took the index 37.4 per cent higher before it found resistance at 1,778.25. Assuming a similar move in the second leg up, off the June 2012 low of 1,425.34, the DFMGI could eventually see 1,909.45.

Weekly support is at 1,726, followed by 1,681.75. After that watch for support around 1,656. Given the recent bullish behavior in the DFMGI and the chart structure over the longer term declines can continue to be looked at as opportunities to accumulate positions.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) ended up 37.55 or 1.38 per cent higher at 2,765.82. That’s at approximately a 50-month high. Advancing and declining issues were about equal at 21 and 19, respectively. Although volume was down noticeably from the prior week it still came in at the twelfth highest level in three years.

In the short-term the ADI is in a critical area right now. It found resistance last week at 2,786.91, right near 2,777.21, the peak from June 2011. And, rather than closing near the high of its weekly range, as it has the prior two weeks during the rally, it closed slightly above the mid-range for the week. This, along with declining volume (relative to the prior week), is a sign of upward momentum starting to slow down. In addition, last week the ADI completed a 100 per cent measured move at 2,769.65, where the second leg up in the uptrend off the January 2012 low matched the appreciation seen in the first leg up. When combined with the potential resistance zone, now from 2,777.21 to 2,786.91, the risk of a retracement lower in the near-term has increased.

At the same time, a daily close above this resistance zone would indicate the ADI may have more upside to go in the near-term before a pullback. The next resistance area of significance would then be around 2,836.05, the peak from October 2010, followed by 2,944.45, the swing high from March 2010.

Weekly support is at last week’s low of 2,2729.3, followed by 2,686. A move below last week’s low is signalling a further correction. The chart structure of the one-year uptrend starts to weaken below 2,636.53, but will remain in place unless there is a decline to below the swing low from December 2012 at 2,582.58.

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