Dubai: The Dubai Financial Market General Index (DFMGI) advanced by 328.37 or 7.18 per cent last week to close at 4,903.46, its biggest weekly gain since late-March. Most issues participated in the rally with 29 advancing and only three declining, while volume exceeded the prior week by a small margin.

The index continues to strengthen as it further up into a resistance zone starting from 4,544 up to the most recent peak of 5,406.62. It is obviously now well within that range and still going strong. A lower swing high at 5,191.50 is the next more significant price level to watch for resistance, as a daily close above it gives the next clear bullish signal for continued strengthening.

Just below there, from approximately 5,011 to 5,048, is the next potential resistance area above last week’s high. This zone is derived from previous resistance and the 78.6 per cent Fibonacci retracement level of the recent corrective downtrend. Fibonacci ratio analysis is used to mathematically determine potential areas of resistance on the retracement of a trend. In this case, the retracement of the recent 31 per cent decline (5,406.62 peak — 3,730.91 swing low).

Last week the DFMGI reached its highest weekly close of the past six weeks, a positive. And over the past three weeks it has gained 31.4 per cent from the 3,730.91 low of the recent correction, putting it 10.3 per cent below the 5,406.62 peak. That’s equivalent to the 31 per cent decline seen during the correction. Volume over each of the past three weeks exceeded the volume levels seen on the prior three-week decline, another positive. And another bullish sign is that the downtrend line from the correction has been broken to the upside.

The importance of the above relatively bullish technical indications depends on one’s investment time horizon. Whether the DFMGI can maintain upward momentum to the level needed to bust through the prior peaks is the big question for long-term investors. In general, a market needs some time to consolidate after significant advances. Certainly, there is a good chance of this for the DFMGI, as it had advanced 243 per cent from the December low of 1,575.28 to the 5,406.62 peak in May, a significant move by any measure. If this is the case, then there is a good chance the DFMGI will hit resistance and decline before there is a move to new highs, above 5,406.62, the high of the long-term uptrend.

Weekly support is first at last week’s low of 4,562.50, followed by 4,366.69.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) gained 186.04 or 3.84 per cent last week to close at 5,033.18. This was its biggest advance in seven weeks, a six week closing high, a five-week high, and the index ended at the high for the week. All are positives for the immediate future. Volume remained relatively muted, but above the prior week’s level, while the majority of issues advanced. There were 28 advancing issues and 14 declining.

At this point the ADI is likely to hit resistance soon, leading to weakness, or continue its upward move. As with the DFMGI, there is a good chance that there will be some consolidation prior to a move to new highs.

The next area to watch for resistance looks to be around 5,066 to 5,083. This potential resistance zone is based on where weekly support or resistance was seen in the past, and the 78.6 per cent Fibonacci retracement level of the recent 15.2 per cent downtrend, respectively.

Potential support, indicated by the weekly chart, starts at last week’s low of 4,820, then 4,770.74, followed by around 4,723.

Stocks to watch

Dubai Investments broke out of a bullish head and shoulders bottom reversal pattern last week, on higher volume, as it moved above 3.51. The pattern is not perfect, but there nonetheless. This move also put the stock back above its 55-day exponential moving average trend indicator.

The stock closed up 9.39 per cent for the week at 3.61, a seven-week closing high. The next confirmation of strength is seen on a daily close above 3.63, which would put Dubai Investments at a nine-week high. As long as it stays above support around 3.23, the outlook remains bullish.

EmiratesNBD also rallied higher out of a small bullish inverse head and shoulders pattern last week, on higher volume, ending 7.14 per cent higher for the week at 9.00. The bullish breakout occurred on trade above 8.62, with strength confirmed above 8.75. A target of at least 10.22 is indicated based on the structure of the pattern. If reached it would put EmiratesNBD just below the 10.45 peak reached eleven weeks ago.

To date the stock has gained 22 per cent from it corrective low of 7.38 reached four weeks ago, and retraced a little more than 50 per cent of the 29.4 per cent decline that occurred during the correction.

Alternatively, weakness is indicated on a drop below last week’s low of 8.21.

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