Dubai: The Dubai Financial Market General Index (DFMGI) advanced 36.42 or 1.04 per cent last week to end at 3,531.05. Nevertheless, market breadth was mixed with declining issues of 22 beating advancing at 17. Volume was lower than the prior week, but was still relatively strong, coming in at the second highest level of the past five weeks.

Last week was the fifth consecutive week of gains as the index continues to rise off the 3,325.98 low from four weeks ago. That high was right up against a resistance zone starting around the early-October 2017 low of 3,538, and just about completes a 61.8 per cent Fibonacci retracement (3,547.35) of the downtrend coming off the October peak of 3,684.19.

Even though the week ended strong, just shy of the week’s high and in the top quarter of the range, there are a few things to look at that should give pause to the bulls for the short-term. First, there is the drop in volume and the negative breadth as noted above. Then we have the series of five weeks up in a row. Going back at least three years this pattern has occurred only three other times, but during that time there has never been six consecutive positive week’s in a row! This means the probability of a down week this week is very high. That doesn’t mean the market sells off, but at the least it pauses. Moreover, if the week is positive it speaks to the underlying strength of the market and its potential to keep going higher over the coming weeks or months.

The bottom of the first section of a large resistance zone first hit last week goes up to around 3,560, with the next higher resistance zone starting around 3,587 to 3,603. Those price zone are at the low end of a three-month consolidation range that occurred in the second half of last year. The challenge going forward will be whether the DFMGI can garner enough strength to eventually surpass the top of the range at 3,684.19 from October.

Within that range is the November monthly high of 3,648.58. That’s the next price level of significance to be exceeded before there is a chance for the index to continue still higher and possibly breakout above the October high.

Near-term support is at last week’s low of 3,489.17, followed by the prior week’s low around 3,453.44.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was up 34.28 or 0.75 per cent to close at 4,625.39. There were 17 advancing issues and 19 declining, while volume fell below the prior week’s level.

The ADI has made notable progress over the past several weeks which points to a positive future. Nonetheless, in the near-term it may have gotten ahead of itself. It has been up five weeks in a row. Six positive weeks in a row or more has not occurred for at least the past three years and therefore is unlikely. Further, the ADI has not been this overbought based on the 14-day Relative Strength Index (RSI) since January of last year. The RSI measures momentum or the rate of change of price. Once an extreme level is reached the chance of at least a pullback increases. By itself, this is not a signal, but when combined with the five-week pattern, it signals caution for the short-term.

A pullback at this point would be healthy and provide the market a chance to rest in preparation of a continuation of the bull trend, if it is to do so. On the way up the ADI closed above both the October swing high at 4,531.65, and the 4,608.92 August swing high on a weekly basis. In addition, three weeks ago it closed above a long-term downtrend line and it has stayed above it. These are signs of strength for the intermediate-term.

Assuming a pullback comes, the 4,531.65 swing high can be used as a guideline for support along with the two-week low of 4,530.34.

On the upside, the ADI faces resistance first at 4,655.81 and then up to the 2016 high of 4,715.05.

Stocks to watch

Air Arabia was the sixth best performing stock last week in the Dubai market, up 1.55 per cent to close at 1.31. It has been on a steady advance since hitting a low of 0.956 in May of last year, rising 38 per cent as of last week’s high of 1.32.

What makes Air Arabia interesting is that it is now testing resistance of its long-term downtrend line (three-year resistance line), that starts at the January 2015 high of 1.76. The line has been hit over each of the past two weeks and on higher volume (10-week highs). Last week’s close ended right at the line.

Therefore, a breakout above last week’s high signals a bullish trend continuation and a breakout above the downtrend line. At that point the stock would next be targeting the January 2017 swing high around 1.44, followed by the August 2016 swing high at 1.49.

If a pullback comes first, then watch for areas to accumulate in anticipation of an eventual bullish trend line break.

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